During Dental School: To Buy or Rent (Advice, Please!)

organichemistry · Apr 21, 2005

First of all, let me say that I'm a second year undergrad so I've got some time to figure this out. Nevertheless, I figure it is important to start thinking about how I am going to live and manage my debt.

I've worked from 8th grade and all through high school saving a vast majority of the money I made for my education. I work sparingly these days, however.

In any event, I figure to complete undergraduate school with about $25,000 in the bank, post-application process.

I'm curious as to how I should use this money. I plan on attending my state school which is the University of Alabama -- which is about as cheap as they come. It amounts to something like $60,000 over 4 years. I figure with hidden costs here and there I can predict worst case of $70,000. This does not include living expenses... namely rent and food. My car situation is fine through dental school.

My question really is this: Would it be wise to buy a house right out of undergrad? Like I said, I plan on attending my state school in Birmingham (also my home town, and the place I would like to end up practicing).

I could buy a pretty new home 20-25 minutes away for something like $130,000. So I could just use my $25,000 as a down payment on the home and pay a $500-$600 monthly mortgage (if it was a 30 year). Then I would be looking at taking out loans for dental school ~$70,000 over 4 years and living expenses (food, gas, mortage payments, miscellaneous expenses) ~$50,000 over 4 years.

seems to me that $120,000 of loans isn't abnormal and this way i would be building SOME equity... rather than just paying rent, which would probably cost me almost as much as a mortgage payment.

plus, the house would probably be a 2 bedroom, 2 bathroom so i could even rent out the other "space" for ~300-400 a month to give me a little money. or if i'm married or have a serious girlfriend, it gives us both a place to live.

just wondering if anybody has any advice, stories to tell, know anyone doing this type of thing, etc...

thanks for all your help guys.

Biogirl361 · Apr 21, 2005

I've heard of plenty of kids who buy condos during school and then sell them back when they leave the area. nice condos can go for around the same price you are talking for a house. I think if you have the money and confidence to do it, it is really a good investment especially since you plan on staying in the area even after school

the only negative i have heard from people who have bought during school is having time to do things for it like cut grass, make repairs, etc.

nothen2do · Apr 21, 2005

I would love to buy a place, but in sunny california, specifically San Fran, 25K won't get you a parking space. 450 sq. foot studio are selling for 400K within hours. Random rant I know, but to kind of get at your question, when you are applying for financial aid, the 25K in the bank that you have to declare is going to limit the aid you get (I believe). Kind of a Catch-22 as w/o the extra money you would get a loan to barely cover everything, but with the extra money you recieve even less and are in the same position. I know, feels like you're taking crazy pills huh?

balance · Apr 21, 2005

organichemistry said:
First of all, let me say that I'm a second year undergrad so I've got some time to figure this out. Nevertheless, I figure it is important to start thinking about how I am going to live and manage my debt.

I've worked from 8th grade and all through high school saving a vast majority of the money I made for my education. I work sparingly these days, however.

In any event, I figure to complete undergraduate school with about $25,000 in the bank, post-application process.

I'm curious as to how I should use this money. I plan on attending my state school which is the University of Alabama -- which is about as cheap as they come. It amounts to something like $60,000 over 4 years. I figure with hidden costs here and there I can predict worst case of $70,000. This does not include living expenses... namely rent and food. My car situation is fine through dental school.

My question really is this: Would it be wise to buy a house right out of undergrad? Like I said, I plan on attending my state school in Birmingham (also my home town, and the place I would like to end up practicing).

I could buy a pretty new home 20-25 minutes away for something like $130,000. So I could just use my $25,000 as a down payment on the home and pay a $500-$600 monthly mortgage (if it was a 30 year). Then I would be looking at taking out loans for dental school ~$70,000 over 4 years and living expenses (food, gas, mortage payments, miscellaneous expenses) ~$50,000 over 4 years.

seems to me that $120,000 of loans isn't abnormal and this way i would be building SOME equity... rather than just paying rent, which would probably cost me almost as much as a mortgage payment.

plus, the house would probably be a 2 bedroom, 2 bathroom so i could even rent out the other "space" for ~300-400 a month to give me a little money. or if i'm married or have a serious girlfriend, it gives us both a place to live.

just wondering if anybody has any advice, stories to tell, know anyone doing this type of thing, etc...

thanks for all your help guys.

It seems like you all figured it out. If you get accepted to the University of Alabama dental school then you better continue with your plan. Also, you can always get a ARM loan (which is 1% interest for the first five years). I think that way your mortgage will be a lot less.

Good Luck.

balance · Apr 21, 2005

nothen2do said:
I would love to buy a place, but in sunny california, specifically San Fran, 25K won't get you a parking space. 450 sq. foot studio are selling for 400K within hours. Random rant I know, but to kind of get at your question, when you are applying for financial aid, the 25K in the bank that you have to declare is going to limit the aid you get (I believe). Kind of a Catch-22 as w/o the extra money you would get a loan to barely cover everything, but with the extra money you recieve even less and are in the same position. I know, feels like you're taking crazy pills huh?

But if he uses the $25 K for his house down payment then financail aid is not going to penalitze him for that.

First buy your house and then apply for financial aid.

45540 · Apr 21, 2005

Buy a home in homewood right down the street. Woodfern is a great place to start looking. My sister bought her home there when she started her surgery residency 5 years ago for 129k and sold it a month ago for 186k. The area generally always appreciates if you can find a home that will work for you. Renting is less of a hassle, but buying could pay off in the long run.

O-Chem, i'm hurt you're not applying to UT-memphis, how can you hit MUSC and not UT. Just kidding.

eric275 · Apr 21, 2005

balance said:
Also, you can always get a ARM loan (which is 1% interest for the first five years).

Good Luck.

Just in case you mis-typed this I would like to clarify that ARM loans are not 1% interest. They are usually ~1% lower than average rates for 15 or 30 year loans. This lower rate is fixed, in the case of a 5 yr ARM, for the first five years and then fluctuates depending on what the current rates are at.

For the OP if you plan on keeping the house for longer than five years, as you stated you may end up practicing in the same area where you are attending school, an ARM may not be the most ideal loan for you. I would only get an ARM if you know for sure that you will be selling the house within the five years. If you end up keeping the house at the end of the 5 year ARM the amount of your refinance to lock in your rates for 15 or 30 year loan may off-set the benefit of having the lower interest rate ARM to begin with. On the other hand if the lowest possible payments while in school are the goal than an ARM may be the better way to go, it all just depends on what your goals are.

You should really go and sit down with a mortgage broker, a good one, and discuss your options and the benefits of each scenario. You may also find that you don't want or need to put your whole 25k as a down payment. Depending on your credit you may be able to only put 5% down and keep the rest in the bank for a rainy day, tuition, etc.

One more factor you want to consider with renting over buying is how the real-estate market is appriciating in the area where you would be buying. If the market is stagnant you may want to rent and invest your money for a better return.

Anyway, lots of options and way to be thinking ahead.

The Godfather · Apr 21, 2005

organichemistry said:
First of all, let me say that I'm a second year undergrad so I've got some time to figure this out. Nevertheless, I figure it is important to start thinking about how I am going to live and manage my debt.

I've worked from 8th grade and all through high school saving a vast majority of the money I made for my education. I work sparingly these days, however.

In any event, I figure to complete undergraduate school with about $25,000 in the bank, post-application process.

I'm curious as to how I should use this money. I plan on attending my state school which is the University of Alabama -- which is about as cheap as they come. It amounts to something like $60,000 over 4 years. I figure with hidden costs here and there I can predict worst case of $70,000. This does not include living expenses... namely rent and food. My car situation is fine through dental school.

My question really is this: Would it be wise to buy a house right out of undergrad? Like I said, I plan on attending my state school in Birmingham (also my home town, and the place I would like to end up practicing).

I could buy a pretty new home 20-25 minutes away for something like $130,000. So I could just use my $25,000 as a down payment on the home and pay a $500-$600 monthly mortgage (if it was a 30 year). Then I would be looking at taking out loans for dental school ~$70,000 over 4 years and living expenses (food, gas, mortage payments, miscellaneous expenses) ~$50,000 over 4 years.

seems to me that $120,000 of loans isn't abnormal and this way i would be building SOME equity... rather than just paying rent, which would probably cost me almost as much as a mortgage payment.

plus, the house would probably be a 2 bedroom, 2 bathroom so i could even rent out the other "space" for ~300-400 a month to give me a little money. or if i'm married or have a serious girlfriend, it gives us both a place to live.

just wondering if anybody has any advice, stories to tell, know anyone doing this type of thing, etc...

thanks for all your help guys.

You need to buy your house prior to filling out the FAFSA. Otherwise, as someone else said, it will f up your aid (your home doesn't count against you when determining your package). Also, I'm assuming you have the credit and income to actually qualify for a mortage like you are talking about. It doesn't matter if you have $25K in the bank, if your debt/income ratios don't work. If it's a problem you might be able to get someone like a parent or relative to co-sign for you. You need to get all this sorted out bc your probably aren't going to be able to qualify with just what you make from your financial aid package (unless it's a really inexpensive home). Also, some things to think about. If you can put down 20% of the selling price of the home you won't have to pay PMI (private mortage insurance) which adds to your monthly payment. If you aren't going to be staying in that area, go for an interest only loan (if you qualify). This will keep your payments at their lowest, and it makes better sense than a traditional 30 yr since you are going to be paying mostly interest in the first four years anyway. You basically are betting on the house appreciating some in the next four years. You can check the gov't's websites (I can't remember the site right now) to check appreciations for different areas. Don't believe what a realtor tells you, unless you really trust him/her. Which brings me to a final point. Find a good realtor (a buyer's agent, who'll be working for you, not someone just pushing their company's listings) and mortage banker (ask friends or your parents). Good luck. It's always a good path if it's possible. Real estate's been outpacing any other form of investment the last few years in most areas, so it's a good place to park assets. As my Dad says, "God doesn't make any more land." PS the roomate thing is a great thing if you can find the right person. Make him/her pay for your mortgage, and you are basically living for close to free!!!

OMFS2B · Apr 21, 2005

We bought a condo at the start of school and now when we sell we will have equity for a house and a 4-plex. There is one thing I would have done differently. We got a 30-year mortgage, but after 4 years you really haven't paid down much of the prinicipal. If you aren't planning on keeping the home past 5 years I would get a 5/1 ARM or interest only loan. Your equity after 5 years is predominantly from appreciation and it will cut your mortgage payment by about half. Also, I wouldn't put 20% down, why tie up your money? With a good FICO number you can be more selective then what the banks let on.

Good Luck

Dr.BadVibes · Apr 22, 2005

my friend and I were just talking about this topic last night.....we both bought places and are so happy to do it....instead of pissing away money to pay for some landlord's cocaine habit, we will actually make money when we decide to sell....our places are in prime areas and have traditionally been sold within a week of being put on the selling block, so make sure that if you are gonna pay for a place, make sure that you'll be able to sell it back. Real estate is a great investment....no one can deny that.

honestly, if you can avoid it, renting is really stupid.

mike3kgt · Apr 22, 2005

OMFS2B said:
We bought a condo at the start of school and now when we sell we will have equity for a house and a 4-plex. There is one thing I would have done differently. We got a 30-year mortgage, but after 4 years you really haven't paid down much of the prinicipal. If you aren't planning on keeping the home past 5 years I would get a 5/1 ARM or interest only loan. Your equity after 5 years is predominantly from appreciation and it will cut your mortgage payment by about half. Also, I wouldn't put 20% down, why tie up your money? With a good FICO number you can be more selective then what the banks let on.

Good Luck

I am not sure many mortgage brokers will award 5/1 ARMs or interest-only loans to dental students without potential financial backing. Most will push for a 15/30 year fixed % loan, especially with the rates right now. 5/1 ARMS and especially interest only loans are much riskier than a fixed mortgage and unless you have income to offset the mortgage, you are very risky for the lender. In a housing market that for all intensive purposes, has peaked and will begin slowing down, it is not safe for the lender to award loans that depend on rising appreciation of property (as interest-only loans do).

As for the 20% down? Unless you want to keep some leftover for a rainy day, it's best to pay off your high % mortgage than keep it in another account. Let's give an example. You could potentially take out $40,000/year in student loans and (off the books) pay your mortgage payments using this money (less tuition, books, etc.). Federal student loans are quite low right now (less than 3%) where as 15/30 year mortgages start around 5.3% and 5/1 ARMS around 4.7%. So do the math... if you are taking out federal student loans around 3% and mortgage loans around 5%, theoretically, you can transfer as much as you can to the higher % loan from the lower % loan to maximize your savings and thus putting equity into a tangible investment and ultimately saving 2% in loan repayments.

On the other hand, you say, why not put as less $$ into your "poor investment mortgage" and put them into investment accounts (stocks, CDs, etc). Well, stocks are extremely variable, bonds, and CDs are paying at less than that, so unless you have a secret 5 year CD that is paying out over 7%, it may be in your best interest to put some equity into your home (especially when housing rates are rising at 10% a year for the past couple of years).

Then again, this is technically against FAFSA loan 'rules' so tread lightly.

View this article on ARMs.
http://www.bankrate.com/brm/news/mortgages/20050414a1.asp

-Mike

Ruprick · Apr 22, 2005

Should you buy? It all depends on where you go to dental school. I have several different scenarios for myself in which I will buy and some in which I will rent. If I get accepted to UNLV, I will likely buy a home. Dalhousie or USC and I will be renting.

Bottom line: do some research on the appreciation history and cost of buying in the area that you will be moving and THEN make your decision. It doesn't ALWAYS make sense to buy--especially in an area that might be experiencing a downward trend in home values. I have a friend that has been trying to sell his home in Indiana for nearly a year. I would hate to be put in that situation fresh out of dental school.

And please don't take seriously half of the stuff you have read on this thread--talk to a loan officer you trust. For example, I know for a fact that you would be able to qualify for an ARM just as easily as you would a 30yr fixed (I've been working as a loan officer part-time for the past 5-6 years).

Ruprick · Apr 22, 2005

OP, FYI a $130K mortgage (even if you put $20K down) will cost you more like $750-850/month, depending on taxes and insurance in your area. Don't forget the extra costs associated with owning, like water, sewage, trash, landscaping etc etc.

These added costs notwithstanding, I would still recommend buying (if you've done the things I mentioned in my previous post). I own a home and wouldn't have it any other way. But that may very well change depending on where I end up attending.

zdaddy08 · Apr 22, 2005

Ruprick said:
OP, FYI a $130K mortgage (even if you put $20K down) will cost you more like $750-850/month, depending on taxes and insurance in your area. Don't forget the extra costs associated with owning, like water, sewage, trash, landscaping etc etc.

These added costs notwithstanding, I would still recommend buying (if you've done the things I mentioned in my previous post). I own a home and wouldn't have it any other way. But that may very well change depending on where I end up attending.

I would reccomend only putting down the required 3 or 5% depending on what type of mortgage you get. I'm sure you'll find that the extra $ wont make your monthly payment that much lower and the extra mney sitting in your savings to live on...i just think the money would be more beneficial to you at this stage if its liquid and not gone to the mortgage....just my opinion...good luck

Calculus1 · Apr 23, 2005

Ruprick said:
OP, FYI a $130K mortgage (even if you put $20K down) will cost you more like $750-850/month, depending on taxes and insurance in your area. Don't forget the extra costs associated with owning, like water, sewage, trash, landscaping etc etc.

These added costs notwithstanding, I would still recommend buying (if you've done the things I mentioned in my previous post). I own a home and wouldn't have it any other way. But that may very well change depending on where I end up attending.

I pay about 850 a month for a condo which includes(in my homeowners dues) water, trash etc. etc. for 105K. I live in Dallas which is a moderately priced market compared to NYC or LA. I'm looking at about 5-7% growth per year, so when I go to sell, I haven't thrown any money away to rent. It's not for everybody and depends on the city your school is in, but don't let anything stop you from looking into it.

TaliaTN · Apr 23, 2005

I agree with the point that you really should talk to your loan person/ mortgage company before you start looking. I bought my condo no problem 3 yrs ago b/c I had a decent income. I sold it recently , and now that I've been a student (my income dropped dramatically 6 mos after I bought the condo because I went back to school, and I still made my payments, but the mortgage company and the banks don't care about that) and bringing in only about 23K, no loans for me! Luckily my fiance can do the financing, but if not I'd be screwed! The houses that are in good neighborhoods in Memphis are upwards of $140K. For him to even qualify, we have to put down 10%.... $16K in our case!!! Yikes! Luckily we have it because we made money off my condo. If I had rented instead of bought, we wouldn't have the cash. Now is a good time to get some valuable advice from a mortgage company about what course you should take to maximize your chances.

It sounds like you are on the right track!

organichemistry · Apr 26, 2005

first of all let me say thank you all for your input.

i talked to my father about this briefly and he seemed skeptical. he didn't seem to think that i would be able to be able to buy a home or condo. when the bank asked for my income if i told them "i'll be using a loan"... well, he said they would laugh in my face. i can understand that, but if so, how are other people doing it?

anybody know about this?

The Godfather · Apr 27, 2005

organichemistry said:
first of all let me say thank you all for your input.

i talked to my father about this briefly and he seemed skeptical. he didn't seem to think that i would be able to be able to buy a home or condo. when the bank asked for my income if i told them "i'll be using a loan"... well, he said they would laugh in my face. i can understand that, but if so, how are other people doing it?

anybody know about this?

Like I said before, get the mortgage before you start school. The bank is not going to lend you money based on what you "earn" from your student loans. Chances are unless its a really inexpensive property, the income just isn't there with student loan money alone. I am buying another house right now and know I wouldn't be able to qualify when I'm a student because my income will be so low. Once you have the mortage, and are in school, they won't be "checking up on you" to see your income levels. They don't really care as long as you keep making payments on time. The best thing to do is just go to a mortgage banker and throw the numbers at him to see what you qualify for (pre-qualify). That way you'll know more what your options are. Remember you can always get someone to cosign with you.

Ruprick · Apr 27, 2005

Godfather is right. Although if you do have to buy the home after you quit your job a co-signer should help fix that dilemma. Personally, I don't want to depend on a co-signer for anything, though.

TaliaTN · Apr 27, 2005

Ruprick said:
Godfather is right. Although if you do have to buy the home after you quit your job a co-signer should help fix that dilemma. Personally, I don't want to depend on a co-signer for anything, though.

This brings up a good point, who are you going to depend on? For me personally, the living expenses allowed with a stafford loan are about $10-12K a year. To me, thats not much. I will be depending on my future husband or I could take out even more private loans. I guess if you had a roommate that person could help you make ends meet, but when something goes wrong you're going to be the one who has to fix it. A co-signer in the form of a parent might be a great opportunity. If they're willing to help if you get in a bind, then thats great. My dad co-signed on my first car. He never had to bail me out, but it wouldn't have been possible for me to do it without him. I think its okay to let other people help you out, as long as each person understands what is going on. A parent that is willing to do that is a blessing in my book.

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