I'm a software engineer whose bride-to-be will become a medical resident in a few months.

We're confident that we'll live in the area where she'll do her residency.

Looking at a $250,000 house, I'd have the 5 to 10% to put down on the house for the physician mortgage.

Is it generally a good or bad idea? I've read a few articles lately, most of which state that it's better to do a regular 20% loan, but I didn't see reasons why.

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    Perhaps you could add a few words of explanation about physician mortgages and how they differ from other mortgage products? They are not something that most people would have heard about. Mar 3 '13 at 3:49

So, I do not have any personal experience with physician loans, but they are fairly simple in principle. Some lending institutions are willing to recognize that that a doctor is going to have a higher earning potential in the future and therefore are willing to relax some of the requirements.

I generally feel this is a bad idea for the following reasons.

  • Residency is just the beginning. My wife spent five years in residency and four years in fellowship positions (which aren't really that different than resident positions financially). You don't mention your fiancee's planned specialty, but it could be a long time before she will be reaching that "higher potential".

  • You never know what the future holds. Residency is hard. People do drop out. And things like disability happen too. You don't want to put yourself in a situation where your loan is based on an income higher than you are actually earning. (Once you are practicing, you will have insurance to help with some of these risks.)

  • Doctors have lots of other debt to deal with. Why overextend yourself on your home loan as well?

  • For all of the above reasons, doctors tend to go bankrupt a lot. There is pressure to live above your means. I know a doctor who is very home poor, barely making his payments. And, frankly, he isn't very good at his job and might get let go. Will he find another job? Sure. But being overextended on his loan might mean financial disaster for him.

  • The chances of you moving after residency are high. It obviously depends on her speciality, but the chances of staying in the same home for more than five years is slim when you know that there will be a minimum of one job change in that time period. So why base your getting a home loan on a salary increase that won't happen in that time period?

  • For all of the above reasons, I don't think physician loans are really that common for mainstream lenders. You may end up paying more in interest than if you had taken a traditional mortgage. (I could be wrong on this one, due to my lack of personal experience with them, however.)

Essentially, in summary, you both have good jobs. You should be able to afford something reasonable on what you both currently make. There will be a lot of pressure with a wife as a doctor to live above your means. Why give into that bad habit immediately with a house that you can't afford the traditional down payment for? Especially if it might mean additional fees or interest?

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