How Student Loans Affect Your Physician Mortgage

The Medical School Debt Reality

The average medical school graduate finishes training with significant student loan debt, and the numbers vary widely by specialty and training path. According to the Association of American Medical Colleges, the median medical school debt for the class of 2024 was approximately $200,000. But that figure masks enormous variation:

When you add accrued interest during residency and fellowship — years when loans are typically in deferment or on income-driven repayment plans that don't cover the interest — the balance at the time you're ready to buy a home is often 20–40% higher than the original amount borrowed. A physician who borrowed $250,000 for medical school may be staring at a $320,000 balance by the time they finish a 5-year surgical residency.

This level of debt has profound implications for mortgage qualification. The question isn't whether you can buy a home with $300,000 in student loans — it's understanding how different loan programs treat that debt and which approach gives you the most purchasing power.

How Conventional Loans Treat Student Debt

Conventional mortgage lenders follow Fannie Mae and Freddie Mac guidelines for student loan treatment, and the rules are punishing for physicians with high balances. Here's how it works:

The 0.5–1% Rule

If your student loans are deferred, in forbearance, or on an income-driven repayment (IDR) plan with a payment that doesn't fully amortize the loan, conventional lenders must use the greater of:

• 0.5% of the outstanding loan balance as a monthly debt obligation (Fannie Mae guideline)
• 1% of the outstanding loan balance as a monthly debt obligation (Freddie Mac guideline, and commonly used across the industry)
• The actual documented monthly payment, if it fully amortizes the loan

For a physician with $350,000 in student loans, this means the conventional lender will count $1,750 to $3,500 per month as a debt obligation — regardless of what you're actually paying. Even if your income-driven repayment plan has a $0 payment during residency, conventional lenders must impute a payment of $1,750 to $3,500 per month.

DTI Destruction

This imputed payment devastates your debt-to-income ratio. Consider a resident earning $65,000 per year ($5,417/month gross) with $350,000 in student loans:

• Imputed student loan payment (1%): $3,500/month
• DTI consumed by student loans alone: 64.6%
• Maximum conventional DTI: 43–45%
• Result: Denied before housing costs are even added

Even attending physicians earning $300,000 per year ($25,000/month) with $350,000 in student loans face challenges. The $3,500 imputed payment eats 14% of gross income before any housing costs, leaving a narrow margin to qualify for an appropriately-sized home.

How Physician Mortgages Treat Student Debt: The Game Changer

Physician mortgage programs are portfolio loans held by individual banks, which means they can set their own underwriting guidelines for student loan treatment. This is where the advantage becomes massive. Physician lenders generally handle student debt in two fundamentally different ways depending on your career stage.

Residents and Fellows: The Complete Exclusion

If you are currently in a residency or fellowship program and your student loans are in deferment or forbearance, physician mortgage programs will exclude your student loans entirely from DTI calculations, provided you are qualifying based on your current residency or fellowship income. The logic is straightforward: you're in training, your loans aren't requiring payments, and your future attending income will more than cover them.

This means a resident with $400,000 in deferred student loans can qualify for a mortgage as if those loans don't exist. The DTI calculation only considers your housing payment, car payment, credit card minimums, and other active debts — but the student loans count as $0.

Important note: If you are a resident or fellow but qualifying on an attending offer letter salary (projected income), the student loan exclusion may not apply — you would need to count your actual payment, IBR amount, or 1% of the balance.

This single feature is often the reason residents can buy homes at all. Without it, virtually no resident with typical medical school debt would qualify for a mortgage of any meaningful size.

Practicing Physicians: Flexible Counting Methods

For attending physicians who are actively repaying their student loans, physician mortgage programs offer several options for how the debt is counted. The lender will typically use the method that results in the lowest monthly obligation:

1. Actual payment on credit report: The payment amount currently reported to the credit bureaus. If you're on an IDR plan showing $2,500/month, that's what's counted.
2. IBR/IDR documented payment: Your income-driven repayment plan payment, verified with documentation from your loan servicer. This is often the lowest option for physicians in the first few years of practice.
3. 1% of outstanding balance: Some physician lenders use 1% as a fallback, but unlike conventional loans, this is often the last resort rather than the default.
4. Fully amortizing payment: The standard repayment amount that would pay off the loan over its remaining term. This is the highest option and rarely used when alternatives are available.

The critical difference: conventional lenders default to the highest calculation method (imputed percentage), while physician mortgage programs default to the lowest documented payment. This distinction can mean a difference of $1,000 or more per month in how your student debt affects qualification.

Worked Example: Dr. Smith's $350K Student Debt

Let's walk through a concrete scenario to see how dramatically different loan programs treat the same borrower.

Dr. Smith's Profile:

• Student loan balance: $350,000
• Current IBR payment: $2,500/month
• No other debts
• Target home price: $500,000
• Estimated housing payment (PITIA): $3,400/month

Scenario A: Conventional Loan

Scenario B: Physician Mortgage — As a Resident

Note: This scenario assumes the resident is qualifying on their current residency income, not an attending offer letter salary. The student loan exclusion applies when qualifying on training income.

Scenario C: Physician Mortgage — Practicing Physician

The difference is stark. The conventional lender counts $3,500/month for student loans. The physician lender counts $0 for a resident or $2,500 for a practicing physician using the actual IBR payment. That $1,000–$3,500 monthly difference in how debt is counted translates directly into tens of thousands of dollars of additional buying power.

PSLF and Your Physician Mortgage Timing

Public Service Loan Forgiveness (PSLF) is one of the most valuable programs available to physicians, and it interacts with mortgage timing in important ways. Under PSLF, if you make 120 qualifying payments (10 years) while working for a qualifying employer — which includes most academic medical centers, VA hospitals, and nonprofit health systems — the remaining loan balance is forgiven tax-free.

Why PSLF Favors Buying Sooner

If you're pursuing PSLF, your optimal strategy is to keep your monthly student loan payments as low as possible for 10 years, then receive forgiveness. This means staying on an income-driven repayment plan with the lowest possible payment. Here's how this intersects with homebuying:

• Lower IDR payments = lower DTI impact: Your mortgage lender counts your actual IDR payment, which is designed to be affordable relative to income.
• No incentive to pay down principal: Every dollar of extra principal payment is a dollar wasted if the balance will be forgiven anyway.
• Cash preservation: Money you would have spent on aggressive student loan payments can instead go toward building an emergency fund, retirement savings, or (if needed) a down payment.
• Timeline alignment: Many physicians start their PSLF clock during residency. Buying a home during training or early attending years means your mortgage is well-established by the time forgiveness occurs.

IBR vs PAYE vs REPAYE: Choosing the Right Plan for Mortgage Qualification

Your choice of income-driven repayment plan directly affects the payment amount that shows up on your credit report and gets counted in your mortgage DTI. Here's how the major plans compare:

For mortgage qualification purposes, the plan with the lowest documented monthly payment is ideal. During residency, all IDR plans produce very low payments (often $0 to $400/month on a $60,000–$70,000 resident salary). As an attending, PAYE and New IBR are typically preferable because the payment cap prevents your obligation from exceeding the standard 10-year amount even as your income rises significantly.

The SAVE plan (formerly REPAYE) can be advantageous for residents because it has the lowest calculation for undergraduate loans, but it has no payment cap — meaning your payment could rise dramatically when your attending salary kicks in. For mortgage timing, this matters: if you're applying for a mortgage right after your attending salary starts, your SAVE payment may have already adjusted upward.

Pay Down Student Loans or Save for a Down Payment?

This is one of the most common financial dilemmas facing early-career physicians, and physician mortgage programs make the answer surprisingly clear: in most cases, do neither aggressively.

Why the Physician Mortgage Changes This Equation

With a conventional mortgage, you'd need to save $50,000–$100,000 for a down payment on a $500,000 home to avoid PMI. This creates a painful choice: pay down student loans or save for a house? Physician mortgages eliminate this dilemma entirely:

• 0% down payment: You don't need to save anything for a down payment
• No PMI: Even at 100% financing, there's no PMI penalty
• Student loans excluded or minimized: Your DTI calculation isn't crushed by imputed payments

This means you can buy a home immediately when you're ready, without years of aggressive saving. The cash you would have put toward a down payment can go to more productive uses:

1. Emergency fund: 3–6 months of expenses (essential before homeownership)
2. Retirement accounts: Max out 401(k) and backdoor Roth IRA for tax-advantaged growth
3. Student loan strategy: If pursuing PSLF, keep payments minimum; if not, consider targeted paydown of highest-rate loans

DTI Impact: Student Loan Scenarios

The table below shows how different student loan balances and income levels interact to affect your DTI under physician mortgage guidelines versus conventional guidelines. DTI shown represents the percentage of gross monthly income consumed by student loan payments alone (before adding housing costs).

The pattern is clear: the higher your student loan balance relative to your income, the greater the physician mortgage advantage. For residents, the advantage is absolute — $0 counted versus thousands per month. For practicing physicians, the advantage scales with the gap between your actual IDR payment and 1% of the outstanding balance.

Notice that for high-income physicians with relatively lower debt ($200K debt on $350K income), the difference narrows. This is because the IBR payment rises with income, approaching the imputed amount. In these cases, the physician mortgage's student loan advantage is smaller, though the 0% down and no-PMI benefits still apply.

When Student Loans Are in Forbearance

Student loan forbearance creates a unique situation for mortgage qualification. During forbearance, your required payment is $0 — but conventional lenders cannot use $0 as your payment. They must still impute the 0.5–1% calculation, making forbearance irrelevant for conventional qualification.

Physician mortgage programs, by contrast, can recognize forbearance as a legitimate status — particularly for residents in training. If your loans are in forbearance because you're in a residency or fellowship program, physician lenders can exclude those loans from your DTI entirely, treating them the same as deferred loans.

For attending physicians with loans in forbearance (for example, during a career transition or hardship period), the treatment varies by lender. Some will exclude the loans, others will require documentation of your next expected payment. Ask your physician mortgage specialist how forbearance-status loans will be handled before you apply.

Strategic Recommendations by Career Stage

PGY-1 to PGY-3 (Early Residency)

• Get on an IDR plan immediately to start your PSLF clock if at a qualifying employer
• Student loans will be excluded from DTI under physician mortgage programs
• Consider buying if you'll be in the same location for 3+ years of training
• Use 0% down and preserve every dollar of cash

PGY-4 to PGY-7 (Late Residency / Fellowship)

• If you have a signed attending contract, qualify using the offer letter salary
• Student loans still excluded during training
• Ideal time to buy if you know your post-training location
• Consider buying now even if your attending job is 1–2 years away

First 1–3 Years as Attending

• Student loans now counted at actual IDR payment amount
• Income has jumped significantly, making DTI manageable even with loans counted
• If you didn't buy during training, this is still an excellent time for a physician mortgage
• Continue PSLF strategy if at qualifying employer; avoid extra loan payments

Established Attending (3+ Years)

• Evaluate whether conventional refinance makes sense (if you have 20%+ equity)
• If student loans are nearing PSLF forgiveness, keep payments low
• If not pursuing PSLF, consider aggressive paydown with attending salary
• Physician mortgage advantage diminishes as savings grow and debt shrinks