Physician Loans: What You Need To Know

Physician Loans are a huge benefit to anyone with an MD hanging behind their name. Furthermore, those benefits extend to anyone married to an MD, as well!

If you haven’t heard about these, let me introduce to an amazing loan product.

Physician loans are loans provided just to physicians with very favorable terms. Many different banks have different offerings, so like with any loan, it pays to shop around.

However, in general, you should expect the following:

  • Low down payment (0-10% down)
  • No PMI (even with the low down payment!)
  • Large loan amounts (Up to $1.5 million)

As these programs change often, you’ll have to check with the bank directly, but if you are looking for a house and haven’t called up a loan officer that offers one of these products, I highly recommend checking it out.

It basically gives you an FHA-like down payment (far less than the 20% traditional loan) but with no PMI. That is a huge savings, every month!

Our story

When we bought our house back in 2016, we ended up getting our loan through Bank of America. Interestingly, we tried shopping around and another company’s loan officer told us flat out: “If you can suffer through the underwriting of Bank of America, go with them! They’ll give you better rates.” Well, when a competitor tells you that, you tend to stop looking. And so we did.

The house purchase went fairly smoothly on our side of things (the seller, on the other hand, had a number of hoops to jump through vis-a-vis back taxes and the city!).

Interestingly, the bank required that all documents had my wife’s name first, since she was the physician. My name went second. I’m not sure if there really is any legal reason for this, since we both owned the home together, but nevertheless, they were the ones ponying up lots of money for the loan, so we were more than willing to acquiesce.

In the end, we bought our house for a shade over $500k with only 5% down, no PMI, and an interest rate that was 1/8% discounted from the advertised rate. All in all, it’s a great product and we would not have been able to afford this house without it.

What’s the catch?

Photo by Helloquence on UnsplashWell, I don’t think there is one, having now been the recipient of such a loan product. The loan officer informed me ahead of time that they require a checking account with them to fulfill the loan and that they set up these nice loans with the expectation that you’ll use their bank for other services down the road. And since physicians generally are high income earners, they’ll need a place to put all that money, or a place to invest all that money, etc.

One has advertised the product as a bit of a “loss leader” for the bank (i.e., a product where they don’t make any money [they take a loss] to bring you in to buy more things). I don’t know if I’d agree to that, after all, we still paid lots of money in closing costs and they still collect plenty of interest on our loan.

But how has it panned out for Bank of America with us? Have they hooked us onto their products since then? Frankly, no.

We have a credit union with whom we do the majority of our banking due to their low fees. We’ve only used Bank of America for a checking account (required to open as part of the loan process, and we only use it to transfer money to from our CU account, and then pay off the mortgage month out of it) and then we rent a safe deposit box from them as well. They collect substantially more from us every month on our mortgage interest alone.

The other catch is that each bank has differing requirements. Some allow residents, some don’t. Some require you to be recent graduates from training, some less so. But most are expecting you to be high-income earning, so if you’re an MD, PhD in a purely research position, expect to find trouble with this product. They required my wife to verify that she saw patients for 32 hours a week, thus they are mostly geared towards clinical physicians.

However, this may be an area where it’s better to buy in residency if you know you’re not moving. You could get the house with a physician loan as a resident and then transition into your purely-academic job thereafter.

What’s next?

Ultimately though, I highly, highly recommend exploring this loan product if you are a physician or are married to one. Even if you don’t qualify at one, you should call around to a few different banks to verify and determine if they would offer the product to you.

Also, not all banks advertise these well. Bank of America doesn’t have it on their website, as far as I can tell. So it pays to pick up a phone and call.

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