Tell someone you’re a doctor, and the reaction is often: “You must be rich.” But physicians who are just finishing medical school or are in their early careers might feel far from it. The average medical school debt is more than $200,000, with total debts including undergrad climbing well north of $250,000.
That leaves house-hunting physicians in a predicament. A key factor for lending institutions is the “debt to income” ratio, a calculation which indicates if you already have too much debt to pay your mortgage. That single equation could eliminate you from lenders’ mortgage requirements.
But young doctors are also in a unique situation. Yes, they carry above-average levels of debt, but they are on a path to substantial income in future years. That’s where the physician mortgage loan (PML) becomes a useful option.
What Is a Physician Mortgage Loan?
, according to Stephen Chang, MD, a radiologist, and a managing director at Acts Financial Advisors in McLean, Virginia.
The key features, according to James M. Dahle, MD, an emergency physician and founder of The White Coat Investor, include:
- No required down payment, which is typically 20% with a conventional loan.
- No private mortgage insurance (PMI). This is often a requirement of traditional loans, designed to protect the lender if the buyer misses payments. PMLs don’t involve PMI even if you don’t put down 20%.
- No pay stubs. With a conventional loan, pay stubs are often required to prove income level and reliability. PMLs will often allow an employment contract in place of those.
- Different consideration of the student loan burden.
Those are the upsides, of course, but there may be downsides. Dr. Dahle said a PML might involve slightly higher rates and fees than a conventional mortgage does but not always.
Who Is Best Suited for a Physician Mortgage Loan?
Financial advisers caution that everyone should first consider their full financial picture before applying for a mortgage, PML or otherwise. “If you don’t have the money saved for a down payment, one can ask if you are financially prepared to purchase a home,” says Cobin Soelberg, MD, an anesthesiologist and owner of Greeley Wealth Management, a financial planning firm serving physician families in Bend, Oregon.
If your savings are slim, you might need to build those accounts further before pursuing home ownership and the expenses that come along with it.
Your credit score can contribute to the equation. “With any loan product, we always recommend working to optimize your personal credit score as soon as possible before applying for a loan,” said Mark P. Eid, MD, a dermatologist and co–managing director (with Dr. Chang) at Act Financial Advisors. “Once you get into the high 700s, you’ve typically qualified for the best interest rates, so while that perfect 850 is nice to achieve, it’s by no means necessary.”
Also, assess your reasons for purchasing a home and whether it will fit your lifestyle in the coming years. “The main reason that [my wife and I] wanted to buy a home was for stability,” said Jordan Frey, MD, founder of The Prudent Plastic Surgeon. “After living in apartments for years, we wanted a place that was truly our own. We definitely felt disappointed and frustrated when worrying that our student debt may limit our ability to do this.”
Like many physicians, Dr. Frey had taken on a huge amount of debt, to the tune of half a million dollars in student loans and credit card debt when he finished training in 2020. The question Dr. Frey and his wife wrestled with was: “How much debt should we take on in addition to what we already have?”