When the time comes to buy a home, most people seek mortgage lenders for financing. Some buyers have the liquidity to pay upfront, but most would-be homeowners rely on a bank to help them fulfill their dream of owning a home.
Naturally, most apply for a conventional loan in order to purchase their new home because they have no other choice. But physicians have a second way out, and it’s called a physician mortgage — also known as a doctor loan.
Can’t decide which type of mortgage is best for you? Read on to learn the difference in benefits between physician and conventional loans.
Who Can Get a Physician Loan?
Physician loans, or doctor loans, are special types of mortgages made for medical workers. These loans help doctors, dentists, and other eligible medical professionals who typically deal with high student loan debt and have a shorter credit history.
They are only available to medical professionals. Although all physician mortgage lenders offer loan options for MDs and DOs, some extend financing to other designations, including:
- Dentists (DDS and DMD)
- Veterinarians (DVM)
- Podiatrists (DPM)
- Chiropractors (DCH)
- Pharmacists (PharmD and RpH)
- Optometrists (OD)
- Nurses (NP, CRNA, and RN)
- Physician assistants (PA)
- Residents
- Fellows
Physician loans are attractive because they offer great lending terms for people in the medical field. These loans make it easier for medical professionals to buy homes. They account for the high earning potential of medical workers while considering the financial challenges they might have early in their careers.
Eligibility Criteria for Physician Loans
To be eligible for a physician loan, you typically need to graduate from an accredited medical school or have a similar degree. Providing proof of employment as a medical professional is also necessary. These loans are ideal for new medical professionals (especially residents and fellows) due to lenient work history requirements. Lender-specific criteria may vary, so research and compare loan programs carefully.
Understanding the Unique Benefits for Medical Professionals
Physician mortgage loans are special because they fit the financial needs of medical workers.
Here are some important benefits they provide:
- Lower down payment needed. This is great for people who may not have much saved up after spending years on their education.
- No private mortgage insurance. This can lower your monthly payments, making it more affordable
These benefits make physician mortgage loans a good choice for medical professionals who want to buy a home sooner.
Who Can Get a Conventional Mortgage?
Conventional mortgages are common home loans available to financially stable individuals meeting the lender’s criteria. Requirements typically include credit score, income proof, and upfront payment amount to assess the borrower’s creditworthiness for homeownership costs.
Related: 5 Best Physician Mortgage Loan Companies of 2023
General Eligibility Requirements for Borrowers
When applying for a conventional mortgage, meeting basic requirements is crucial to determine your readiness for homeownership. Lenders will request pay stubs, tax returns, and proof of stable income and assets, including income history, for the down payment and closing costs. A credit check is also conducted to assess your credit score. Meeting these eligibility criteria, as well as the specific requirements for an FHA loan, enhances your chances of mortgage approval.
How Credit Scores and Financial History Play a Role
Your credit score reflects your financial responsibility and impacts lenders’ decisions. High scores mean that you have made payments on time and used your credit cards wisely, both of which make you a safe borrower. Hence, you will have nice interest rates on your loans and good terms, with potential savings in the long run. On the other hand, a low score may yield higher interest rates or tighter conditions. Therefore, a good credit rating is very important for proper mortgage conditions.
Physician Loans vs. Conventional Loans: The Similarities
Lenders require buyers to meet a set of criteria in order to qualify. It doesn’t matter what type of mortgage they’re seeking.
Here are a few things that every mortgage lender looks at when determining if a borrower qualifies for financing:
- Reliable source of income
- Qualifying debt-to-income ratio
- Good credit
Physician loans and traditional loans differ in features but share key similarities. Both require meeting specific eligibility criteria, including credit scores, income, and debt levels. They offer various interest rates and loan term options.
Interest Rates Compared
Another large difference between most physician loans and conventional options is that the latter typically offers both fixed and variable interest rates. Knowing the differences can help you make informed decisions about which option will be best for your financial circumstances and risk profile. Fixed rates in conventional loans offer payment predictability, which will give you budget simplicity in the long term. In contrast, the adjustable rate in physician loans will affect your monthly payments each month, which can make long-term budgeting difficult. Consider, while you compare these two types of interest rates, the major associated risks and advantages of each.
Loan Term Options
Physician loans and regular loans offer various term options, allowing you to choose a repayment plan that suits your budget. Terms typically range from 15 to 30 years, impacting both the total interest paid and monthly mortgage payments. Opting for a shorter term, such as 15 years, results in higher monthly payments but less interest overall. Conversely, longer terms mean lower monthly payments and a lower rate. Consider your financial goals and risk tolerance when deciding on a loan term with better terms.
Learn About: The Role of Credit Scores in Physician Mortgage Approval and Rates
The Key Benefits of the Physician Mortgage
Physician mortgages are designed to make home buying easier by offering features like no or low down payment, reducing upfront stress. Additionally, no private mortgage insurance (PMI) is required, leading to savings on monthly payments. This simple mortgage option is beneficial for new doctors looking to own a home.
Zero or Low Down Payments
Physician loans offer flexibility with down payments, often requiring none. This is beneficial for those with limited savings due to years of education. It allows you to own a home sooner without a large upfront payment. Keep in mind, you’ll still need to cover closing costs and other fees.
No PMI
Physician loans benefit medical professionals by eliminating the need for private mortgage insurance (PMI), offering significant cost savings in the long run. PMI protects the bank if the borrower stops making their required monthly payments. All conventional borrowers with less than 20% available must pay it. PMI typically ranges from about 0.58% to 1.86% of the original loan amount.
Choosing a physician mortgage means no PMI payments, unlike traditional loans with lower down payments, making it a better option for doctors buying primary residences or investment properties.
Flexible DTI Requirements
Physician loans make it easier for medical professionals with high student loan debt to qualify for larger loan amounts. These programs offer higher debt-to-income (DTI) limits, enabling physicians to purchase their desired homes. Lenders trust in your future earning potential despite existing student loan obligations, making a higher DTI possible. Ensure to assess your financial situation carefully before committing to a mortgage with different lenders to find the best fit for your unique situation.
Jumbo Loans Are Available
Conventional mortgages have varying loan limits based on location, which may not suit higher-income individuals. Physician mortgages offer larger loan amounts for increased buying power, especially in competitive or costly housing markets. Another plus is that jumbo loans are available; they accommodate those who wish to borrow a considerable amount of money and will, therefore, be suitable for young medical professionals who have not saved much.
In most parts of the country, the current loan limit is $726,200, though in some high-cost areas it’s as high as $1,089,300. This FHFA map from the Federal Housing Finance Agency shows the maximum loan amount for each region of the country.
Doctor loans do not have these same caps. Physician mortgage lenders are able to offer jumbo loans in excess of $2 million.
If you need a mortgage with higher loan limits, the doctor loan is the best choice. Keep in mind that you will need to begin making monthly payments right away.
Consider your long-term financial goals before opting for a jumbo loan to ensure monthly payments align with your budget and the total amount you will pay over the life of the loan.
No Work History Required
Physician mortgages consider your future earning potential, accepting your employment contract as proof of income. Ideal for medical residents and fellows, these loans allow you to buy a home without a long work history. Other financial strengths like a good credit score or savings record can further strengthen your loan application.
Check Out: 7 Steps to Finding the Right Physician Mortgage
The Key Benefits of the Conventional Loan
Physician loans have benefits, but many prefer conventional loans for lower interest rates. They offer flexibility for various property types like single-family homes, condos, or investment properties.
Fixed Rates
Conventional loans offer peace of mind with fixed-rate mortgages, ensuring stable monthly payments throughout the loan term. This predictability helps in budgeting and financial planning by eliminating concerns about fluctuating interest rates and interest payments. Whereas property taxes and homeowner’s insurance may very well rise, total housing costs are not likely to because of a fixed-rate mortgage, rather than a variable rate mortgage. It provides a way for keeping your budget secure and working towards your financial goals.
You Can Finance Any Type of Property
Most physician mortgage loan programs require your property to be your primary residence. They also limit the type of property you can buy. Many do not offer financing for condos, HOA properties, co-ops, or multi-family homes.
You can apply for conventional financing for any type of property, including:
- Single family homes
- Multi-family homes
- Condos
- Co-ops
- HOA properties
- Second homes
- Vacation homes
- Investment properties
- New construction
The physician loan is for primary residences only. If your plan is to live in the home for a few years and then rent it out, you will be in violation of the terms of your loan. That means you will need conventional financing in order to finance an investment property or a second home.
How to Decide Which Type of Mortgage is Right for You
When choosing between a physician mortgage and a conventional loan, consider your financial situation. Evaluate your down payment capability, interest rate preferences, and long-term financial goals. Consult with a financial advisor to weigh the benefits of each loan type.
Work with a LeverageRx physician mortgage specialist to avoid spending hours researching lenders.
A mortgage specialist can help you:
- Identify lenders with whom you can work
- Compare lenders fast
- Navigate the loan process
- Connect with loan officers and lenders
Assessing Your Financial Situation
- Review your finances by assessing your income, expenses, and debts to determine a suitable down payment. This impacts your monthly mortgage payment and loan term.
- Monitor your credit score as it influences how lenders perceive you. A good credit score can lead to better interest rates and terms. Address any issues with your credit score before applying for a loan.
- Understanding your financial situation helps you select the most suitable loan product for your objectives.
Considering Your Professional Stability and Future Plans
When deciding between a physician mortgage and a conventional loan, consider your career stage and your long-term financial goals. It is important to not only compare interest rates and monthly payments, but also the total costs of financing your house. This means considering the total interest paid throughout the term of your mortgage.
A physician mortgage may have a lower monthly payment, but could end up costing more in total interest over time. If you anticipate a significant income increase, the relaxed debt-to-income ratio of a physician mortgage could be beneficial. However, if you have a stable medical job, good income, and savings, a conventional mortgage lender may be more suitable for you. Selecting the right mortgage aligns with your career goals and supports your financial journey.
Understanding the Long-term Implications of Each Loan Type
Consider how your money might grow in the future with possible salary raises, bonuses, and changes in spending. A shorter-term physician mortgage could be ideal for a big income increase, allowing quicker debt payoff. Alternatively, a long-term fixed-rate conventional mortgage offers stability and predictable payments. Choose wisely based on expert advice to secure your financial future.
A LeverageRx mortgage specialist can connect you with lenders in every state. This includes lenders you may not even be aware of.
With a LeverageRx specialist on your side, you never have to worry about offers, phone calls, or emails from lenders that don’t meet your needs.
Read The Advantages of Working With a Physician Mortgage Specialist to learn more!
Key Takeaways
When considering a physician loan or a more traditional mortgage, it is necessary to delve into your specific financial situation, career path, and long-term goals. The unique benefits of physician mortgages include a low down payment (or no down payment) and exemption from private mortgage insurance. Benefits like these make physician mortgages a great option for individuals who carry a student debt load or are low on savings. Your physician mortgage options are waiting for you – check them out on LeverageRx today, and take the next step to reaching your goal of homeownership.