Buying first house

[donutchez]

Hey all I am an Emergency Physician pretty fresh out of residency (now about 5 months). I am now looking at buying my first house. I rented during medical school and residency and have never undertaken the idea of buying a house. I am currently renting in the city where I live. I have been at the job for about 5 months and really love it so I thought I would start looking for a house. I am reaching out to those much more financial savy than I am for what I should look for. My rent now is $650/month plus $100/month for some of my stuff in storage since I don't have space for it. That is for a decent but not great 1 bedroom. My real question is how much I can spend.

A bit more about me. I have a girlfriend but not married and have no kids. She may or may not move in with me and pay a bit of the mortgage. Since I am not sure yet I need to plan like I am buying this all by myself. My debt out of school was 300K and my group paid off 75K (being that I stay 2 years), and I have thrown another 10K at it so I am sitting at around 215K going foreword. I have another 5K sitting on my car which I don't plan on getting rid of. I have no other debt. My salary is about 320K/year.

Summary is I get 320K per year and have 22oK in debts.

Looking at houses, in the are, those in the 150-200K where I live are decent. Buying one of these would most likely mean I look for another in 4-6 years. While I look at the 250k-300K price range and it seems like a huge step up. I could see staying in those long term. I really wonder if getting into a 250k-300K house would be a real burden or not. Granted I can't predict the future but I do plan on staying here long term.

---

Members don't see this ad.

 

[goodoldalky]

Honestly, I would hold off. Throw another 100K at your loans in the next year and reassess. I'm not sure what your credit looks like but your debt to income ratio is on the high side. The $75K that your group will pay is contingent on your staying for another year and a half so not quite a guarantee there (what if your group is bought out, BTW?). If you pay some of your student loans down and can put 20% down, get your credit score to the 800+ range, you may be able to lock down a sub 4 interest rate (interest rates were just raised last week, FYI).

There are also so many other important questions to consider - have you maxed out your traditional/Roth IRA? Have you maxed out your 401K? Do you have 3 months of living expenses stashed in the bank? On top of that do you have money for a down payment ready and waiting? You need all of these things first, plus I would argue you should throw the 5K at your car and pay that off.

It doesn't sound like you need the space, your rent is pretty dang cheap, and you still have a ton of loans. Ideally you need to make more progress with the loans before doing this. Have you refinanced? You should be able to decrease your interest rate substantially on your student loan. With a 5 year fixed you should be able to find something around 4%. Your monthly payment will probably be around $4000. If you add a mortgage at around 200K you are looking at another $2000, add it all up and you're looking at $6K of payments between house and loans. You can make this look a lot better by hammering at your loans for a year or so and then jumping into the housing market after that... IMO. Let's see what WCI thinks though.

 

[WilcoWorld]

Single without kids and 5 months into your new job? KEEP RENTING!

Realize that turning over a house will cost you roughly 10% of the home's value.

 

[dotcb]

You'll hear a lot of opinions on this. There's no right or wrong answer and ultimately you're gonna have to do what feels right for you and what makes you feel the most comfortable. Some of the general financial priorities that you should set for yourself are:

You need disability insurance if you don't already have any. (Lots on this forum about this.)
You need to get rid of any credit card debt that you may have.
You need a 3 to 9 month emergency fund in case you need to move, quit your job, buy a new car, or some type of emergency.
You need to get out of debt.
You need to save up a down payment that you can place toward the house.
You need to invest in retirement.

These are all important priorities and you have to put them in the order that feels right for you.

Personally, it looks to me like you're too far in debt to take on another debt (even if they are "good debt" - education and mortgage).

If I was in your situation, I would keep your living situation the same. I'd buy private disability insurance. I'd save up a three month emergency fund, then spend all savings toward getting out of med school debt. Once out of debt, I'd put half my savings toward a down payment and put the other half toward retirement. At this pace, you'd probably be looking at buying a house in 3-7 years.

 

[e30ftw]

I'm a new grad with a very similar income/debt ratio. Some people might be able to wait until they're 40 to have a decent house after getting out of debt but I think this is a bit excessive..

I refinanced loans at 4.5% 10 yr fixed. Payments are $3k a month.

No credit card debt or auto payment. Maxed 401k and saved $50k for a down payment in first 5 pay checks. Credit > 800. My wife doesn't work..

We are buying a nice house we will keep for probably 15 years. I don't really see a point in buying a 200k house when we would just move in 5 yrs anyway.. Got a 30 yr fixed at 4.00% from BoA. Mortgage is $340. Payments are ~1.7k a month.

Easily doable with a yearly income >$300k. fwiw I have no state income tax. Will pay off loans first then refinance the house, hopefully pay it all off in ~12 hrs.

 

[Old_Mil]

You might want to wait a bit and see what things look like around the summer of 2016/2017.

The federal reserve just instituted its first rate hike, and there is quite a bit of debate right now as to whether this is a one off move or part of a hiking cycle that will take rates to 2%. If it is the latter, it will probably take them all of 2016 to get there given the 25 basis point move they just made. It's a bit unusual to have a central bank taking a hawkish stance at a time where most economic data indicate the fundamentals are softening. If this is a one and done, or another 25 basis points and done you won't have much to fear from interest rates on a potential mortgage.

Even if rates go all the way to 2%, if you wait a year and save more for a down payment you're going to be that much better off.

Meanwhile, if the economy turns south you'll likely find a better property for the same money or get what you've been looking at force less.

http://www.zillow.com

While the estimates aren't always accurate, I'd check the price/tax history of any home you are considering. They often reflect what the original list price was and if any price cuts have been made.

If you're looking at buying the cheaper house and moving in 4-6 years, I'd wait and get the more expensive one.

One wife, one house: one of the keys to financial success.

 

[hoot504]

I know I'm simplifying things but I don't quite understand the mindset of this thread. You're making over $300,000 a year and quibbling about spending 200 vs. 300k on a house?

For instance, e30ftw... He went with the upper end of this price range at $340. He's paying 1700 a month for a mortgage, 3k a month in loan repayment. Chop off $100k of his income for taxes and divide by 12... Where's the other 13k/month going?

 

[Janders]

While I COMPLETELY agree with the tone of the suggestions above--- (1) aggressively get rid of your debt, (2) aggressively save for retirement (3) rent until you are positive you are staying AT LEAST 4-5 years, preferably more... if you are making 320k you can pay your debt off in 4 yours, save for retirement AND buy at 300k house. Depends on your other spending habits, but buy a house at 1x your annual salary is a safe/conservative financial move.

 

[emergentmd]

I agree withe the buy the house. If you like the job, like the place. No reason to get a house that is 300k.

I make 400K+. I have a 1Mil Home with 680K mortgage left. Not much different than you making 300K+ with 200K+ Loan plus a 300K mortgage. Same amount of debt and I don't feel stretched.

I would say that renting for less than a year seems alittle early to know if you want to get a house. I definitely would not even consider having your girlfriend on the Note or have her even pay anything towards the mortgage. You make enough without needing her help and there is not reason to make your relationship any more complicated.

 

[The White Coat Investor]

Hey all I am an Emergency Physician pretty fresh out of residency (now about 5 months). I am now looking at buying my first house. I rented during medical school and residency and have never undertaken the idea of buying a house. I am currently renting in the city where I live. I have been at the job for about 5 months and really love it so I thought I would start looking for a house. I am reaching out to those much more financial savy than I am for what I should look for. My rent now is $650/month plus $100/month for some of my stuff in storage since I don't have space for it. That is for a decent but not great 1 bedroom. My real question is how much I can spend.

A bit more about me. I have a girlfriend but not married and have no kids. She may or may not move in with me and pay a bit of the mortgage. Since I am not sure yet I need to plan like I am buying this all by myself. My debt out of school was 300K and my group paid off 75K (being that I stay 2 years), and I have thrown another 10K at it so I am sitting at around 215K going foreword. I have another 5K sitting on my car which I don't plan on getting rid of. I have no other debt. My salary is about 320K/year.

Summary is I get 320K per year and have 22oK in debts.

Looking at houses, in the are, those in the 150-200K where I live are decent. Buying one of these would most likely mean I look for another in 4-6 years. While I look at the 250k-300K price range and it seems like a huge step up. I could see staying in those long term. I really wonder if getting into a 250k-300K house would be a real burden or not. Granted I can't predict the future but I do plan on staying here long term.

You can afford to buy a $300K house. It will not be a huge burden given your income. Be grateful you live in a city where you can buy a house that inexpensively. That said, if I were in your shoes, I would not buy the house right now for four reasons:

#1 You are not in a stable social situation. Figure out what's up with the girlfriend first. A long term partner is going to want a lot of input into that decision. No long term partner? Who cares if you rent for a bit more.
#2 You haven't yet paid off all your consumer debt. Pay off that car. You make $28K a month and can't pay off a $5K car loan? Really?
#3 You still owe $215K in student loans. It doesn't sound like you're going for PSLF. So refinance that sucker and pay it off in the next year and a half. You can do it and then will be free to do a lot of things financially.
#4 No down payment yet. Sure, you could do a doctor loan, but you seem to be in a bit of a rush. That's never worked out well for me.

I think I'd write down a plan for the next year that went something like this:
Pay off the $5K car loan this month.
Pay off $115K in student loan debt by next summer (unless someone else is going to do it for you.)
Save up $60K for a down payment.
Look around for a great deal on a $300K house.
Figure out what's up with the girlfriend.
Then buy next October or November. Rates may be slightly higher, but still very, very low.

There's no rush. You'll have plenty of time to own a home in the future.

 

[Restart13]

You can afford to buy a $300K house. It will not be a huge burden given your income. Be grateful you live in a city where you can buy a house that inexpensively. That said, if I were in your shoes, I would not buy the house right now for four reasons:

#1 You are not in a stable social situation. Figure out what's up with the girlfriend first. A long term partner is going to want a lot of input into that decision. No long term partner? Who cares if you rent for a bit more.
#2 You haven't yet paid off all your consumer debt. Pay off that car. You make $28K a month and can't pay off a $5K car loan? Really?
#3 You still owe $215K in student loans. It doesn't sound like you're going for PSLF. So refinance that sucker and pay it off in the next year and a half. You can do it and then will be free to do a lot of things financially.
#4 No down payment yet. Sure, you could do a doctor loan, but you seem to be in a bit of a rush. That's never worked out well for me.

I think I'd write down a plan for the next year that went something like this:
Pay off the $5K car loan this month.
Pay off $115K in student loan debt by next summer (unless someone else is going to do it for you.)
Save up $60K for a down payment.
Look around for a great deal on a $300K house.
Figure out what's up with the girlfriend.
Then buy next October or November. Rates may be slightly higher, but still very, very low.

There's no rush. You'll have plenty of time to own a home in the future.

I have a question for you. What if one is absolutely sure about staying in an area that they go to residency in, and they want to buy a house using the physician loans with 0-5% down? Is that feasible starting PGY1? This would be my hypothetical situation in a relatively large metropolitan area. I also would be getting married around the same time. Spouse will be graduating pharmacy school and working full time immediately. The house in mind would be anywhere from $200-300k. Combined debt between both of us would be around $400k (all student loans & a conservative estimate).

 

[The White Coat Investor]

I have a friend who did that. It worked out well, at least until they got divorced. The house had little to do with that, of course.

$200-300K would certainly be within reasonable guidelines for a house purchase given the combined income.

 

[coachB]

You can afford to buy a $300K house. It will not be a huge burden given your income. Be grateful you live in a city where you can buy a house that inexpensively. That said, if I were in your shoes, I would not buy the house right now for four reasons:

#1 You are not in a stable social situation. Figure out what's up with the girlfriend first. A long term partner is going to want a lot of input into that decision. No long term partner? Who cares if you rent for a bit more.
#2 You haven't yet paid off all your consumer debt. Pay off that car. You make $28K a month and can't pay off a $5K car loan? Really?
#3 You still owe $215K in student loans. It doesn't sound like you're going for PSLF. So refinance that sucker and pay it off in the next year and a half. You can do it and then will be free to do a lot of things financially.
#4 No down payment yet. Sure, you could do a doctor loan, but you seem to be in a bit of a rush. That's never worked out well for me.

I think I'd write down a plan for the next year that went something like this:
Pay off the $5K car loan this month.
Pay off $115K in student loan debt by next summer (unless someone else is going to do it for you.)
Save up $60K for a down payment.
Look around for a great deal on a $300K house.
Figure out what's up with the girlfriend.
Then buy next October or November. Rates may be slightly higher, but still very, very low.

There's no rush. You'll have plenty of time to own a home in the future.

While in general your advice is sound, this is one area where I think you have it wrong. Why consider an auto loan any differently because it is "consumer debt?" If someone is willing to loan me money at 2-3%, I'll take it all day long, doesn't matter what it is technically allocated for. Car loans are cheap money these days. Makes sense to take advantage of the opportunity.

 

[Tenk]

I agree with White Coat in that you really need to finalize your social situation before you buy a house. When you have a girlfriend she will say things like: "oh it doesn't matter!" When you have a wife oh boy does it matter!

In a good way though. Sometimes...

Good luck!

 

[Promethean]

While in general your advice is sound, this is one area where I think you have it wrong. Why consider an auto loan any differently because it is "consumer debt?" If someone is willing to loan me money at 2-3%, I'll take it all day long, doesn't matter what it is technically allocated for. Car loans are cheap money these days. Makes sense to take advantage of the opportunity.

It is still debt. A loan at 2-3% is still discounting your future income, while encumbering you and encouraging you to live beyond your means. People tend to spend more when using credit versus cash, and to be less careful about the necessity of their purchases. Unless inflation is considerably more than that, it is still in your best interest to just pay cash for what you need, since even low rates involve being saddled with a monthly payment, a contractual obligation, and all the other minor irritations that accompany debt.

Back to OP... previous posters said everything that I might have wanted to say except... buying a house is exciting, especially when there are people so happy to help you sign up for the mortgage. But it is a heck of a lot easier to buy when you want to than to sell when you need to, so be very sure that you want to be tied down to a piece of property before you decide to make a commitment. Especially since you seem to have very affordable rent. Pay down debt, make a little pile of money, and when you are ready to buy, you will be in a great position to set the terms of the deal where you want them.

 

[The White Coat Investor]

While in general your advice is sound, this is one area where I think you have it wrong. Why consider an auto loan any differently because it is "consumer debt?" If someone is willing to loan me money at 2-3%, I'll take it all day long, doesn't matter what it is technically allocated for. Car loans are cheap money these days. Makes sense to take advantage of the opportunity.

How many multi-millionaires do you know with an auto loan? It isn't that you can't be a multi-millionaire with an auto loan, but simply that the habits that generally lead to the accumulation of wealth are incompatible with borrowing money to purchase a depreciating item.

Mathematically, it makes sense to borrow at a low rate and invest at a high rate. But behaviorally, people who borrow at a low rate don't then invest the money at a high rate, they spend it.

You may be an exception. There certainly are some. But the more people I run into, the more exceptional I think the sort of behavior you allude to is-i.e. carrying and utilizing debt in a way that actually increases wealth. I've met many millionaires and multi-millionaires. Despite the promise of debt arbitrage, most of the wealthy I know do not carry any debt on depreciating items.

 

[EctopicFetus]

I will admit I didnt read all of this but why not buy the cheaper house for 100-200k, it is cheap, it will afford a much needed tax deduction and your interest rate is low. When you get more settled (read married +/- kids) rent the house out and make money. I did this with a much more expensive house and between what I am paying off in principal and keeping in free cash flow I am at 50-60% of my initial investment amount. I am not even taking into account appreciation on the home.

Just as rich people dont have auto loans, they also dont rent homes.

 

[donutchez]

Thanks all for the responses. I know about the car loan and I have spent most of my time building up my emergency fund, paying off a few small credit card bills, and starting to put money towards retirement. The car loan is the next thing to go. Overall it seems like at 300K home won't be a big burden but I should probably hold off for a bit. My rent is cheap but that was by design as if I was going to rent I was going to get the cheapest apartment out there. I think I will hold off a few more months and then start looking.

 

[The White Coat Investor]

Seems like a reasonable approach. Certainly if you're in a stable social and job situation you want to be an owner as EctopicFetus says.

 

[The White Coat Investor]

You may be an exception. There certainly are some. But the more people I run into, the more exceptional I think the sort of behavior you allude to is-i.e. carrying and utilizing debt in a way that actually increases wealth. I've met many millionaires and multi-millionaires. Despite the promise of debt arbitrage, most of the wealthy I know do not carry any debt on depreciating items.

Larry Swedroe mentioned today that he wasn't carrying a mortgage when he was the vice chairman of the largest private mortgage company in the world. Kind of makes me want to get rid of mine.

 

[DeadCactus]

There's a weird pressure to own a home that is more societal than financial. It's like having a kid. Objectively, it makes no sense but everyone tells you you're supposed to do it and that it's the best thing ever.

 

[SoCuteMD]

I'd get your finances in order a little bit more first. Your auto loan may be at a lower rate, but it is a depreciating asset. You should be able to pay it off very easily, so go ahead and do that. Save for a down payment and figure out if your relationship is going to be a long term live-in relationship or not. This will impact the home you buy. If you buy without her input and the relationship gets more serious, you will likely end up moving sooner than you would like. You should easily be able to afford a 300K home on your own while paying off your loans as long as the rest of your lifestyle is nothing crazy, BUT waiting just a year could allow you to knock out a LOT of your student loans and then buy a home.

I made the "mistake" of buying a home right away. I love my home and it's not a financial burden. The monthly payment is far less than renting a comparable home BUT it's more home than I need. I assumed that if I met someone they would be amenable to moving in here once things got serious but my significant other is adamantly opposed to living in my neighborhood and owns his own home. I don't want to live in his neighborhood either, so we are stuck likely trying to sell two homes in the not-so-distant future!

 

[bikERdoc]

Tons of solid advice in this thread. New attending here as well, been tossing the "I want to buy a house" phrase around for the last few months. Moved to a city last summer where the rents are far greater than the ones the OP listed. Can't help but think I would be saving some coin if I owned a house vs renting. I've plugged numbers into the NYT Rent vs Buy calculator a few times (http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0), and buying always comes out on top. The issue for me is that I still have not maxed out 401k (getting ready to in Jan), saved up an emergency fund (although I have assets that would be accessible for a rainy day), or completely paid off a credit card after moving across the country (has taken longer than initially planned, and I moved it over to a 0% Chase card).

I feel like the practical stuff needs to happen first. I'm on a 1 year lease as of now. Honestly don't want to even contemplate moving again right now, so most likely will stick around for a 2nd year just based on convenience. After year 2, assuming I'm still with the same group and life is good, I will most likely be buying a casa. The budget question will be the big one when the time comes. Like I said above, expensive city. 300k doesn't buy much. Guess we'll see...

 

[deltamed]

You also have to consider the amount of risk you are willing to take. I bought a $700k house my first day out of residency with near zero down (physician loan). I knew it was a risk, but I (and my wife/kids) were sick of renting tiny run down places and repeatedly moving for the past 10 years. Felt like I had delayed gratification enough. 6 years later I owe ~350k and house is valued over 1.1 mill (got lucky -bought near bottom of market). I also paid off my loans and maxed tax advantaged savings plus some during that time.

But I realize the risks taken and that it depended on staying in the area with steady employment.

 

[deleted77919]

…

 

[WilcoWorld]

This thread has several contradictory pieces of advice, and many of those are sound advice. This shows that one answer won't fit all.

If you're looking to buy a house because you really want to live in your own home and make it yours, or because you just can't rent a nice enough place in your area for anything less than a mortgage, then by all means buy a house. What the hell good is it to work your tail off if you can't sleep in a comfortable bed.

On the other hand, if you're looking to buy a house because "it's what people do" then stop right there. Home ownership is not the no-brainer financial move that it is made out to be. Renting can be a very financially responsible choice for people who are disciplined enough to invest the difference between the rent and mortgage.

My wife and I really like having a home to make our own, so we bought a house (1.5 years after arriving at my current job). It is well within budget, but I still view it as more of an expense than an investment.

 

[e30ftw]

I've plugged numbers into the NYT Rent vs Buy calculator a few times (http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0), and buying always comes out on top.

An interesting calculator, but I wonder how applicable it is to people outside urban areas, specifically NYC.

I plugged in all the data and the result was if I could rent a similar home for < $1150/mo it's better to buy. Hard to believe that this is really true in our lower cost of living area. It would cost >$2500/mo to rent a similar home to the one we're buying, $1150/mo is barely more than we're paying now for a rental house that's 1/3rd the square footage, on 1/3rd the lot, 40 years older, in a less desirable location.. Or maybe home ownership here is more of an investment that I anticipated, like WilcoWorld I always viewed it as more of an expense.

That said, if I were unmarried I would likely continue to rent and crush my student loans while madly vacationing.

 

[The White Coat Investor]

You also have to consider the amount of risk you are willing to take. I bought a $700k house my first day out of residency with near zero down (physician loan). I knew it was a risk, but I (and my wife/kids) were sick of renting tiny run down places and repeatedly moving for the past 10 years. Felt like I had delayed gratification enough. 6 years later I owe ~350k and house is valued over 1.1 mill (got lucky -bought near bottom of market). I also paid off my loans and maxed tax advantaged savings plus some during that time.

But I realize the risks taken and that it depended on staying in the area with steady employment.

What are you talking about risks? You're six years out. You own 2/3 of your dream house. You paid off your student loans. You maxed out your tax-advantaged accounts plus some. The fact that you were living way below your means dramatically reduced your risk. Even if the value of your house dropped by 50% you would have still been okay. You can only do what you did by carving out 30-60% of your income to build wealth. The home appreciation (which might be a little lucky) was just the icing on the cake. You created your "luck" by smart decision making and hard work. Enjoy the rest of your financially awesome life.

 

[SoCuteMD]

I, like you, live and work in a low cost of living area. Bought a house a few months into my job once I knew my income was sufficient (production based job) and that I liked the hospital/group. We went with a house that cost a little more than one years worth of income.

One word of caution, I found there was unexpected significant cost increases with home ownership I had not fully anticipated. Increased maintenance costs were expected. Lawn care I also expected (but buying a mower, rakes, shovels, etc adds up). But many other things I didn't expect, for instance Christmas decorations. Either we could be the sad looking house that hates Christmas, or decorate like everyone else - well there goes another $2k. Constantly hosting play dates and neighborhood parties (it's nice everyone likes each other but booze and appetizers add up when you are hosting 30 people once per month). Music classes for you infant because hey, everyone else is doing it. Country club membership (only $300/month, but all your friends and neighbors spend their summers at the pool, can't have your family feel excluded).

A lot of the above is lifestyle inflation related to being an attending physician. However, if we lived in a crappy apartment in a scary neighborhood I don't think there would be the same pressures to spend on all these little things that add up. We still manage to make aggressive debt payments and max our 403b, but it is amazing how much little expenses add up and how much we spend relative to our residency budget.

I wouldn't trade our current lifestyle to go back to a one bedroom apartment in a bad part of town, just be aware of the pressures of lifestyle inflation moving into a nicer house, even one that is affordable/below budget. I can't imagine how much we would have had to spend on Christmas decorations if we went with a higher end house.

I don't have kids, which is one major difference but I can offer that my other expenses have not increased dramatically. I picked up my Christmas decorations at Target on sale (not 2k...). I do host dinner more often, but generally a max of 6 people. My invites are reciprocated often enough that the money comes out as a wash. I buy takeout a little more often. I have been vigilant about not letting my lifestyle creep too much.

 

[bikERdoc]

Enjoy the rest of your financially awesome life.

Definitely counting down the days till WCI publicly announces that to me on a public forum

 

[deltamed]

What are you talking about risks? You're six years out. You own 2/3 of your dream house. You paid off your student loans. You maxed out your tax-advantaged accounts plus some. The fact that you were living way below your means dramatically reduced your risk. Even if the value of your house dropped by 50% you would have still been okay. You can only do what you did by carving out 30-60% of your income to build wealth. The home appreciation (which might be a little lucky) was just the icing on the cake. You created your "luck" by smart decision making and hard work. Enjoy the rest of your financially awesome life.

Well thanks! I know now my financial situation has low risk--

I was more meaning the risk of initially buying a 700k house with near zero down and a large negative net worth. If my first job hadn't worked out, or my salary had gone down instead of significantly up, or the housing market crashed again instead of rising quickly it could have been a big financial hit for me with major loss in those early important years of saving.

Probably the traditional advice at that point 6 years ago would have been to rent for awhile, save 20% downpayment and/or buy a smaller "starter" home for 300-500k. I was just pointing out I was willing to take those initial "risks" to not move around more and secure schools/location that I wanted for my family.

 

[The White Coat Investor]

Yes, there was a risk there. But the fact that you were not spending most of your net income lessened it for you. I'm not criticizing- you put yourself in position where you could take a risk and benefit when that risk paid off.

If you had asked me 6 years ago, I would have said rent until you knew the job was stable, but not necessarily until you had your loans paid off and a 20% down payment saved up. There is a cost to starter homes too- moving isn't free.

 

[EctopicFetus]

There's a weird pressure to own a home that is more societal than financial. It's like having a kid. Objectively, it makes no sense but everyone tells you you're supposed to do it and that it's the best thing ever.

I think if it doesnt make financial sense then screw it. I have a buddy who lives in Oregon. He is an ED doc, wife is a doc too. They have money.. He rents, as we are good friends I picked his brain. Simply property tax on his rental is 20k per yr. His rent is about 36k per year. The house is in the 6-900K range.. His math makes sense.

If your mortgage plus tax and other expenses would be less than renting and you want stability owning is right. If you are unsure if you are gonna stay in a city dont buy. It ties you more than you know.

Most "doctor" homes will appreciate 1-2% per yr, if you lock in a low interest rate you could effectively net for yourself 10-20k per yr (appreciation and paying down principal) (beyond the tax savings which are not necessarily small.

 

[lodestar]

Retired banker here...daughter soon to enter Ortho residency, and her S.O. is already a Neurosurgery resident...hence my interest in this particular topic. Also teach Personal Financial Planning and Investment Management at the college level.

The conventional wisdom is that when you have an income well into the 6 figures you "need" a generous mortgage. A key reason is that the guvment (federal and state, and perhaps more local) effectively subsidizes your mortgage due to the mortgage interest deduction. The Left REALLY badly wants to do away with this primary tax deduction of the upper middle class, but it will be hard to accomplish politically. The Obamanators (European socialists) REALLY want to kill the mortgage interest deduction.

In contrast, student debt is NOT tax deductible. Ergo, it makes sense to pay it off sooner rather than later and retain mortgage debt instead.

The housing crash starting in 2008 (really caused by the Left insisting on CRA-ilk $ BILLIONS of mortgages being granted to those not creditworthy) changed the conventional wisdom a bit. We had gone 70 years from 1938 until 2008 with home values generally rising, but the Left managed to ruin the primary way that most households accumulate retirement net worth.

The stock market was ALSO torpedoed by this PC lunacy as the investment banks were hammered due to MBS's (mortgage backed securities).

An aside...the guvment MADE $ (about $16 BILLION per the guvment itself) on the so-called "bank bailouts"-- it ALWAYS does make $ on bank bailouts...the banks pay the loans back as the economy recovers, whereas bailing out the labor unions (UAW) was a dead loss because it defied economic logic.

Many time what the masses imagine to be true (especially when trumped up by the PC Left) is simply fallacious.

 

[lodestar]

I forgot to add that interest rates still remain remarkably low (vis-a-vis historical averages), so it makes even more sense to take on a mortgage when you have a 6-figure income. But rental payments have property taxes and interest buried in them that you CANNOT deduct.

It is true that home ownership has some implicit costs (yard maintenance, capital improvements/updates, perhaps pool maintenance) not experienced while renting, BUT those home owner expenses also can enhance your investment in a home as well as your personal satisfaction/fulfillment/pride of ownership.

I keep mentioning tax deductibility because 30% or more of your mortgage interest is subsidized by the guvment, while NONE of your rent is.

 

[BoardingDoc]

Retired banker here...daughter soon to enter Ortho residency, and her S.O. is already a Neurosurgery resident...hence my interest in this particular topic. Also teach Personal Financial Planning and Investment Management at the college level.

The conventional wisdom is that when you have an income well into the 6 figures you "need" a generous mortgage. A key reason is that the guvment (federal and state, and perhaps more local) effectively subsidizes your mortgage due to the mortgage interest deduction. The Left REALLY badly wants to do away with this primary tax deduction of the upper middle class, but it will be hard to accomplish politically. The Obamanators (European socialists) REALLY want to kill the mortgage interest deduction.

In contrast, student debt is NOT tax deductible. Ergo, it makes sense to pay it off sooner rather than later and retain mortgage debt instead.

The housing crash starting in 2008 (really caused by the Left insisting on CRA-ilk $ BILLIONS of mortgages being granted to those not creditworthy) changed the conventional wisdom a bit. We had gone 70 years from 1938 until 2008 with home values generally rising, but the Left managed to ruin the primary way that most households accumulate retirement net worth.

The stock market was ALSO torpedoed by this PC lunacy as the investment banks were hammered due to MBS's (mortgage backed securities).

An aside...the guvment MADE $ (about $16 BILLION per the guvment itself) on the so-called "bank bailouts"-- it ALWAYS does make $ on bank bailouts...the banks pay the loans back as the economy recovers, whereas bailing out the labor unions (UAW) was a dead loss because it defied economic logic.

Many time what the masses imagine to be true (especially when trumped up by the PC Left) is simply fallacious.

This was 30% legitimate response to the question at hand, 70% anti-democrat / anti-obama / anti-"guvment" rant. I think it would do better on Reddit's libertarian section.

 

[The White Coat Investor]

A tax deduction by itself isn't a reason to buy a house, and certainly not a reason to carry an unnecessary mortgage. You need to look at the whole picture.

You can get a tax deduction just by losing money, but who wants to do that. Remember a deduction always costs more than it pays. You paid $1.00 in interest to get a 30 cent deduction. Not exactly a winning formula BY ITSELF. Does it reduce the cost of borrowing money? Sure. That's simple math.

 

[EM_Rebuilder]

You can afford to buy a $300K house. It will not be a huge burden given your income. Be grateful you live in a city where you can buy a house that inexpensively. That said, if I were in your shoes, I would not buy the house right now for four reasons:

#1 You are not in a stable social situation. Figure out what's up with the girlfriend first. A long term partner is going to want a lot of input into that decision. No long term partner? Who cares if you rent for a bit more.
#2 You haven't yet paid off all your consumer debt. Pay off that car. You make $28K a month and can't pay off a $5K car loan? Really?
#3 You still owe $215K in student loans. It doesn't sound like you're going for PSLF. So refinance that sucker and pay it off in the next year and a half. You can do it and then will be free to do a lot of things financially.
#4 No down payment yet. Sure, you could do a doctor loan, but you seem to be in a bit of a rush. That's never worked out well for me.

I think I'd write down a plan for the next year that went something like this:
Pay off the $5K car loan this month.
Pay off $115K in student loan debt by next summer (unless someone else is going to do it for you.)
Save up $60K for a down payment.
Look around for a great deal on a $300K house.
Figure out what's up with the girlfriend.
Then buy next October or November. Rates may be slightly higher, but still very, very low.

There's no rush. You'll have plenty of time to own a home in the future.

I just want to echo everything this guy said, he knows his stuff! I had essentially followed much of what he discusses before I met him and now realize he helps lay this out in a way that anyone can and should follow. I am happy to be an example of the success if you follow his sage advice.

I saved feverishly and moonlit a ton (more than I probably should have) but left residency debt free. Alleviating that debt burden will be huge on your future financial situation. My wife and I had a great net worth, great retirement, and was debt free. This did all change for my family as I went on the business venture of owning a few freestanding ERs; I do have debt and a negative net worth now... That's another discussion and that chapter is still being written if this was a good idea or not. Regardless, I could not have done this had I not been diligent and saved. I am in my fifth year post residency...

I also agree that your social life makes it difficult. Spouses get particular about the size of the bathroom or closet or location of kids room. I know you think now it will be just fine, but 'the one' will have different ideas when looking at your paycheck, the house you bought, and the house they see advertised down the street. Also if one moves in, then moves out, and you end up with another....that can play on things also.

Avoid Doctor loans especially as an attending. Prove you can save money, save at least 20% before you even think of looking at houses.

Don't get in a huge hurry. There are 'deals' that come along. Try to find one of those!

Good luck.

 

[EctopicFetus]

A house while I think a good investment most of the time should be avoided if you expect to be mobile. The standard cost of a home sale is 6%. Thats more than your tax savings in a short period of time.

Again, I think if you buy to be a landlord thats wise. To buy for a short 3-4 year time frame is likely a mistake.

 

[BlackDynamite]

Is buying a house close to an airport for full time locum tenens a bad idea?

 

[deleted77919]

…

 

[lodestar]

re:
A tax deduction by itself isn't a reason to buy a house, and certainly not a reason to carry an unnecessary mortgage. You need to look at the whole picture.

You can get a tax deduction just by losing money, but who wants to do that. Remember a deduction always costs more than it pays. You paid $1.00 in interest to get a 30 cent deduction. Not exactly a winning formula BY ITSELF. Does it reduce the cost of borrowing money? Sure. That's simple math.

~~~~~~~

The above is pretty simplistic while purporting to be basic wisdom...

Actually, having a generous mortgage to defray taxes, especially at higher tax brackets, has traditionally been fairly basic personal financial planning-- which I teach at a 4 year college.

For 7 straight decades from 1938 thru 2008, home values rose steadily on average nationally, generally often from 5-7% a year. Ergo, when you borrowed the mortgage $, the guvment effectively subsidized your investment in a home, whereas the guvment taxed earnings on other investments like stocks and corporate bonds. We are the ONLY free country that so heavily taxes interest on savings, stocks, etc. The primary source of retirement asset accumulation for most families was in home equities-- FOR 70 YEARS! Ergo, the ONLY form of debt recommended in most texts has been mortgage debt, especially when rates are VERY low as they have been for some years now.

What queered the traditional housing investment for everybody from 2009 until the trough in late 2011 was the result of the PC Left's egalitarian idea that what had prevented the lower 1/3 socio-economically from joining the middle class was that they could not get mortgages.

Ergo, they came up with the swell theory of mortgages for everybody, regardless of true capacity to pay or creditworthiness. Part of this facile theory was that rising values would allow those who could not pay simply to sell and come out whole.

Banks were told to significantly increase CRA lending or mergers would not be approved, and the banks would be put on bad lists for lack of commitment to their communities. The guvment encouraged aggressive lending by all of the non-bank lenders (think Citywide Mortgage, Quicken Loans, etc.) whose practices were WAY TOO LOOSE. But again, the theory was that the Fannie Mae, etc., guarantees would keep the system solid. Instead, $ MEGA-BILLIONS of loans were extended to those who never should have had them, so the values of ALL homes plummeted.

 

[lodestar]

re:
A tax deduction by itself isn't a reason to buy a house, and certainly not a reason to carry an unnecessary mortgage. You need to look at the whole picture.

You can get a tax deduction just by losing money, but who wants to do that. Remember a deduction always costs more than it pays. You paid $1.00 in interest to get a 30 cent deduction. Not exactly a winning formula BY ITSELF. Does it reduce the cost of borrowing money? Sure. That's simple math.

~~~~~~

Tell me-- so you would rather pay $1,500/month in rent than pay a $1,500 mortgage payment at a very low interest rate where you can deduct 30% of the interest outlay, which is substantially what your mortgage payment goes toward in the early years? And most likely, your rental dwelling will be well smaller and with lesser features/amenities. By renting, ALL of the underlying property taxes and implicit interest are deducted by the apartment investors; you get NO such benefits.

 

[Doctor Bob]

fairly basic personal financial planning-- which I teach at a 4 year college.

Shouting at people in the lunch line while wearing a tinfoil hat does not count as teaching.

the guvment effectively subsidized your investment in a home

the guvment taxed earnings on other investments like stocks and corporate bonds.

The guvment encouraged aggressive lending

Ergo, when you borrowed the mortgage $

Ergo, the ONLY form of debt recommended

Ergo, they came up with the swell

Ergo the guvment... got it.

 

[The White Coat Investor]

The above is pretty simplistic while purporting to be basic wisdom...

Most basic wisdom is pretty simple. I don't see that as a bad thing. Trying to make things more complicated than they need to be isn't usually helpful.

Actually, having a generous mortgage to defray taxes, especially at higher tax brackets, has traditionally been fairly basic personal financial planning

I repeat the simple point that you're apparently not able to get. A generous mortgage does lower your taxes, but not by as much as it lowers your bank account balance. Sometimes it is best to own a house and sometimes it is better to rent a house. Even if it is right to own a house, sometimes it is better to have a mortgage and sometimes it is better not to have a mortgage. It depends on a lot more factors than just the tax benefit of paying deductible mortgage interest. If you want to delve into those issues, that's fine with me. We can also talk about the times when mortgage interest isn't deductible, as there are several of those as well.

which I teach at a 4 year college.

For a college professor, your communication skills are disappointing.

For 7 straight decades from 1938 thru 2008, home values rose steadily on average nationally, generally often from 5-7% a year.

You're entitled to your own opinion, but not your own facts. The Case Shiller index, which measures housing values, has changed from 91 (1938) to 172 (2008). On an annualized basis, that is about 0.91% per year. Now, the Case Shiller Index is adjusted for inflation, so you have to add an inflation figure to that. The appropriate annualized figure, since the CPI-U changed from 14.1 (1938) to 201.6 (2008), is 3.87% per year for those seven decades. 0.91% + 3.87% = 4.79%. While that rounds to 5%, it isn't actually between 5% and 7%. And it's beyond me what figures you're using to claim 7%. At any rate, it appears what you should expect as far as price appreciation of your house is 1% real per year.

http://www.multpl.com/case-shiller-home-price-index-inflation-adjusted/table
http://inflationdata.com/Inflation/Consumer_Price_Index/HistoricalCPI.aspx?reloaded=true

Tell me-- so you would rather pay $1,500/month in rent than pay a $1,500 mortgage payment at a very low interest rate where you can deduct 30% of the interest outlay, which is substantially what your mortgage payment goes toward in the early years? And most likely, your rental dwelling will be well smaller and with lesser features/amenities. By renting, ALL of the underlying property taxes and implicit interest are deducted by the apartment investors; you get NO such benefits.

I don't know. You haven't provided sufficient details for me to make that decision. For example, if I were going to be in a house for 2 years, and it only appreciated 3% per year for those two years, then I would rather have the rent payment as that mortgage interest deduction combined with the appreciation isn't going to come anywhere close to making up for the round trip transaction costs.

Why you muddy the waters of your comparison by using two different housing consumption items (a larger one and a smaller one with lesser features/amenities) is beyond me. In some markets, you can rent a nicer place than you can buy for the same monthly payment. In other markets, vice versa. You can't make a general rule. Besides, I EXPECT the rent on an equivalent house to be higher than a mortgage on it. The owner has additional costs that the renter does not- vacancy, maintenance, upgrades, property taxes, transaction costs, insurance etc not to mention the desire to profit. A typical rule of thumb used by real estate investors is that non-mortgage expenses will add up to 40-50% of gross rent.

BTW- I'm curious what a college professor is doing on an emergency medicine forum. Care to enlighten us?

 

[shoal]

Its the guvment

Sent from my VS986 using Tapatalk

 

[fahimaz7]

I feel your pain. With that said, I'm looking at buying and will be facing the following dilema...
Rent in the area: 3k-3500/mo
Townhome cost: 450k-600k
Homes cost: 550k-2 million.

Good credit, but lots of debt and a family. Will probably buy a house, as a mortgage for a 600k hour is equal to or less than a rental in the same area.

Kinda sucks, but that's how the cookie crumbles over here. Would love the opportunity to buy a house for 300k

 

[link2swim06]

I feel your pain. With that said, I'm looking at buying and will be facing the following dilema...
Rent in the area: 3k-3500/mo
Townhome cost: 450k-600k
Homes cost: 550k-2 million.

Good credit, but lots of debt and a family. Will probably buy a house, as a mortgage for a 600k hour is equal to or less than a rental in the same area.

Kinda sucks, but that's how the cookie crumbles over here. Would love the opportunity to buy a house for 300k

Do you live in time square or on the moon or something?

That's crazy. I paid $250/month for rent in college...that was ~5 years ago. Not a bad place.

 

[deleted480308]

Do you live in time square or on the moon or something?

That's crazy. I paid $250/month for rent in college...that was ~5 years ago. Not a bad place.

for a room? that wouldn't rent a room where I'm at and I'm in the middle of nowhere southeast

 

[deleted480308]

side question to everyone with experience in this......buying land to build a house. Any of the physician loans/VA loans work toward that or is it pretty much standard land/construction loans?