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Another what to $ do thread

Discussion in 'Finance and Investment' started by Mr Cookie Pants, Mar 18, 2012.

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  1. Mr Cookie Pants

    Mr Cookie Pants Heading to Scutlandia!

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    My situation- married, no kids. Sold Medical school townhome, have about 45k of equity that I got OUT. I have 100k on the dot of student debt. Wife makes $47k and no kids planned for at least 2 years.

    So- combined -$95k/yr
    60k savings/left over

    I'm doing general surgery, so I'll be in one place for at LEAST 5 years.

    -Doctor loan (now 4%/no PMI/0% down), ROTH IRA and save the rest for emergency fund and pay down 6.8% student loans

    -IBR for a few months, make big downpayment, get back to paying regular amount on student loans

    Just curious because I have lower than average student debt and house prices/mortgage rates are interesting right now.

    Thanks!
  2. BeanDip4All

    BeanDip4All emt-abcdefgh

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    happy wife = happy life. buy or rent- what does your wife want to do?

    but seriously, 5 years is just about the breakeven point where it makes financial sense to buy.
  3. dr doze

    dr doze Neocon Gold Donor

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    +1


    Roth IRA, rent, leaving behind healthy emergency fund. Extra cash to pay down student loan.

    might even skip the roth to pay down that debt.
  4. Mr Cookie Pants

    Mr Cookie Pants Heading to Scutlandia!

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    We want to buy. So the question is what to do with a $30k bolus- doctor loan and IRA/20k towards student loans or just do a traditional 30k down.
  5. dr doze

    dr doze Neocon Gold Donor

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    If you are committed to buying and this $30K will mean the difference in qualifying for a better rate and not needing PMI, use it that way. If even with this $30K bonus that won't do it, pay down the student loans.
  6. Stroganoff

    Stroganoff

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    Nice situation you're in. :)

    IMHO, before anything else, the following two are mandatory, non-negotiable:
    * Both you and wifey should contribute to 401k up to employer match
    * Both you and wifey should max out 2012 Roth IRA contributions ($5000 each). Still have until April 17, 2012 to contribute up to $5000 towards 2011 Roth IRA if you or wifey worked in 2011.

    That doctor loan @ 4%, no PMI, no down payment is really competitive. Putting equity in a home seems overrated these days. House prices go up and down, whereas your student loans will always be there until you pay them off. And heck, paying down your 6.8% loans is a guaranteed 6.8% return on your investment.

    I'd choose the doctor loan with $0 down over the traditional loan with $30k down. 4% is pretty good anyways. Throw in the $30k or whatever towards your student loans, after $5000 towards Roth IRA of course.
  7. TexasPhysician

    TexasPhysician Moderator

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    In the current market, put as little $ down on the house as possible.
  8. auburnO5

    auburnO5

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    Pardon my ignorance... But what is a doctor loan?
  9. JacobMcCandles

    JacobMcCandles

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    Generally, it usually consists of 100% financing ($0 down) and no PMI.
  10. The White Coat Investor

    The White Coat Investor AKA ActiveDutyMD Partner Organization

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    I'm not sure I understand what you're saying here. Are you saying don't put money down so if the value goes down you can mail in the keys? Are you saying that with rates so low on 0% down loans no point in doing a conventional?

    To the OP- You're doing great. I'd take the doctor loan at 4% (and I'm usually not a doctor loan fan, but 4%? geez), max out 2011 and 2012 his and hers Roth IRAs, and put the last $10K toward the student loans.
  11. The White Coat Investor

    The White Coat Investor AKA ActiveDutyMD Partner Organization

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  12. Mr Cookie Pants

    Mr Cookie Pants Heading to Scutlandia!

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    I went with the Doctor loan today. Huntington bank gives you 3.375% (if you have a checking account there) on a 7/1 ARM, no PMI, no prepayment. 100% financing on a credit score of 700. You really can't beat that. You can qualify for 225k+ on a resident's salary.

    Bottom of the housing market, basically 'free' money. This is quite different from 10 years ago when interest rates were 6% and student loans were 1.8%. Or even from 30 years ago when interest rates were 13%. If I was doing anything less than 5 years, I wouldn't have done it. But I'm doing 5, potential for 7 in the city. Worse thing that happens is I have a few months of a higher interest rate- but on an attending salary.
  13. cincincyreds

    cincincyreds

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    Sounds like a really good deal as long as Obama doesn't destroy the interest rate deduction for you home mortgage interest. I predict the rates will drop even further, so maybe in 5 years you could refinance again.
  14. dynx

    dynx Yankee Imperialist

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    I don't know. 10 year treasury rates climbed early this month and 30 year mortgage bond rates went up. Nobody seemed to notice but its an indicator consumer rates aren't going to stay low much longer IF that becomes a trend. The 10 year treasury is a more worrisome sign we may see interest rates coming up despite the feds desire to see them low for, what was it? 2 more years they indicated. I don't think it will be a problem but with a 5 year time window I'd bet on higher rates at that point. The BEST you can hope for is they stay the same. No chance you'll refi lower.
  15. The White Coat Investor

    The White Coat Investor AKA ActiveDutyMD Partner Organization

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    That's a great rate. That's what I got just a few months ago for a 15 year fixed with 20%+ down. For a doctor loan.....wow. Unless you paid points or particularly high fees, of course. It isn't all about the rate.

    Worst thing that happens isn't a higher interest rate. Worst thing is you can't sell it, take a year to realize it before getting it rented, then have a water leak and get termites. Buying isn't always the best thing, but this'll probably work out okay for you. I'd certainly take a roll of the dice on it.
  16. The White Coat Investor

    The White Coat Investor AKA ActiveDutyMD Partner Organization

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    ?

    He probably doesn't even get to deduct the interest. Think about it. Let's say he takes the maximum $225K loan (which I hope he doesn't BTW.) 3.375% interest on $225K is $7593. That's less than the standard deduction. If he itemizes, he probably won't get much above the standard deduction. His interest will be, for the most part, non-deductible during his residency.

    He could refinance in 5 months too. If rates are lower 5 years from now than they are now it will be because we're in a huge depression.
  17. ThePursuit

    ThePursuit

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    This can be location dependent I think. Where I'm living, I bought a 3Br 2/5 bath and will pay 1400/month. for me to rent a 2 br, 2 bath in the same neighborhood would be like 2 grand +, so it worked out to benefit me to purchase at about 2.5 years using the NYT calculator gadget.

    Especially since interest rates are so low, the scales start to tip toward owning v renting.
  18. dynx

    dynx Yankee Imperialist

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    That seems a bit odd.
    Assuming all your payment is going to house (which they can't possibly be) AND you got a great deal on an interest rate (no more than 3%) you're talking like a 350000 dollar house that you're saying would normally RENT for >2000 a month? Let me know what city you're in..I'm going to buy a bunch of rental property there and retire. I mean why would anybody ever sell you that house? Why wouldn't they just keep it, rent it out and pocket the extra cash every month?
  19. ThePursuit

    ThePursuit

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    Well, for starters, I could be wrong, but in response here is my rationale for buying:

    There is obviously risk in owning a property and renting it out. You don't "just pocket the extra cash every month". You do repairs and maintenance, and obviously you pay taxes on the income you are getting too (don't forget Uncle Sam!) All this while hoping your renter isn't destroying your home or doesn't get hurt and then decide to sue you for inadequate safety precautions etc etc. Secondly, like I said these recent years are unique because the interest rates are so low AND home values in many areas have fallen. 10 years ago the same home would have been cost prohibitive due to higher home values and higher interest rates (thus renting would have certainly been a better option). Also, where I'm living property taxes are negligible.

    With regular home maintenance expenses, I assumed I will pay about $2k/month for the home I purchased + utilities. That said, an ever increasing portion of that goes toward principal, instead of 100% getting flushed down the drain. Obviously if home values continue to tank (which I think is unlikely in my region), the equity aspect is less impressive. The home is new construction and warranties are on everything that could be very expensive to replace, thus home maintenance costs will most likely be low for the next 10 years or more.

    Lastly, I took a bit of a gamble and purchased in a rapidly developing area where values are actually just starting to rise and I HOPE continue to rise over the next 5-10 years. If I'm right, my home will appreciate which would be great.

    I also have pets and rentals don't like tennants with lots of pets.

    That was why I chose to buy, but I'm new to this financial stuff.
  20. dynx

    dynx Yankee Imperialist

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    Yeah I get it. I allready own a couple of rental properties. The spread between housing cost and rent is very high...my point was you usually need to look far and wide to find property that turns cash like that right away. I'm wondering if people are really getting that kind of rent in your area or what the hell is going on.
  21. dpmd

    dpmd Relaxing

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    Where I live there aren't as many homes for rent as there are for sale or foreclosed. My mortgage payment is less than rents in the area (for homes-apartments are going for less) even with PMI and the escrow account. The people renting their places out have to ask for higher amounts because they are paying higher mortgages, so in theory if you had extra cash you could buy a few places and rent them out for more than your mortgage, but if things change and no one wants to pay that much to rent your place you could end up with an empty money drain. Plus it could be that they are advertising high rents but no one is actually renting them (perhaps later leading to the foreclosures I mentioned). And the people that I bought the house from needed to sell due to death of the owner. Not everyone is willing to try to be a landlord I guess (interesting aside, if you were going to inherit a property that you didn't need to live in would you rather have the proceeds from sale or rental income that could potentially be pretty profitable)
  22. dynx

    dynx Yankee Imperialist

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    I agree, my guess is that they aren't getting the rents they post.

    At this point the rental income. But there's so many variables you'd have to take it on a case by case basis of course.
  23. Dumb

    Dumb USMLE Tutor - PM me for info

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    Yup. In general, rent until it's a seller's market again or at the very least until you can get close to purchase price. At the rate things are going, it'll be a long time until the market favors selling over renting.

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