Physician Mortgage Loans

Best Doctor Mortgage Loan Lenders

Each WCI Recommended Mortgage Lender can be found by clicking on the map or the list found in the “See All Lenders” link below. They are the best in the business vetted by our staff and thousands of white coat investors over the years. Each of these only offers physician mortgage loans in certain states. These lenders are paid advertisers on the blog and will give you the top-notch service you've come to expect from a company recommended by WCI. If you find the service anything other than excellent, please let us know. Thank you for supporting those who support The White Coat Investor.

How Do Physician Loans Work?

Physician mortgages work similarly to conventional mortgages but are much more accommodating to physicians and their unique circumstances.

The main point is that a doctor can put down less than 20% and still avoid paying Private Mortgage Insurance (PMI). PMI is insurance that you pay for to protect the lender against you defaulting. While still deductible in 2021, it does no good for you. It is simply an expense.

Physician mortgages also generally only look at the total required student loan payment, not the total amount owed, and will generally accept a signed employment contract as proof of income, rather than requiring tax stubs. Independent contractors often still need two years of tax returns to prove income.

Do Doctors Get Better Mortgage Rates?

Due to the lower down payment requirement and waived PMI there is typically a price to be paid to use a doctor loan. That price can come in the form of a higher interest rate (0.125% to 0.25% higher than a conventional mortgage) or in higher fees. However, it pays to shop around. Some doctors have found excellent rates and fees that are comparable to a conventional loan. Remember that mortgage rates change daily. Also, there's more than just the rate to compare—don't forget to take into account fees and points.

How Many Times Can You Use a Physician Loan?

The general rule is as many times as you want, although every bank has its own unique program with its own unique rules. Some will no longer extend physician loans to a doctor once they are more than 10 years out from school or residency. It is even possible to have more than one physician loan at a time as you move from house to house, but they are typically only offered on owner-occupied homes, not investment property.

Can You Refinance a Doctor Loan?

Always read the paperwork carefully when signing for a loan, but most mortgages, including doctor mortgages, have no early repayment penalty. That means you can refinance them at any time. With a physician mortgage, it can make sense to refinance into a lower rate conventional mortgage after a few years because generally

• Your income goes up,
• Your debt-to-income ratio goes down,
• Your credit score goes up,
• Your mortgage has been paid down (increasing loan to value to more than 20%), and
• Your home has appreciated (increasing loan to value to more than 20%).

So even if interest rates have not fallen, it can often make sense to refinance. If interest rates go down, that is an added bonus. Doctor mortgages are generally only for a home you are buying, so you typically do not nor cannot refinance from one physician loan to another, but every program is different and is almost constantly changing so it makes sense to ask the lenders in the list on this page directly if you wish to refinance a doctor loan with another doctor loan.

Are Doctor Loans a Good Idea?

I'm not necessarily against doctor mortgages, but I think most people ought to at least consider saving up a real down payment and delaying that purchase, especially if you're looking at getting that dream house right out of residency (or worse, buying a house during a short residency).

So why would someone want to use these loans? Usually, it's because they are in a rush to buy a house. After deferring gratification for 10-15 years, many of us are in a bit of a rush and we often have a much better use for our money than a down payment, such as maxing out retirement accounts or paying off student loans. 

Pros and Cons of a Physician Loan

The main advantages of physician mortgage loans are:

• No Private Mortgage Insurance (PMI): No PMI is required despite a down payment of only 0-10%.
• Little to No Down Payment: 90-100% financing is available depending on property location, credit score, and loan amount.
• Higher Loan Amounts Allowed: Physician mortgages have a higher loan limit than conventional mortgages. Typically you can expect to be loaned 95-100% up to $1 million and up to 90% for a $2 million loan amount.
• Special Treatment of Student Loans: Even if you have hundreds of thousands of dollars in student loan debt, you can still buy a house.
• Close on Your Home Before You Begin Working: You don’t have to wait until you begin employment to qualify for a mortgage loan. A contract in hand will be enough and some lenders don't even require that. Typically, lenders can close on your loan if you are 30-90 days before beginning employment.

Some disadvantages of using a physician mortgage loan:

• You Don't Have a Down Payment: If you don't have savings for a down payment you need to ask if it's the right time to buy a home right now. This isn't a purchase to rush. Buy a home when your personal and professional life are both stable.
• Buying More House Than You Should: Just because someone will lend you a lot of money doesn't mean the right financial move is to borrow it.
• You Already Have a Ton of Debt: You may already have a net worth of a negative $200,000 or $300,000. How much more debt are you willing to add to that burden?

Learn More about Physician vs. Conventional Mortgages 

Are Physician Mortgage Loans a Good Idea?

Using a Physician Loan for an Investment Property 

In my opinion, utilizing a Doctor Mortgage for an investment property is an unacceptable level of risk. The best way to ensure your investment property will have positive cash flow is to put down 25-35% in cash. And if you're going to do that, you don't need a physician mortgage. Perhaps there are some special circumstances where it can work out such as when you house hack by buying a duplex, live in one side and rent out the other or perhaps you just found an incredible steal of a deal on a property that will cash flow despite a tiny down payment. You will still need to live in the property at least for a year or two before turning it into an investment property.

Physician vs. Conventional Loan

If you've decided to buy a home, and you are committed to living in an area for more than five years, you should give serious consideration to putting 20% down and getting a conventional mortgage. The improved monthly cash flow will allow you a great deal of financial freedom and the ability to invest (and even spend). You'll save hundreds of thousands on interest over the life of the loan, all guaranteed, unlike investing a potential down payment elsewhere. But if, for whatever reason, you're going to buy a home AND you can't or don't want to put 20% down, then a doctor's loan is a reasonable option and at least as good as the other non-20%-down options.

Alternatives to Physician Mortgage Loans

If you don't believe a traditional physician mortgage loan is right for you, you may be wondering what other options a doctor may have? It turns out plenty, and you can usually get most of these options from the same lenders who do physician mortgage loans.

Conventional 20% Down Mortgage

Conventional mortgages are loans that are not guaranteed by the Federal government. They are often the best choice for a mortgage as they generally offer the most options (30-year fixed, 15-year fixed, ARMs, etc.), the lowest fees, and the lowest rates. However, conventional mortgages require proof of earnings and a substantial sum of money to put down. That money, of course, becomes unavailable to invest or pay down student loans.

80/20 and 80/10/10 Loans

These disappeared from the scene after the 2008 Global Financial Crisis, but have been making more of a resurgence since. The theory is that you would get an 80% loan at a slightly higher rate than on a 20% down loan, then get a 20% loan at a much higher rate. You would avoid PMI replacing it instead with more interest. The 80/10/10 and 80/15/5 were variations on the theme, with a down payment required.

Conventional Mortgage with Less Than 20% Down

These loans have higher rates and fees than a 20% down mortgage. They also require you to purchase PMI. 3-5% down payments are common.

FHA Loan

FHA Loans are used by those with credit scores as low as 550 and/or those with down payments as low as 3.5%. This loan has higher rates and fees than a 20% down conventional loan—most notably, a 1.75% Upfront Mortgage Insurance Premium (UMIP) financed on top of the principal loan amount. In Addition to the UMIP, you'll also pay a required monthly Mortgage Insurance Premium (MIP) (0.8-0.85% of the loan balance annually) for the life of the loan.

The FHA requires the lender to use the credit report amount of the student loan payment, or if none listed, 1% of the outstanding balance unless the borrower can provide documentation that the loan is in deferral. This makes this loan tricky for indebted residents to qualify for. The rates are generally, however, slightly lower than a doctor loan, but may not be when you add in the mortgage insurance costs.

VA Loan

This loan requires that you qualify for VA benefits, which disqualifies many. It is an improvement on the FHA loan in that there is no down payment nor mortgage insurance requirement. Rates are similar to FHA rates, but the funding fee is higher—2.15% for first-time borrowers and 3.3% for subsequent use. That fee may be waived if you have a military disability rating.

Physician vs. Conventional Loans

 Should You Get as Big a Loan as Possible and Invest the Difference?

When you run the numbers, you can easily see you'll be better off borrowing as much money as possible and investing it at a higher interest rate. This is the benefit of leverage. Consider a hypothetical $500,000 home. You could save $235,000 using a 20% down conventional loan over the doctor's loan. But if you invested that $100,000 down payment at 8% over 30 years, you'd end up with over $1 Million. The terms of this “margin investing” are favorable, in that you have a lot of time for the market to rebound and there are no margin calls on mortgages. Unfortunately, there are a few reasons why you probably don't want to do this:

1. Getting a lower interest rate on the mortgage is risk-free. That $235,000 is guaranteed. The $1 Million is not guaranteed. If there is anything the stock market has taught us over the last decade, it is that there are no guarantees. Risk of loss is very real. If you get 2% returns over the 30 years instead of 8%, you'd have been far better off with the lower rate mortgage.
2. Being underwater on a mortgage is no fun. Putting 0% down means you are immediately underwater since it generally costs 6-10% of the value of the home to sell it. If you think it is hard to sell a home in a down market, try doing it when your only options are a short sale, coming up with tens of thousands in cash, and letting the bank foreclose and ruining your credit.
3. Behavior. It is much easier to spend money than to invest it. To come out ahead you have to actually invest and keep investing that $100,000 for 30 years. Taxes and investment expenses, of course, can also reduce the rate of return on that money if you have poor investor behavior.
4. Cash flow and investing the difference. Putting 20% down lowers your mortgage payment dramatically. Again taking that $500,000 home example. With 20% down, your monthly principal and interest payment could be around $2,000. With the doctor's loan, it may be closer to $2,800. That $800 a month could really make a difference in your budgeting—giving you more spending and savings options as they become available. You can even use that $800 a month to pay down the mortgage by getting a 15-year fixed mortgage instead. That would lower your interest rate another ¾%, saving you even more over the years and allowing for earlier retirement. Alternatively, you could just invest the $800 each month. At that same 8% rate of return, after 30 years you would have $1.2 Million, even more than the $1 Million that $100,000 down payment would grow to. So overall, if you invested the difference after 30 years of 8% annual returns, you'd come out over $400,000 ahead by putting 20% down. But, of course, you still have to come up with the 20% to put down, which isn't easy.