If you’re a doctor pursuing home ownership, you may be wondering if you should get a physician loan or a conventional loan to purchase your home. Both types of mortgages have their pros and cons, so it can be tough to decide which one is right for you. Let’s look at the differences between physician loans, also known as physician mortgages, and conventional loans so that you can make an informed decision.
A physician mortgage1, or “doctor mortgage,” is a special type of mortgage designed specifically to help make home ownership accessible to physicians and dentists managing a large amount of medical student debt.
These loans may have fewer restrictions than conventional mortgages and recognize a lender’s trust in medical professionals’ creditworthiness and earning potential. With a conventional mortgage, if you are unable to put down 20%, then the lender will typically require private mortgage insurance (PMI). A physician mortgage, like the one offered by Laurel Road, allows qualifying physicians and dentists to put down less than 20% down and explore no PMI options.2
A Laurel Road Physician Mortgage is available to interns, residents, fellows, physicians, dentists, clinical professors, researchers or managing physicians with a current license that hold one of these degree types: MD, DO, DMD, DDS or DPM. Before you begin the mortgage process, you should also look at your overall financial picture, including several criteria that lenders will consider, such as your debt-to-income (DTI) and credit score.
Debt to income requirements
Debt-to-income (DTI) ratio is the percentage of your gross monthly income that goes to paying your monthly debt payments and is used by lenders to determine your risk as a borrower. Mortgage lenders typically seek ratios of no more than 43%, although some lenders may consider a higher DTI for doctors. In the case of physician mortgages, some lenders will calculate your DTI based on your monthly student loan repayment amount under an income-driven-repayment (IDR) plan, not your fully amortized loan payment. Learn more about how to pay down student loan debt here.
Income history, or lack thereof, can be a mitigating factor in qualifying for a mortgage. For a physician mortgage, doctors will likely need to provide documentation related to income such as:
Your credit score can impact rates and loan terms and may ultimately affect the maximum loan amount offered by your lender. Learn more about managing your credit score and how it impacts getting a loan here.
One of the key differences between a physician mortgage and a conventional mortgage is the private mortgage insurance (PMI) requirement. With a conventional mortgage, if a buyer is unable to make a 20% down payment, lenders will typically protect themselves by requiring you to pay for PMI, in case you’re unable to make your payments. PMI is usually added to your monthly mortgage payment and typically costs between 0.6% to 1.9% of your loan amount annually, although a high credit score and/or rising property values in your area could help keep that cost on the lower end.
PMI can be a significant additional expense on top of your monthly mortgage payment. And the PMI requirement won’t go away until (1) you request, in writing, when you have reached the date when the principal balance of your mortgage is scheduled to fall to 80% of the original value of your home, (2) your principal balance is scheduled to reach 78% of your home’s original value, or (3) you reach the midpoint of your loan’s amortization schedule.
With a physician or dentist mortgage, you may have options with no PMI1 required, making this type of mortgage potentially more affordable and accessible in the near term.
So, how do you choose the best mortgage option for you? Here are a few tips:
By following these tips, you can find the right mortgage for your needs – and get on the road to homeownership.
Before you sign up for a physician loan, get clear with your lender on these questions:
Laurel Road’s Physician Mortgage is a home loan tailored specifically to physicians and dentists.1 With a simple online application, the loan features the following for eligible doctors:
For physicians and dentists requiring a mortgage greater than $1 million, Laurel Road offers competitive options with high loan-to-value (LTV) ratio. LTV ratio is calculated by dividing the amount being borrowed by the appraised property value. It’s used in mortgage lending to determine the amount necessary to put in a down payment and whether a lender will extend credit to a borrower.
Laurel Road’s Physician Mortgage is available exclusively to doctors that hold one of these degree types: MD, DO, DMD, DDS or DPM.
Learn more, check your rate, or start your application here.
For many physicians and dentists who are unable to save enough money for a down payment on a home due to high medical school debt, access to a physician loan can play a key role in achieving their financial goals. If you’re an eligible doctor interested in buying a home, a physician loan may help you achieve homeownership faster and more affordably than a conventional loan. Learn more about physician loans and how to apply here.
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NOTICE: This is not a commitment to lend or extend credit. Conditions and restrictions may apply. All mortgage products are subject to credit and collateral approval. Hazard insurance and, if applicable, flood insurance are required on collateral property. Actual rates, fees, and terms are based on those offered as of the date of application and are subject to change without notice.
1. Only available to interns, residents, fellows, doctors, dentists, clinical professors, researchers, or managing physicians with a current license and a degree of Doctor of Medicine (MD), Doctor of Osteopathic Medicine (DO), Doctor of Podiatric Medicine (DPM), Doctor of Dental Surgery (DDS), or Doctor of Dental Medicine (DMD). Doctors and dentists that are not actively practicing are ineligible. Additional conditions and restrictions may apply.
2. In some states, a conventional loan option with Private Mortgage Insurance (PMI) may offer better priced loan terms than a Physician Mortgage for down payments less than 20%. Financing options presented upon checking rates offer lowest rate and payment options available based on information provided and may not be a Physician Mortgage. Contact Laurel Road to discuss all eligible options.
3. Laurel Road offers up to $650 in lender’s credit towards your mortgage closing costs. Credits cannot exceed borrowers’ actual costs to close. For more information refer to the Rewards Program.
4. The 0.25% mortgage interest rate discount (the “Discount”) is available to borrowers who have an existing Laurel Road student loan, mortgage or checking account prior to submitting a new mortgage loan (“Loan”) application OR who open a new standalone checking account (excluding Laurel Road Linked or Loyalty checking accounts) with minimum monthly direct deposit(s) totaling at least $2,500. Standalone checking accounts must be opened, and the direct deposit deposited into the account, at least five (5) business days prior to the Loan closing. The Discount cannot be combined with any other interest rate incentives, applies only to new Loan applications and becomes effective at closing. For fixed-rate Loans, the Discount is a permanent interest rate reduction reflected in the Promissory Note. For adjustable-rate Loans, the Discount is reflected in the interest rate applicable to the initial fixed rate period and in the maximum amount the interest rate can increase over the term of the Loan. Other restrictions may apply.