Q & A
Physician Loans, also called Doctor Loans, are exclusive loans given by specific mortgage lenders to dentists, orthodontists, optometrists, some veterinarians, and physicians.
Physician Loan (Doctors Loans) Are Available to an exclusive group OF Doctors.
Many dentists, optometrists, ophthalmologists, veterinarians, specialists, and physicians (DO/MD/IMG) as long as they have a residency contract can qualify for a physician’s loan.
WHat are physician/doctor loans?
- Loans which are given to an exclusive group of doctors up to $1M in higher cost of living areas
- These loans do not take into account student loan debt when calculating debt-to-income ratios.
- Most residence and fellows are capped at borrowing $750,000.
- Loans with 0% down also called 100% financing. You may have a downpayment if you have a limited credit history, a credit score below 720, or if the appraisal of the home comes in below the purchase price.
- Gift funds toward closing cost are considered on physician loans
- Unfortunately, co-signers that do not live in the home as their primary residence are not allowed.
When can you qualify for a Physician Loan?
As soon as the doctor has a contract and start date confirmed by her/his employees, she/he can apply for a physician loan. The start date of the loan (closing date of the new home) can be as early as 60 days prior to the start date. Lenders may require the sale of a prior home prior to the start date because the mortgage on another home may impact the debt to income ratio. This would on a per person scenario.
The 60-day window for closing is super helpful to medical students who Match or SOAP into a residency. Once your future employer sends you a confirmation letter of the employment start date, you can apply for a physician loan and even close on your home 60 days before that start date. An early close date allows medical professionals to relocate and settle into their new homes with more flexibility.
The lender will likely require you to have a two-month reserve of mortgage payments in the bank. If your mortgage is $1200 then make sure to save $2400 in addition to closing costs. Don’t have enough for a two-month reserve? A family member could also gift the amount to prove that you have sufficient funds for mortgage payment before your first pay check.
How much can we qualify to borrow on a Physician Loan?
Physicians loan (mortgage) can be up to $750K, depending credit history, debt-to-income ratio of the applicant and any cosigners. Unfortunately, this loan only applies to primary residence and does excluded vacation or rental properties (exceptions addressed at the bottom of page).
VERY IMPORTANT: No more than the appraised value of the home can be borrowed!
Ex. Want to add a fence to the yard but don’t have the cash to spare? The lender will not allow you to up the loan amount to include adding the fence.
Ex.2 You close on a home but the seller doesn’t cover the cost of repairs on an inspection item, like a broken a/c. This would be up to the borrower to pay for out of pocket. The amount for repair of the a/c could not be borrowed. Adding closing costs to the loan is not typical.
The seller can also only contribute up to 2% of the loan for closing cost when borrowing 90%+ of the sales price of the home. This can significantly impact the amount of cash a buyer needs to close on the home. Ex. A seller could only contribute $4,000 toward closing cost on a $200,000 sale. Some realtors are not aware of this and the lender is usually not doing the calculation or bring this to the buyer’s attention.
For a smooth closing in your favor, I highly recommend talking with a realtor who understands how to write contracts on homes being purchased with physician loans. Want to chat with a realtor that understands physician loans in your area? Click here.
There are ways the contract can be written to include repair cost so that the seller pays and not you.
Do Physician Loans give better interest rates?
Usually if student loan debt is a factor for the borrower. Physician loans do not take into consideration student loan debt when figuring out the debt-to-income ratio which is one factor in determining the interest rate.
How much is the PMI (Private Mortgage Insurance) on a Physician Loan? None! ONE benefit of a physician loan!
The PMI is ZERO on a physicians loan! 🙌🏽
However, in some cases where a spouse or co-signer brings in income a conventional loan with a downpayment or other loan types may give the borrowers a better interest rate. Conventional loans may be more desirable for multiple cosigners for taking out a mortgage above $750K.
If the co-signers have 20% for a down-payment they would not be subject to PMI. Not having PMI will decrease mortgage payments as well. This can save around 0.3 % to 1.15% percent of the initial loan amount per year. On a $400,000 home the savings could be over $4,000 a year.
Where can I get a Physicians Loan?
Here at The White Coat Wife we highly recommend working with a local community bank for a physicians loan and recommend staying away from quick lenders found online. If your community bank doesn’t offer physician loans, larger Banks, like Truist, will back physician loans. Typically in both situations you will be asked to hold a checking account at that same institution. The lending bank is hopeful the physican would be a client of the bank for personal use and savings, not just for the home loan. For this reason, you will want to make sure you like the overall services of the bank and not just the lending services.
Want our lender recommendations? Please fill out our form below and several recommendations will be sent to your inbox. In order to provide you the best service we do not work exclusively with one lender.
If I move out of a home bought with a pHYSICIAN LOAN would I have to refinance in order to rent the property?
Not at all! If you purchase your primary property with a physician’s loan but change jobs you can rent the home and continue to pay the mortgage established with the physician loan.
This is the exception, for how to finance a rental property with a physicians loan. Not sure if buying during residency or fellowship(s) because the contract is just a few years. Consider the long term benefit of having additional income if you need to relocate and rent the property.
Can our parents cosign the loan with us to qualify for a higher loan amount?
Unfortunately, doctors loans do not allow a cosigner on the loan that does not use the home as their primary residence. However, a closing cost gift may be accepted so there are way to possibly use your personal savings on closing cost over time toward your downpayment instead.
Example: Jack and Jill want to buy a house that costs $300,000 but only qualifies for a loan of $280,000. Jack’s parents are offering to pay the $10,000 in closing costs for them as a cash gift. Jack and Jill are able to negotiate the sale price to $290,000 with the buyer paying the closing cost. Jack and Jill put $10,000 as a downpayment (the money they had saved for closing cost) so their loan amount is approved at $280,000.
How Much Should I save for closing cost?
Closing costs vary per person and lender but 10% of home cost is not unlikely. A few typical expenses in closing costs are:
Earnest Money ($500-$2000) + Due Diligence (only some states)- both will go toward closing costs if you close on time.
- Processing Fee
- Appraisal fees
- Credit Report
- Owner’s Title
- Title Insurance and Title Transfer fees- think several thousand totals
- Attorney fees
- Escrow Funds: several months of insurance payments and tax payments
- Escrow Funds: Typically the first mortgage payment will be due a month to a month and a half after closing.
I am not a lender and the above information may or may not apply to your personal loan scenario. This Q&A is a general overview of common doctor’s/physician’s loan questions and hopefully will help with conversation and questions you can take to your lender. We encourate you to talk with one of our preferred lenders for the most accurate and up to date information.