What Are Physician Loans?

Physician Loans Explained in Less Than 4 Minutes

Definition
Also known as doctor loans, physician loans are mortgages for medical professionals who are new to the field.
A doctor seated behind a desk, looking at computer screen while holding a clipboard and taking notes
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Physician loans are mortgages designed for medical professionals that typically don’t require a down payment. Let’s take a closer look at what physician loans are and how they work so you can determine if they make sense for your situation. 

Definition and Example of Physician Loans

Also known as doctor loans, physician loans are mortgages for medical professionals who are new to the field. Since doctors might have trouble qualifying for conventional mortgages, physician loans can help them out.

Let’s say you just graduated from medical school and are about to begin your residency. You want to buy a house for yourself and your family. When you begin to apply for a traditional mortgage, you realize your debt-to-income ratio is too high. You also don’t have proof of a stable income just yet. 

Eventually, you come across a lender that offers physician loans and takes all your unique circumstances into consideration. Your dream of homeownership becomes a reality once you apply for a physician loan and get approved.

  • Alternate names: Doctor loans

Note

Physician loans are only for primary residences so if you want to use one to finance a second home or investment property, you won't be able to.

How Physician Loans Work

There are a number of ways physician loans differ from conventional mortgages. First and foremost, they don’t require a down payment. You can take one out with no or little money down and won’t have to worry about private mortgage insurance or PMI.

Also, a lender that offers a physician loan will be more relaxed about your debt-to-income (DTI) ratio, which is all your monthly debt payments divided by your gross monthly income. They know it can be a real challenge for a new doctor to achieve the lower DTI ratio you might need for a conventional loan. 

In addition, if you can’t prove your employment or income with pay stubs or W2s that show your current position, for example, an employment contract will usually be good enough. Lenders are flexible because they know you’re a fresh med school graduate who might have plans to pursue an internship, residency, or fellowship. 

Note

Physician loans are usually intended for doctors. However, some lenders might extend them to other medical professionals like dentists, orthodontists, pharmacists, and veterinarians.

Pros and Cons of Physician Loans

Before you move forward with a physician loan, keep these benefits and drawbacks in mind. 

Pros
  • Many options

  • Can make homeownership possible


Cons
  • Unpredictable rates

  • Risk of an underwater mortgage


Pros Explained

  • Many options: Even though physician loans are specialized, there are a number of lenders that offer them. You can compare the various options available to you to make the best choice for your unique situation. 
  • Can make homeownership possible: If you don’t take advantage of a physician loan, you might have to wait years before you can buy a house. A physician loan makes it easier to own a property early on in your professional life. 

Cons Explained

  • Unpredictable rates: Physician loans are almost always feature adjustable rate mortgages (ARMs). This means you’ll pay a lower, fixed rate for a few years but eventually your rate will fluctuate and likely increase. 
  • Risk of an underwater mortgage: If you choose a small down payment, you’ll have minimal equity in your home. In the event your property decreases in value or you can’t make your payments while you still owe your original loan balance, your home loan might be higher than what your home is worth. 

Note

A physician loan is only a smart option if you’re confident you’ll be able to make your mortgage payments plus pay off your student loan debt and cover other living expenses. 

Alternatives to Physician Loans

If you’re a new doctor or other medical professional and don’t think a physician loan is a good fit, consider these alternatives.

  • Government-backed mortgages: FHA loans, VA loans, and USDA loans are examples of mortgages that are backed by government agencies. They’re typically easier to qualify for than conventional loans.
  • Save for a 20% down payment: If you don’t mind waiting a bit, it might be a good idea to save for 20% down on a house. You’ll have a higher chance of getting approved for a conventional loan and be able to avoid PMI.
  • A conventional loan with PMI: While a conventional loan with PMI may not be your ideal situation, it may be worth considering, especially if you can't wait for a house. The PMI will go away once you reach 20% equity.

Key Takeaways

  • Physician loans are designed for doctors and other medical professionals who want to buy a home.
  • Compared to conventional mortgages, physician loans come with lenient requirements.
  • While a physician loan can make it easier for new doctors to buy a home, it often comes with unpredictable rates and the risk of an underwater mortgage.
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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Fidelity Bank. “Medical and Professionals Loan.”

  2. SunTrust. "Doctor Loan Programs." 

  3. BMO Harris Bank. "The BMO Harris Physicians’ Mortgage Program." 

  4.  LevelOne Bank. “Home Mortgage Loans for Physicians and Medical Professionals."

  5. Midland States Bank. “Government-Backed Mortgages.”

  6. National Credit Union Administration. “Homeowners Protection Act (PMI Cancellation Act).”

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