Doctors usually find themselves in a unique position after leaving medical school: They now have large incomes — but also massive student loans. While they can often afford to buy a home and make mortgage payments, their credit history can make lenders hesitate.

“Since medical school costs tend to be astronomical, doctors can carry a lot of debt that would otherwise bar them from securing a traditional mortgage,” explains Jeffrey Zhou, CEO of Fig Loans, a personal loan lender based in Sugar Land, Texas.

To the rescue: Physician mortgages, a special type of financing aimed at helping medical professionals become homeowners. Here’s how they work.

What is a physician loan?

Physician loans are private mortgages that come with more generous terms and looser qualifying requirements than most conventional loans. They are geared towards medical professionals who have a harder time qualifying for a typical mortgage due to their considerable college and med school debt and limited savings.

“Due to the requirements for medical education, many doctors are much older before they enter the workforce, and they don’t have the down payment needed to purchase a home; yet, they have the income to qualify for a home,” notes Mikell Richards, regional sales manager at United Community Bank in Mount Pleasant, South Carolina.

How does a physician loan work?

Physician mortgage loans do not require a down payment; lenders can offer up to 100-percent financing. Physician mortgages also have high limits, typically $1 million or more depending on the mortgage lender. Loan-size limits can vary, based on how much you’re financing — for example, the size of a 100-percent financed loan could be capped at $1 million, while a 90-percent-financed one could go up to $2 million.

Most physician loan lenders allow you to have a higher debt-to-income ratio, as well, because they know that new doctors have sizable student loans.

“New graduates and residents often work for very little money and have a lot of student debt, so they may be at a disadvantage for a typical mortgage,” says Luis Strohmeier, CFP, Los Angeles-based partner and wealth advisor of Octavia Wealth Advisors. “Student loans aren’t counted against you with a physician loan, thankfully.”

Most, but not all, physician mortgages have fluctuating interest rates. They can be refinanced.

PMI for doctor loans

Because a physician loan has low or no down payment requirements, you might expect to have to pay for private mortgage insurance (PMI). A percentage based on the loan size, PMI is a common fee that borrowers pay when they put down less than 20 percent of the purchased home’s value.

However, physician loans don’t require PMI. Doctors tend to have high enough incomes to keep the risk low, lenders figure: able to handle both mortgage payments and student loan repayments.

Avoiding PMI can help you save as much as hundreds of dollars a month.

DTI for doctor loans

Your debt-to-income (DTI) ratio measures your monthly debt payments compared to your monthly income. For example, if all of your debt payments total $1,500 a month and you make $4,000 per month, your DTI ratio is

Conventional mortgages have DTI ratio limits of 36 to about 45 percent. The rationale is that if too many obligations vis-à-vis your income, you won’t be able to afford your mortgage payments.

Given the typical student debt of a physician, meeting these DTI requirements can be difficult. For that reason, physician loans tend to have more flexible DTI requirements than other mortgages, letting your ratio go as high as 50 percent.

Qualifications for physician loans

Physician mortgage loans are generally available to doctors with specific degrees, including MDs and DOs (doctor of osteopathic medicine). Some lenders provide similar loans to other healthcare professionals, including veterinarians, dentists and orthodontists who possess DMV, DPM, DDS and DMD degrees.

“Medical doctors, doctors who are currently in fellowship and physicians still completing their residency with the hospital are eligible,” says Kennis Tong, a home loan consultant with Valley National Bank, a regional bank that covers New York, New Jersey, Florida and Alabama. “We verify their status with their employer and by requesting medical school transcripts or diplomas if necessary.”

Typically, you can only use a physician loan to buy a primary residence. That means not buying an investment property or vacation home with the loan. Some lenders may be more flexible, such as letting you buy a multi-family home so long as you live in one unit. Others have additional rules, such as not lending for the purchase of a condo.

Pros and cons of physician loans

Pros of physician loans

• No down payment. Most physician loan lenders offer as much as 100-percent financing for as much as a $1 million loan.
• No mortgage insurance. Physician loans don’t charge PMI, even if you have no down payment.
• Higher DTI ratio. You can qualify with a DTI in excess of 50 percent so long as you can show you can afford the payments.
• Looser credit, employment and income standards. You can often borrow right out of school as long as you have a signed offer letter and start working within a few months. You don’t need any job history.

Cons of physician loans

• Variable rates. Physician loans usually aren’t offered with a fixed interest rate (although some lenders do have them). That means you’ll have an adjustable rate, so your payment may change.
• Only for primary residences. You can’t use the loan to buy a second home or investment property.
• Risk of overleveraging. “if, for instance, you purchase a $500,000 house but the value declines if the market corrects and you still owe that $500,000,” says Storhmeier.
• Condos or townhomes potentially not eligible. Many lenders will only offer loans for detached, single-family homes.

Where to get a physician loan

Physician mortgage loans are offered by many types of lenders, including big national lenders, independent mortgage companies and community banks. Among the lenders providing this kind of financing (some including commercial or practice loans) are:

• Bank of America
• BMO Harris Bank
• Citizens Bank
• Fairway Independent Mortgage Corporation
• Fifth Third Bank
• First National Bank
• Flagstar Bank
• Guaranteed Rate
• Huntington Bank
• Northpointe
• TCF
• TD Bank
• Truist
• United Community Bank
• U.S. Bank
• Valley National Bank

“Spend some time shopping around and talking to loan officers,” Tong recommends. “For each of these different loans, learn how the process works, the total costs and terms involved and what to expect.”

Alternatives to a physician mortgage loan

A physician loan isn’t the only option available to doctors. If you qualify, you could get another low- or no-down payment loan, such as a:

• Conventional loan – As low as 3 percent or 5 percent down with PMI
• FHA loan – As low as 3.5 percent down with at least a 580 credit score and FHA mortgage insurance
• VA loan – Available to eligible servicemembers and veterans for no money down and with no mortgage insurance
• 80/10/10 piggyback loan – Two loans for 90-percent financing (80 percent on the first loan and 10 percent on the second), plus a 10 percent down payment

Bottom line on physician mortgages

Physician loans offer a special financing resource for medical professionals.  doctors to borrow money to buy a home. They’re designed for the unique situation doctors find themselves in: high debt but plenty of income. They’re geared to helping doctors buy a home while still being able to focus on paying back their med school loans.

A physician loan is a viable route if you’re confident you can manage all of your debt payments — including student and credit card debt — on top of your mortgage. If you know you’re going to move within a relatively short time frame, it might not be worth it, Zhou says.

The terms are quite generous, offering large loan sums for little or no money down, without charge mortgage insurance premiums. But there are caveats too: Many have variable interest rates and limit the sort of home you can buy. Even if one physician loan seems like a good deal, it wouldn’t hurt to get a second opinion.