I absolutely recommend buying a house. The rule is that might lose money if you flip (resell) in less than 5 years but that doesn?t take into account the fact that you would be paying rent otherwise and you get a tax deduction on the interest.
Here are a few points in favor of buying:
Interest rates are extremely low right now.
You can get a mortgage even with your debt by getting them a letter saying that you will be able to forebear you loans.
Once you start taking your mortgage interest deduction you can itemize on you taxes which allows you to deduct your unreimbursed professional expenses like books, professional dues (EMRA, ACEP, AAEM, SAEM, etc.), PDAs, equipment, conferences and travel to and from such events, tests like USMLE, your licensure expenses and others.
Owning will give you a credit history to use to get a better place once you move on and make the big bucks.
Bear in mind that this will probably be the first time in a long time that you and your spouse if you have one will be making money together. A family making >$60k (two people making $30k each) is considered the super rich by the government and you will be taxed into oblivion. Whatever you do you need to do it with an eye on your taxes.
docB
All right DocB, let's brawl.
Point # 1: "The general rule is don't buy if you are leaving within 4-5 years." Although this didn't apply from 2003-2006 because housing prices went through the roof, it is a rule of thumb for a reason. It takes 4-5 years of normal appreciation to make up for the costs of buying and selling. I owned a condo from 1999-2003. Bought it for $80K, sold it for $83K. Paid $2K in closing costs to buy, and paid about $4K to sell. Guess how much money I made?
Point # 2: "But you're paying rent otherwise" sometimes also stated as "renters are just throwing money away." Guess where all that interest money goes? The same place as rent, to someone else. Same thing with property taxes and closing costs. The only money you are paying to yourself is the amount going to equity. Let's say you get a mortgage for 6.5% right now (the going rate), $0 down, $0 closing costs for a $100,000 mortgage. After 4 years of residency you will have paid down exactly $4940. Closing costs when you sell are approximately 6%, or $6000. If the home doesn't appreciate significantly, you will lose money on the deal assuming rent=mortgage.
Point # 3 "But you can deduct the interest." This is only true for the amount of interest above the standard deduction. If you donate $10,500 to charity every year, then yeah, your mortgage interest is deductible. Let's say your only deduction is mortgage interest. Let's say you get that same 30 year 6.5% fixed mortgage for $200,000. The first year you pay $12,934.00 interest. You only get $2434 more in deductions than the guy who rents, not $12,934.
Point # 4 "Interest rates are really low right now." This implies the ability to forecast the future. Rates were lower in 2002-2004 than they are now. Who is to say they won't be lower in the future than they are now? Historically they have been higher, especially if you look at the 70s and 80s. But that was also a time when 8-10% inflation was the norm. Interest rates had to be high to compensate lenders for the inflationary losses.
Point # 5 "You can deduct your professional dues etc." This is only true if your professional dues are greater than 2% of your adjusted gross income, a hurdle that many of us can't get over, especially if your residency program is picking up the tab for those things.
Point # 6 "You need to worry about your credit history." Too many people emphasize credit history. It simply isn't that hard to get a decent score. Get a couple of credit cards, put a tank of gas on each every month, pay it off every month, repeat x 2 years and you will have a credit score adequate to get the best mortgages available.
Point # 7 "Two people making $60K get taxed into oblivion." Two married persons making $60K per year and deducting nothing beyond the standard deduction pay about $5712 in taxes, or 9.5%. If they have two kids they pay $2782, or 4.6% of their income. I'm not sure what you mean by oblivion, but I'm pretty sure 5-10% of your income doesn't quite qualify.
Now, there ARE times when it makes sense to buy a house. The most obvious, of course, is when the market is going to go through the roof while you own it. Unfortunately, this is hard to see. I have made this call wrong two times so far. I owned during a flat market in med school from 1999-2003, and I rented during the real estate boom from 2003-2006. As you can see, this is hard to predict in advance.
In my opinion, if you cannot afford to put 20% down on a 15 year fixed mortgage you can't afford to buy the house. Most people coming out of med school can't do this on a resident salary, but some can if they live modestly in a relatively inexpensive area and happen to have some cash saved up.
When you are an attending making $180K-$250K it doesn't make much sense to rent. At that income level the interest deduction IS important. You are also often in a bit more stable situation and will be in the house long enough to realize the benefits of home ownership.
A home IS a great investment. Home prices generally keep up with the inflation rate, and since you buy it with leveraged money, real estate investing returns are generally comparable to stock market returns. But just like in the stock market, great returns don't come without taking risk. Home prices DO go down, sometimes for long periods of time.
A few miscellaneous points to consider when deciding whether to buy a home:
1) Maintenance costs are not insignificant. Plan on 1% of the value of the home per year, more if it is an older home.
2) A home owner pays ALL the utilities, including garbage, water, recycling, homeowner association fees etc that you may not have paid directly as a renter.
3) Sometimes homes are difficult to sell. In a buyer's market you pay dearly for a quick sale.
4) Homeowners get to do whatever they want with the house. You can paint it whatever color you want, add on an extra room, recarpet with whatever you want. How do you feel about repainting on your day off after an 80 hour work week?
5) You will see "doctor's loans" advertised by places like Bank of America. How nice. They think doctors are so great that they don't force them to get a higher rate second mortgage or to pay PMI for not having 20% down. Trust me, they don't cut doctors any breaks. They know we're financial suckers. The rate on the primary loan will be sufficiently higher to make up for the fact that there is no second. For example, while shopping for mortgages I learned that if I put 20% down I get a 6.25% mortgage. If I do an 80/20 loan, I pay 6.75% on the first mortgage and 7.75% on the second. Just the fact that you have a second makes your first mortgage cost more. The Bank of America $0 down doctor's loan would have been about 7%.
6) The run-up in housing prices that many markets have seen has not been accompanied (for the most part) by a run-up in rents. In some places, California in particular, rent is downright cheap compared to the price of buying a home. The cheaper the comparable rent, the more the home has to appreciate for you to break even.
7) Homeowner's insurance costs more than comparable renter's insurance.
8) Don't forget the main benefit of renting is flexibility. I showed up in my residency town two days before orientation starts. I rented a house one day before and moved in. I got a couple extra weeks of vacation out of that. Nor did I have to pay any additional months of interest when I left.
In short, owning a home is a good thing to do eventually. But if you rush into it before you are ready and before you understand the costs involved, you may regret it. (And if the market goes through the roof like it has the last few years, none of my points above matter a bit.)
