The opportunity to buy a house when one otherwise would not qualify may be a great advantage but physician loans come with their drawbacks.
The first being a doctor loan doesn’t offer a fixed-rate mortgage, it would invariably be an adjustable-rate mortgage (ARM).
After the initial (teaser) period, the interest rate will fluctuate and often increase. ARMs always carry more risk than fixed-rate mortgages.
Along with the changing interest rates of ARM, doctor loans also sometimes have slightly higher interest rates.
Over time the interest rates add up, and in the long run, the physician loans end up being more expensive than a conventional mortgage, despite it being appealing initially.
There is also the risk of an underwater mortgage since the borrower start with 0% equity because they haven’t put a down payment on the house.
If the property value decreases or if the borrower can’t afford to make payments while they still owe the original loan balance, they could end up with a home loan that has a higher principal than the home is worth.