What Is a Physician Loan and How Is it Different?
By Jared Andreoli, CFP®, CSLP®
As a physician, you face unique financial challenges, including higher student loan debt and irregular income patterns, particularly early in your career. However, not all is lost, as there are some great benefits to your chosen career. One of those benefits is physician loans, also known as doctor loans or medical professional loans. These loans are designed to accommodate your financial circumstances and help you achieve homeownership in an affordable and sustainable way. Let’s delve into the eligibility criteria, features and benefits, and potential drawbacks of physician loans to help you make an informed decision about this specialized mortgage option.
Eligibility for Physician Loans
Physician loans are designed for medical professionals who have completed or are in the process of completing their residency or fellowship. Eligible borrowers typically include medical doctors (MD), doctors of osteopathy (DO), dentists (DDS or DMD), and occasionally other healthcare professionals like veterinarians, pharmacists, and physician assistants. Lenders may require proof of employment, an employment contract, or a commitment letter as part of the eligibility criteria. With these loans, you can use them to purchase a home, or refinance one you already own.
Key Features and Benefits
Navigating the world of mortgage options can be daunting, but physician loans offer a range of features and benefits tailored to the needs of medical professionals. Let’s explore the key advantages of these specialized loans that make them an attractive choice for many healthcare providers:
Low or No Down Payment: One of the most significant advantages of physician loans is the low or no down payment requirement. This feature allows physicians to purchase a home without the need to save a large sum for a down payment, which can be difficult when managing student loan debt.
No Private Mortgage Insurance (PMI): Physician loans typically do not require PMI, even with a low down payment below the traditional 20% threshold. PMI is an additional cost added to your monthly mortgage payment, designed to protect the lender if you default on the loan. Using a physician loan and avoiding PMI can result in substantial savings over time compared to a traditional mortgage.
Lenient Underwriting Guidelines: Physician loans often have more flexible underwriting guidelines compared to conventional loans. Lenders recognize that physicians have a high earning potential and stable employment, making them lower-risk borrowers. As a result, they may consider factors such as future earning potential, student loan deferment, or income-based repayment plans when evaluating your application.
Higher Loan Limits: Physician loans may have higher loan limits than conventional loans, enabling borrowers to purchase homes in more expensive areas. This can be particularly helpful for doctors who live and work in high-cost cities. However, make sure you don’t fall for one of the biggest mistakes new physicians make: lifestyle creep. Don’t buy more house than you need, or can afford, just because you got approved for a higher amount.
Potential Drawbacks of Physician Loans
While physician loans provide several benefits, it’s essential to consider the potential drawbacks before committing to this mortgage option. Here are some of the challenges and downsides that may come with choosing a physician loan:
Potentially Higher Interest Rates: While it’s not the case in every circumstance, some physician loans may have higher interest rates compared to conventional loans due to their specialized nature and the perceived risk associated with lending to borrowers with high student loan debt. Of course, that will depend on your student loan balance, the stage of your career, and your current financial situation. It’s also possible to have a lower interest rate than traditional mortgages with a physician loan. Once you find the best rate, remember to consider the projected payments along with your monthly cash flow so you can comfortably afford everything.
Limited Availability: Not all lenders offer physician loans, so borrowers may need to shop around to find a suitable lender, as well as get the best rate. Some lenders specialize in these loans or have dedicated teams to cater to the specific needs of medical professionals.
Potentially Higher Overall Borrowing Costs: While physician loans offer attractive features like low down payments and no PMI, the combination of potentially higher interest rates and higher loan amounts can result in increased overall borrowing costs. After shopping around for the best rates possible, it’s essential to weigh the benefits and drawbacks of a physician loan against other mortgage options to determine the best fit for your financial situation.
Making the Right Choice for You and Your Family
Physician loans can be an attractive mortgage option for physicians, offering unique features and benefits tailored to their financial circumstances. However, it’s crucial to be aware of the potential drawbacks and compare physician loans to other mortgage options available. To find the best physician loan, research lenders that offer these specialized products, compare loan terms and interest rates, and understand the fine print and potential fees.
You don’t have to make this decision alone. If you have any questions about these types of loans, and how they fit into your overall financial plan, I’d love to see if I can help. To get started, you can schedule a free consultation, or reach out to us by emailing jared.andreoli@simplicityfinancialllc.com or calling 414-207-6473.
About Jared
Jared Andreoli, CFP®, CSLP®, is president and financial planner at Simplicity Financial, a fee-only RIA dedicated to helping early-career physicians conceptualize their financial picture and achieve their financial goals. Jared specializes in devising individualized financial road maps for clients, and he loves nothing more than a full day meeting with clients who value his partnership to solve problems—big and small.
After college, Jared spent six years working as a mutual fund administrator for a large company. While he learned an immense amount about the financial world, he was missing the personal connection of working with individual clients. Combining his passion for finance and personal connection, he established Simplicity Financial in 2017.
Jared has a degree in finance with a concentration in financial planning from Western Kentucky University, along with the CERTIFIED FINANCIAL PLANNER™ (CFP®) and a Certified Student Loan Planner (CSLP®) certifications. Outside of work Jared enjoys cooking and traveling. He played baseball in college and still coaches occasionally. He and his wife recently welcomed a daughter, who occupies most of their time. To learn more about Jared, connect with him on LinkedIn.