How to Calculate the Physician Loan Advantage: The True Cost of 0% Down

The Physician Loan Structure, Precisely Defined

A physician loan is a portfolio mortgage product offered by banks and credit unions specifically to medical doctors, dentists, and in some cases veterinarians and pharmacists. The two headline features are no private mortgage insurance (PMI) and down payments as low as 0%, even on loan balances above the 2026 conforming loan limit of $806,500.

Conventional lenders require PMI on any loan with less than 20% down. On a $700,000 purchase price, 20% down is $140,000. PMI typically runs 0.5% to 1.0% of the loan balance annually. On a $560,000 conventional loan, that is $2,800 to $5,600 per year until the loan-to-value ratio reaches 80%.

Physician loan lenders waive PMI entirely. They recover margin through a slightly higher note rate instead.

The Rate Premium: What You Actually Pay

Physician loan rates run 0.25% to 0.75% higher than the best conventional 30-year fixed rates available on any given day. The exact premium depends on the lender, the loan size, and the borrower's debt-to-income ratio, which physician loan underwriters calculate more favorably for residents and fellows still in training.

Assume a conventional 30-year fixed rate of 6.75% in late 2026. A physician loan from the same week might price at 7.00% to 7.25%.

On a $700,000 physician loan at 7.00%, the monthly principal and interest payment is $4,657. On a $560,000 conventional loan (with $140,000 down) at 6.75%, the monthly payment is $3,630. The conventional loan looks cheaper per month, but it required $140,000 in cash to close.

The correct comparison is not the monthly payment. It is the total cost over your ownership horizon, accounting for what that $140,000 could have earned elsewhere.

Worked Example 1: Resident Buying in Year One of Training

A first-year internal medicine resident earns $67,000 annually. She buys a $650,000 home in a high-cost metro. She has $35,000 in savings and cannot put 20% ($130,000) down without wiping out her entire emergency fund.

Physician loan path:

• Loan amount: $650,000 at 7.00% for 30 years
• Monthly P&I: $4,326
• PMI: $0
• Cash to close (excluding prepaids and escrow): approximately $0 to $10,000

Conventional loan path with 5% down:

• Down payment: $32,500
• Loan amount: $617,500 at 6.75%
• Monthly P&I: $4,003
• PMI at 0.75% of $617,500: $386 per month
• Total monthly cost: $4,389

In this specific case, the physician loan is actually cheaper per month by $63. The resident avoids PMI entirely, and the rate premium of 0.25% costs her $323 less per month than PMI would. She reaches the finish line with $35,000 still in the bank.

The physician loan wins here, clearly and quantifiably.

Worked Example 2: Attending Physician With Capital to Deploy

A hospitalist attending earns $320,000. She has $300,000 in a taxable brokerage account. She is buying a $900,000 home. She can put 20% ($180,000) down on a conventional loan or use a physician loan at 0% down.

Conventional loan path:

• Down payment: $180,000
• Loan amount: $720,000 at 6.75% for 30 years
• Monthly P&I: $4,669
• PMI: $0 (LTV is exactly 80%)

Physician loan path:

• Loan amount: $900,000 at 7.25% for 30 years
• Monthly P&I: $6,143
• PMI: $0

Monthly difference: $1,474 in favor of the conventional loan.

Over 10 years, that gap totals $176,880 in additional interest and principal paid on the physician loan versus the conventional. The physician loan loses on a pure payment basis.

But the attending keeps $180,000 invested. At a 7% average annual return, $180,000 becomes approximately $354,000 in 10 years, a gain of $174,000 after the original principal. The investment gain ($174,000) nearly offsets the additional loan cost ($176,880), landing within $2,880 of breakeven before tax considerations.

If her marginal federal rate is 32%, the mortgage interest deduction on the additional interest narrows that gap further. The two paths converge to near-parity, and the physician loan preserves liquidity.

The attending should choose based on her risk tolerance for equity market exposure, not on the assumption that 0% down is automatically expensive.

The Three Numbers That Determine Your Answer

Every physician loan decision reduces to three figures.

1. Rate premium cost (annual): (Physician loan rate - Conventional rate) x Physician loan balance = Annual interest premium

At 0.50% premium on $800,000: $4,000 per year.

2. PMI avoided (annual): PMI rate x Conventional loan balance = Annual PMI savings

At 0.75% on $640,000 (20% down forgone): $4,800 per year.

In this example, the physician loan saves $800 per year net of the rate premium.

3. Opportunity cost of down payment foregone (annual): Down payment x Expected investment return = Annual opportunity cost

$160,000 x 7%: $11,200 per year.

When opportunity cost dwarfs the rate premium, keeping capital invested and taking the physician loan produces better 10-year outcomes. When the rate premium is large and the down payment is small, the math reverses.

What Changes the Calculation Most

Loan size matters more than anything else. A 0.50% rate premium on a $400,000 loan is $2,000 per year. The same premium on a $1,200,000 jumbo physician loan is $6,000 per year. Physician loans are available up to $2,000,000 at some lenders, with no PMI at any balance.

Ownership horizon is the second lever. Physicians move. Residency lasts three to seven years. If you sell in year four, you have paid four years of rate premium and avoided four years of PMI. The sunk cost of a large down payment on a home you sold early is a real risk that the physician loan sidesteps entirely.

Time in attending versus training status also shifts the lender's rate offer. A PGY-2 resident with $280,000 in student loan debt will see a different rate than a ten-year attending with a $900,000 income and minimal debt.

How to Run Your Own Comparison in the CalcMoney Mortgage Calculator

The CalcMoney Mortgage Calculator lets you model both scenarios side by side with your actual loan amounts and rates. Enter the physician loan first: loan amount equal to full purchase price, your quoted physician loan rate, 30-year term. Note the monthly payment and 10-year total interest paid.

Then enter the conventional scenario: loan amount reduced by your available down payment, the best conventional rate you can source from Credible or your bank, same 30-year term. Add your estimated PMI cost as a monthly figure in the additional costs field.

Subtract the down payment from your investment account balance and model its 10-year growth at your assumed return. Compare that growth against the additional interest cost. That delta is your physician loan advantage, or disadvantage, expressed in real dollars.

Every number in this analysis belongs to your specific situation. The calculator removes the guesswork and replaces it with arithmetic you can defend.

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Results are estimates for informational purposes only. Consult a licensed financial professional before making financial decisions.