Buying a house before medical school

Prodromo · Feb 2, 2010

Would it be possible to use the medical school student loans given for housing expenses to purchase a home? I live in metro Detroit and right now seems like an excellent time to buy especially with the tax breaks extended until the end of April.

I graduated in December and have a break until August so I have time to make this happen if it's possible.

The problem I have is my lack of income. Will it even be possible for me to get a bank loan? I am thinking the loan would be around 60000, with a 10% cash down payment. Will a bank consider the med school loans as a source of income? Thanks!!

kia ora · Feb 3, 2010

they can't give away houses in SE Michigan, this is an excellent time to buy there (as long as you plan on keeping the house for quite a while, maybe even beyond your four years in school). anyhow, I don't have a sure answer to your question, but my instinct tells me that student loans =/= income. there are mortgage lenders who specifically work with students in graduate/professional schools; such a lender likely will be your best source of information re: this. I plan to buy a home in the city where I'm moving for med school; however, I am selling a house in the city I'm leaving and home prices here are *much* higher than where I'm going.

and definitely try to get it done before the buyer credit goes away (I believe that you have to be under contract by 30 April to get the $)

deleted128562 · Feb 3, 2010

I don't know if you'd be able to get a loan or not. But I have three pieces of advice for you.

1) Don't do it
2) Don't do it
3) Don't do it

I bought a starter house as an undergrad back in 2004 (I'm a nontrad). "I'm so smart!" I told myself. What could possibly go wrong? Surely I could turn around and sell the place 4 years down the road! Well, I had to move for medschool and guess what? As you well know the market tanked. Had to short-sale (barely averted foreclosure but still absolutely wrecked my credit). I lost the $15,000 downpayment I had put down as well as all the money I put into the place in mortgage payments (more expensive than had I rented) and repairs/upkeep. It was a painful lesson.

You have no idea where you'll be doing residency. So you're thinking of doing the same thing I did. Buying a house, just sure that: "this is such a great time to buy! I'll be able to sell in 4 years no problem!" But you don't know that. For all you know housing prices in 4 years will be worse than they are now and you'll be stuck. You won't be able to afford 2 house payments during residency either so you can't well keep the place if you move unless you rent it out, which, based on the experiences of my friends, you have about a 10% chance of not renting your house out to a closet drug addict who completely destroys it and rips you off several months of rent payments before disappearing.

Consider also that for the first 5-7 years of a mortgage 80% goes to interest so it's really no better than paying rent. Also consider that you will have to pay property taxes and biggest of all you will have to pay for repairs. Let me tell you, I could not count on one hand the friends I've had who bought "cheap" houses in this "great" depressed market only to discover 6 months later that they had to put $10,000 or so of work into the place due to little things like, you know, major structural problems that somehow got missed by the inspector, or major plumbing repairs, or making the discovery too late that the house was a former meth house and the carpets had to be ripped out etc etc etc. Even if you only end up having to pay "normal" repair costs, let me tell you they can be a b****. Your heater goes out or your refrigerator stops working - you are hosed. You are barely going to be getting by on your student loans as it is, and the last thing you need is to have to buy a new hot water heater.

Can you tell that I'm passionate about this? There is nothing wrong with buying per se, but you need to be able to move for residency and have the freedom to not worry about unexpected repair costs while you're living on a very tight and fixed budget. Take it for what it's worth. I just would hate to see you go through the same problems I have.

FutureDoc4 · Feb 3, 2010

I think if you are going to buy, I would definitely put it in your mind that you are going to hold onto this place and rent it out after you leave (unless you stick around for residency) (long term investment). So, look into buying the house as an investment property rather than just somewhere for you to live for 4 years. (Otherwise, to buy a place for only 4 years seems silly). Before, everyone jumps on the bandwagon of "you won't be around to handle repairs" if you rent it out. You can do one of two things a) have a real handy friend you can drop some cash to who would be available b) hire a management company to deal with the property (again, make sure this a property that will be a good long term investment).

I have seen this done successfully, and if you find a good location near the medical school, you will never lack dependable renters and a new source of income in the long term.

DrBowtie · Feb 3, 2010

You probably won't be able to secure the loan on your own without an income, and loans will not be counted. Most people in my class who have bought either have spouses working or their parents got the mortgage for them. It probably would have flown before the credit crunch in the era of self-reported income, but not anymore.

southerndoc · Feb 3, 2010

Houses as investment options are a bad idea unless you have a lot of net worth already.

If you can't live in a house for at least 5 years, then there's no reason to be buying. Everyone thinks they can beat the market, sell at a profit, etc. The reality is that it's probably not going to happen.

As Mr. Hat said, the majority of your payments in early years will go toward interest.

edmadison · Feb 3, 2010

southerndoc said:
Houses as investment options are a bad idea unless you have a lot of net worth already.

If you can't live in a house for at least 5 years, then there's no reason to be buying. Everyone thinks they can beat the market, sell at a profit, etc. The reality is that it's probably not going to happen.

As Mr. Hat said, the majority of your payments in early years will go toward interest.

Agree with those above completely. Loans are not income. You will definitely need a cosigner to help you out. Buyin gives you a host of problems as noted above. I'll add another one. If you have a very specific time you want to move, you can get in a real pinch reselling the house, don't forget that. Further you absolutely, positively do not want to be and absentee landlord. Horrible.

Two of the biggest advantages of home ownership are 1) tax benefits and 2) building equity. If you have no significant income, you get no tax benefit. As noted before, you get no significant equity in the first few years (look at an amortization table) -- you're just paying interest, which is essentially rent to the bank.

Ed

FutureDoc4 · Feb 4, 2010

Agreed you need a cosigner.

I think this "doom and gloom" about home ownership during med school is a little drastic.

I bought when I came into med school on a pre-foreclosure, spent the summer before med school fixing it up. Definitely put some money into it. I will be here 5 years at school (dual degree), and if I do not stay here for residency, I am not planning on selling it. Numerous places are rented out in the area to medical students from former medical students (who bought). I just want to remind everyone, becoming a wealthy (or well off), is not going to happen in medicine anymore and you have to have constant I would say "passive" money flow. I am trying to start to build that early.

In any case, each situation is different, but if you find a good investment don't let naysayyers push you away from it.

deleted128562 · Feb 4, 2010

FutureDoc4 said:
Agreed you need a cosigner.

I think this "doom and gloom" about home ownership during med school is a little drastic.

I bought when I came into med school on a pre-foreclosure, spent the summer before med school fixing it up. Definitely put some money into it. I will be here 5 years at school (dual degree), and if I do not stay here for residency, I am not planning on selling it. Numerous places are rented out in the area to medical students from former medical students (who bought). I just want to remind everyone, becoming a wealthy (or well off), is not going to happen in medicine anymore and you have to have constant I would say "passive" money flow. I am trying to start to build that early.

In any case, each situation is different, but if you find a good investment don't let naysayyers push you away from it.

One question for you then. If your furnace breaks down and you have to pay several thousand dollars to replace it, how are you intending to pay for that?

FutureDoc4 · Feb 5, 2010

I will say, that because of unforeseeable events, I tend to take out in terms of loans a little more than I need ($2000-$3000), that I keep as a "safety" in my bank account. I also have a support system in place, that if I was really in a jam I would get help from family members.

If no family was available, and I had no extra cash I would put it on my credit card (which I keep at low balance on). I mean, a furnace is no small thing. There are a few little things I've let go for now and just decided not to fix (but, will probably fix a little later on). But, overall I am very satisfied with my decision.

Bobblehead · Feb 5, 2010

FutureDoc4 said:
In any case, each situation is different, but if you find a good investment don't let naysayyers push you away from it.

I would add that if people reading this thread choose to buy due to a lifestyle choice that makes far more sense than it would from either a financial or investment standpoint when you're talking about a defined period of ownership like 4 years of med school. Home ownership should really first, and foremost, be about how you choose to devote your housing dollars in terms of quality of life.

Med school and residency training can be time intensive enough that you may very well want someone else to deal with the "joys" of homeownership.

xanthines · Feb 5, 2010

While prices are very low right now (especially in Detroit), it's also hard to get a loan nowadays. It's kind of hard to imagine the housing situation getting worse in Detroit, but it's certainly possible.

Your loans are not incomes and doctor's loans, if they even exist anymore, aren't for incoming med students; only outgoing med students. So the others are right, you will need a co-signer. Also, some banks might want a 20% downpayment depending on your credit and your co-signors credit. It could vary with the type of loan.

Whatever you do, make sure you get a home inspector to look at it. One that's qualified and one that answer to you and only you. Don't let the bank or the sellers pay for it.

Just my opinion.

-X

Prodromo said:
Would it be possible to use the medical school student loans given for housing expenses to purchase a home? I live in metro Detroit and right now seems like an excellent time to buy especially with the tax breaks extended until the end of April.

I graduated in December and have a break until August so I have time to make this happen if it's possible.

The problem I have is my lack of income. Will it even be possible for me to get a bank loan? I am thinking the loan would be around 60000, with a 10% cash down payment. Will a bank consider the med school loans as a source of income? Thanks!!

kia ora · Feb 9, 2010

Bobblehead said:
I would add that if people reading this thread choose to buy due to a lifestyle choice that makes far more sense than it would from either a financial or investment standpoint when you're talking about a defined period of ownership like 4 years of med school. Home ownership should really first, and foremost, be about how you choose to devote your housing dollars in terms of quality of life.

Med school and residency training can be time intensive enough that you may very well want someone else to deal with the "joys" of homeownership.

I agree. I'm not expecting a great investment (like my present house), I mostly think it would suck to be a renter again after having been a homeowner

as for other concerns, I'm looking at condos (monthly condo fee covers a lot of the maintenance)...having done the old house thing, I can say that while I love it I don't kid myself that I'll have time for it as a medical student. and I wouldn't be considering buying over renting if I had to use loan money to make the mortgage payments...using borrowed money to pay a loan doesn't make a lot of sense

plauto · Feb 9, 2010

I am going to side with the naysayers on this one. I'll give you my personal experience:
I am married and I bought a house 6 yrs ago. Nice suburban home when I had a decent income. I had to put at least $20,000 on the house since I bought it.
Roof, waterproofing the basement, windows, etc... Most of these things were not planned, only the windows were. I am a handy man and own many tools. I do most of the work myself. If I did not know how to do things, I'd have spent at least $40,000. Electrical work, plumbing, sewer lines, drywall, landscaping, water heater, furnaces, A/C. Count on something going wrong with most of these things. In addition, you're building little equity at the beginning of the mortgage and what you pay in property taxes (at least where I live) would be enough to share an apt around the school with another student for 6 months. How about the bills? You'd be surprised to see how much natural gas and water can be when your landlord is not paying them. Plus all this stuff takes time. I spent half the day shoveling over 2 ft of snow on Saturday and it looks like it will be the same tomorrow.

I love my house and would never trade it for an apt. However, it's really hard to come on top on such a short time and the time commitment is huge, well beyond what a med student has. An apt would be more manageable, however it probably does not have the same room for improvement as a house therefore you might not get any financial advantage to buying rather than renting. I'd say that in general cheap homes are just that, cheap. they need a lot of work and you might not get back the investment since chances are the rest of the neighborhood is cheap too.

sumstorm · Feb 13, 2010

I did it, but I have a history with flipping houses (and not the crazy insane market hungry flipping that a lot of folks were doing.)

So, I purchased a home at a drastic reduction due to cosmetic ugliness (lots of patterned paper, extremely bright carribean colors inside and out, ratty carpet, etc.) So, even at the lowest point (housing prices are rising here again) I bought the house at 28% below market value at the lowest point (didn't know at the time it was at the lowest point) and it had re-entered the market after 1 year absence. I did all the work myself. Alot of work.

However, we had the money to put into the house; paint, carpet, etc do cost money. I have the skills; I can drywall, lay carpet, roof, and do basic carpentry. This method takes a LOT of time. Time I don't always have. So other projects are left undone because school then house take priority.

I also rent out a couple of rooms to folks on rotations here. We had the down payment, but our monthly mortgage payments originally came from my student loan COL, but now comes from rent income. We also had seller take closing costs in exchange for very rapid closing. I have, in less than a year, had 3 offers on the house that would give us a 10+% profit above and beyond costs. Also, it would cost me more in this area to rent with my dog (SAR shepherd) by a minimum of 2x my rent (lots of breed rules in rentals here.)

Here is the biggest difference between us and most folks that do this; it is business. We aren't attached to the house, it isn't 'ideal' for us, and we are using it as income NOW. If I wasn't willing to do that, or if I didn't have the skills, I wouldn't have bothered.

So, ask what your goal is, and why you want a house rather than an apartment. If you are trusting housing values to make it worthwhile, don't do it, it isn't worth it. If you have family/life situations that make apartments problematic, and you can really see it and work it as an investment (buy low, sweat equity, rental income as real potential), then consider it with a lot of caution. For 95+% of the students entered med school, I would think it is a terrible idea (this is also our 4th house due to relocations, so we have some practice.)

sumstorm · Feb 13, 2010

plauto said:
I'd say that in general cheap homes are just that, cheap. they need a lot of work and you might not get back the investment since chances are the rest of the neighborhood is cheap too.

Oh, I agree with this. Our house was the eyesore of the neighborhood, but structurally excellent. The neighborhood in general is valued far higher than our house; and we took an ugly home and made it appealing for the neighborhood it was in. So the difference was greater, giving us more potential earning. And we did not do anything to make it the nicest house in the neighborhood. But being a homeowner can really suck.

plauto · Feb 13, 2010

sumstorm said:
I did it, but I have a history with flipping houses (and not the crazy insane market hungry flipping that a lot of folks were doing.)

So, I purchased a home at a drastic reduction due to cosmetic ugliness (lots of patterned paper, extremely bright carribean colors inside and out, ratty carpet, etc.) So, even at the lowest point (housing prices are rising here again) I bought the house at 28% below market value at the lowest point (didn't know at the time it was at the lowest point) and it had re-entered the market after 1 year absence. I did all the work myself. Alot of work.

However, we had the money to put into the house; paint, carpet, etc do cost money. I have the skills; I can drywall, lay carpet, roof, and do basic carpentry. This method takes a LOT of time. Time I don't always have. So other projects are left undone because school then house take priority.

I also rent out a couple of rooms to folks on rotations here. We had the down payment, but our monthly mortgage payments originally came from my student loan COL, but now comes from rent income. We also had seller take closing costs in exchange for very rapid closing. I have, in less than a year, had 3 offers on the house that would give us a 10+% profit above and beyond costs. Also, it would cost me more in this area to rent with my dog (SAR shepherd) by a minimum of 2x my rent (lots of breed rules in rentals here.)

Here is the biggest difference between us and most folks that do this; it is business. We aren't attached to the house, it isn't 'ideal' for us, and we are using it as income NOW. If I wasn't willing to do that, or if I didn't have the skills, I wouldn't have bothered.

So, ask what your goal is, and why you want a house rather than an apartment. If you are trusting housing values to make it worthwhile, don't do it, it isn't worth it. If you have family/life situations that make apartments problematic, and you can really see it and work it as an investment (buy low, sweat equity, rental income as real potential), then consider it with a lot of caution. For 95+% of the students entered med school, I would think it is a terrible idea (this is also our 4th house due to relocations, so we have some practice.)

kudos to you! I know from personal experience this was very hard to do.

bluebird123 · Dec 12, 2010

My husband and I are looking to buy when we move to start med school this fall. I will be on a military scholarship ($2,000+/month stipend) and he will be working full-time. We are from California, the land of the $400,000 shack, and have found that there are nice houses in nice areas near schools where I have interviewed priced closer to $125,000-$150,000. We are both pretty handy, so we are looking at a lot of "eyesore" houses priced closer to $100,000 that really just need new siding and living room flooring, or similar repairs. Our plan is to live off my husband's salary ($35,000/year estimated, based on job listings for his job title and experience in the areas we are looking to move to). We will then be able to put my entire stipend towards the mortgage and get it mostly paid off during my four years of school. We are then planning to leave the house with a management company and use the rental income to pay off the remainder of the mortgage (rent-management company fees-10%/year routine maintenance < mortgage payments).

BUT we also don't want to rent because:
a) We have had bad experiences with landlords in the past.
b) We have a dog, which makes renting more expensive and restrictive.
c) We cook a LOT, so we want a big kitchen, which is not an option in most apartments.
d) We both shoot (rifles and pistols) and feel very uncomfortable about landlords potentially having access to our weapons.
e) We have steady, guaranteed income from the government (not a loan) which will allow us to pay our mortgage and living expenses, even if my husband loses his job.
f) Because my husband is a veteran, we have access to a VA home loan (low rates, no money down, no PMI)
g) We will have no other consumer debt (cars paid off, no credit card debt, no student loans)
h) We have a pretty good emergency cushion (savings, drive late-model cars with good insurance that are still under warranty, etc.)

If any of those factors changes, we will start seriously looking at renting instead...

Buying a house before medical school

Prodromo

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kia ora

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deleted128562

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DrBowtie

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southerndoc

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