Physician Loans vs. Conventional Mortgages

Physician Loans vs. Conventional Mortgages: Which is Right for You?

Are you a physician considering your home financing options? Understanding the differences between physician loans and conventional mortgages is essential for making the right choice. Let’s break down both options to help you make an informed decision for your unique financial situation.

Quick Comparison Table

Key Differences Explained

1. Down Payment Requirements

Physician Loans:

• As low as 0% down payment.
• Some lenders offer 100% financing.
• 5-10% down required for higher loan amounts.

Conventional Mortgages:

• Typically requires a 3-20% down payment.
• 20% down preferred to avoid PMI.
• Higher down payments often lead to better interest rates.

2. Private Mortgage Insurance (PMI)

Physician Loans:

• No PMI required, regardless of the down payment amount.
• Results in significant monthly savings.
• PMI costs are offset within the interest rate.

Conventional Mortgages:

• PMI is required if the down payment is less than 20%.
• Monthly PMI costs range from $100-$500 or more.
• PMI can be removed once you reach 20% equity in your home.

3. Student Loan Consideration

Physician Loans:

• Student loans are often excluded from debt-to-income (DTI) calculations.
• Income-based repayment plans are accepted.
• More flexible debt ratio requirements.

Conventional Mortgages:

• Full student loan payments are included in DTI.
• This can significantly limit your borrowing power.
• Stricter debt ratio requirements apply.

4. Loan Limits

Physician Loans:

• Higher loan amounts are available, often up to $1.5-2 million or more.
• Jumbo limits can be achieved with minimal down payments.

Conventional Mortgages:

• Conforming loan limits are capped at $726,200 in 2024.
• Jumbo loans require larger down payments and stricter qualifications.

When to Choose a Physician Loan

A physician loan might be the right option if you:

• Have limited savings for a down payment.
• Carry significant student loan debt.
• Are early in your medical career.
• Need a higher loan amount to purchase your home.
• Want to avoid PMI.
• Have an employment contract but haven’t started your position yet.

When to Choose a Conventional Mortgage

A conventional mortgage might be a better fit if you:

• Have 20% or more saved for a down payment.
• Have been practicing for several years.
• Carry little or no student loan debt.
• Want potentially lower interest rates.
• Plan to purchase within conforming loan limits.

Interest Rate Considerations

Physician Loans:

• Slightly higher rates (typically 0.25-0.5% more than conventional loans).
• Offset by PMI savings.
• Rate premium accounts for lender risk.

Conventional Mortgages:

• Generally lower base rates.
• Best rates are available with 20%+ down.
• Rates increase with lower down payments.

Qualification Requirements

Physician Loan Requirements:

• Medical degree (MD/DO).
• Credit score of 700+ (varies by lender).
• Valid medical license or employment contract.
• Proof of student loan repayment terms.
• Verification of future income.

Conventional Loan Requirements:

• Proven income history.
• Minimum credit score of 620.
• Standard debt-to-income ratios.
• Two years of employment history.
• Tax returns and W-2s.

Making Your Decision

When choosing between a physician loan and a conventional mortgage, consider these factors:

• Your available down payment.
• The impact of your student loan burden.
• Your career stage.
• The desired loan amount for your home.
• Your long-term financial goals.
• The current interest rate environment.

Next Steps

To make the best choice for your home financing needs:

1. Calculate the total costs for both physician loans and conventional mortgages.
2. Get quotes from multiple lenders.
3. Compare total monthly payments, including PMI (if applicable).
4. Consider how each option aligns with your career plans and financial goals.
5. Evaluate the long-term impact on your finances.

The Bottom Line

Both physician loans and conventional mortgages offer valuable options for physicians at different career stages. Physician loans are ideal for early-career professionals or those with limited savings, while conventional mortgages can provide better terms for established physicians with significant savings.

Ready to explore your mortgage options?
Connect with our loan experts who specialize in both physician and conventional loans for medical professionals. Let us help you find the perfect solution for your home financing needs!