How Physician Contracts Impact Your Ability to Buy a Home

Physicians often assume that a high income will make qualifying for a mortgage simple. However, the structure of your employment contract can significantly impact your ability to secure a home loan. Lenders carefully analyze your income stability, contract terms, and employment history to determine how much credit you receive for your earnings. If you’re a physician planning to buy a home, it’s essential to understand how different contract types can affect the underwriting process.

The Simplicity of a W-2 Base Salary Contract

For physicians employed under a W-2 contract with a guaranteed base salary, mortgage approval tends to be more straightforward. Lenders view W-2 income as stable and predictable, making it easier to qualify for a loan. With a fixed salary, there’s no need to prove a history of earnings through tax returns or worry about fluctuations in income. As long as the contract does not include short-term guarantees or future reductions in pay, lenders are more likely to count 100% of the income towards mortgage qualification. Additionally, W-2 employees typically have access to employer-provided benefits like retirement contributions and health insurance, which further enhance financial stability from an underwriting perspective.

The Challenge of a New 1099 Contract Without a Guarantee

One of the most significant hurdles in securing a mortgage is having a brand-new 1099 contract without any type of guarantee. Unlike W-2 employees, who receive a steady paycheck from their employer, 1099 independent contractors are considered self-employed. Lenders typically require at least two years of tax returns to verify self-employment income. Without this history, most lenders will not count your 1099 income, making it much harder to qualify for a mortgage or reducing the loan amount for which you qualify. If you’re transitioning from W-2 employment to a 1099 structure, it’s important to plan accordingly to avoid mortgage approval issues.

Bonus Income Cannot Be Used Without a Two-Year History

Many physician contracts include performance-based or productivity bonuses, but lenders will not consider this income unless you have a two-year track record of receiving it. Even if your contract states that you are eligible for bonuses, underwriters need documented proof of past earnings to count this income toward your mortgage qualification. If your financial plans rely on bonus income to afford a home, you may need to wait until you have a sufficient history to satisfy lender requirements.

Closing 60-90 Days Before Your Start Date With a New Contract

If you have a new employment contract but haven’t started working yet, you can still qualify for a mortgage—provided you time your closing correctly. Many physician mortgage lenders allow you to close on a home within 60-90 days before your official start date, as long as you have a signed contract. This flexibility is particularly helpful for physicians relocating for a new job and needing housing before their first paycheck arrives. However, each lender has specific guidelines, so it’s crucial to confirm their requirements in advance.

Signing Bonuses and Clawback Policies: Not Counted as Assets

Some employment contracts offer a signing bonus, which might seem like a great way to boost your down payment or reserves. However, many lenders will not count these funds as assets if the contract includes a clawback clause—a policy that requires you to repay the bonus if you leave your job within a certain period. Since these funds aren’t guaranteed to remain in your account, they don’t provide the financial security lenders look for when assessing your mortgage application.

The Short-Term Base Pay Issue in New Dental Contracts

For dentists and specialists, short-term base pay arrangements are common in new contracts. However, these can present challenges in mortgage underwriting. Lenders typically require a guaranteed income for at least one year to consider it stable. If your contract only provides a base salary for six months before transitioning to production-based pay, most lenders will not count your income at all. This can make it difficult to qualify for a mortgage until you establish a longer income history.

Why Physician Mortgage Loans Are the Best Option

Given the complexities of physician contracts, a physician mortgage loan is often the best solution for doctors buying a home. These specialized loan programs are designed to accommodate the unique financial situations of medical professionals, offering benefits such as:

• No private mortgage insurance (PMI), even with a low down payment
• More flexible underwriting guidelines for new contracts
• Higher debt-to-income ratio allowances, recognizing student loan burdens
• The ability to qualify with a future-dated contract

Physician mortgage loans provide a path to homeownership that aligns with the realities of medical careers, making them the ideal choice for doctors with complex income structures.

Final Thoughts

Your employment contract plays a crucial role in your mortgage approval process. Whether you’re transitioning to a 1099 role, relying on bonus income, or working under a short-term pay structure, understanding lender requirements can help you avoid financing obstacles. If you’re planning to buy a home, working with a lender who specializes in physician mortgages can ensure you get the best loan terms for your unique situation.