Doctor mortgage loans, also known as physician mortgage loans, are being offered by an increasing number of banks and to an increasing number of high-income professionals other than just doctors. On this page, I'll explain what you need to know about physician mortgage loans, weigh the pros and cons, and help you decide if a doctor loan is right for you. We'll also discuss other financing options for purchasing a home including conventional loans, FHA and VA, and introduce you to the best lenders offering these programs to white coat investors.
For conventional home loans or refinancing, check out our conventional mortgage page.
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.
A physician or “doctor” mortgage is a special loan program a lender puts in place to attract high-income clients by allowing health care professionals such as doctors and dentists to secure a mortgage with fewer restrictions than a conventional mortgage.
Common restrictions doctors run into are:
- No cash
- No job yet
- No credit
- Terrible debt-to-income ratio
Amazingly, some doctors think banks should lend them money just for being doctors. Well, you don't get a pass on math, but there are quite a few institutions that recognize that the financial lives of doctors are a little bit unique, that they aren't as bad a credit risk as their high debt-to-income ratio would suggest, and that they can bring other valuable business to the bank.
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.
Most doctors (physicians and dentists) realize that these loans are designed for them. But many other professionals may not realize they also qualify.
Who Qualifies for a Physician Loan?
While appropriately named to target doctors, Physician Mortgage Loans are also available to other high-income professionals such as:
- Certified Registered Nurse Anesthetists (CRNA)
- Advanced Practice Clinicians (PAs, NPs)
Can You Qualify for a Doctor Mortgage with Student Loans?
Student loans that are in Income Dependent Repayment (IDR) programs (IBR, PAYE, REPAYE, etc.) get special treatment under physician mortgage loan programs.
Josh Mettle of Neo Home Loans explains:
“The mortgage underwriter will allow the lower income-driven repayment, as opposed to defaulting to a fully amortizing payment (as in a conventional loan). Also excluded is any student loan that is deferred for at least 12 months from the date of closing.”
What Credit Score is Needed for a Doctor Loan?
You'll need to maintain good credit in the 720-740 FICO score range to obtain a physician loan. However, under certain conditions, some of our recommended mortgage lenders will lend down to a 680 credit score if you have 6-12 months of cash reserves.
Frankly, if you have a credit score below 720, you probably aren't ready to be buying a house anyway. Pay off your credit cards (but don't necessarily close them as they can lower your score), don't miss any payments, and don't borrow any more money and you should have a score over 720 soon. It's not the end of the world to rent for a year (and it is often a very good idea if going to a new area or a new job anyway) and that is long enough to clean up your credit most of the time.
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?
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.
There is a lot that goes into this question. It is my opinion that most residents and fellows should rent instead of buy for several reasons.
- You'll probably only be in that location for 1-5 years. It usually takes at least 5 years to break even on a home, obviously more if a real estate bubble bursts on you. The best resource to see how long it will take to break even in your particular circumstances is the New York Times Buy vs Rent Calculator. Even if you decide to stay in the same area as an attending, I've found that attendings don't usually like to live in their “resident home” for long once their income quadruples. For this reason, renting may be the best option for fellows and new residents.
- A resident/fellow doesn't make very much money and so usually takes the standard deduction on their taxes (now $12,550 single and $25,100 married for 2021). That means your mortgage interest is probably NOT deductible. Even if you itemize, most of your interest probably isn't going to be deductible. That increases the effective cost of your shelter.
- Homes require maintenance (expect 1-2% of the value of the home per year), which requires time and money, neither of which are abundant to a resident.
- There is a lot of hassle and expense involved with buying and selling a home. Renting a home is quick and easy by comparison. If you've ever tried to sell a home in a down market you know how tough it can be to sell it at any price, much less a reasonable one. Plus, there is a great deal of flexibility with renting. If you don't like the neighborhood, you just move. At worst, you're in for a one-year contract. No big deal. New attendings, on the other hand, are much more likely to stay put and the interest is much more likely to be fully or nearly fully deductible. The buy/rent ratio sways heavily toward buying for most.
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.
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 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.
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.
You will find that banks will generally loan you more money than you should really borrow. They use guidelines like the 28% and the 36% rule. Basically, they'll loan you money until the mortgage payment is no more than 28% of your pre-tax income and your total debt payments cannot use up more than 36% of your pre-tax income. However, that's really an insane amount of mortgage debt for a doctor to take on. If you do that, you will almost surely have severe difficulty building wealth.
Run the numbers to see. Imagine a doctor with a $400,000 annual pre-tax income. 28% of $400,000 is $112,000, or $9,333 per month. How much house does that buy and how big is that mortgage? Let's assume this doctor put 10% down and gets a 30-year fixed mortgage at 3.5%. That's basically a $2 million mortgage on a $2.2 million house. That's a 5X debt-to-income ratio. Do not do that.
I have two rules of thumb for doctors who actually wish to build wealth. The first is to keep all housing-related costs to less than 20% of gross income. That includes the mortgage, property taxes, insurance, and utilities. The second rule is much easier to use: keep your mortgage to less than 2X your gross income. It's even better at 1X. Using that rule of thumb, our doctor making $400,000 could have a mortgage of up to $800,000. With a 20% down payment, that would equal a $1 million house. Want more house? Save up a bigger down payment or figure out a way to make more money.
In high cost of living areas such as the Bay Area, Manhattan, and the District of Columbia, sometimes a doctor has to stretch this rule a bit. If you are in that situation, realize two things. First, stretching means going to 3-4X gross income, NOT 10X gross income. Second, you will need to make up for this stretch somewhere else in your financial life. That might mean:
- Fewer, less expensive vacations
- Driving older cars for longer
- Not putting kids into private school
- Sending a partner to work
- Working longer
- Retiring on a smaller nest egg
There's no free lunch. You don't get a pass on math just because you live in San Jose.
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:
- 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.
- 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.
- 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.
- 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.
Need a Realtor or Relocating?
If you are in need of a realtor the White Coat Investor partners with CurbsideRealEstate.com, a free real estate concierge service for physicians, by physicians. After struggling through his first home purchase, Dr. Peter Kim founded Curbside Real Estate to address physician-specific issues encountered during the home buying process. In addition to providing news and information, CurbsideRealEstate.com is your physician-led “curbside consult” for physician mortgage loans, expert real estate agents, relocation, and everything in between. Whether you’re securing your first physician home loan, just beginning your home search, or you're not sure where to start, CurbsideRealEstate.com can help you navigate the home buying process confidently and efficiently, saving you valuable time and money.
Exclusive bonus for White Coat Investor readers: $100 bonus at closing.