Calling all Homeowners

Did anyone buy a house while they were in school? I would really appreciate any and all advice concerning home buying & home ownership.

The Plan:

1) Buy house and pay house payment while in school with student loan money.
2) Move to new city for residency, rent house out to cover house payment and live in inexpensive apartment. Pay off house as quickly as possible.
3) Sell house and invest all proceeds in ~10-15% mutual fund. Do not touch. Pay off student loan as slowly as possible and beat the student loan interest rate on the market.
4) Become debt free in 40s with sizable portfolio.

If you get 100,000 for your house and find a conservative 12% mutual fund to invest in and don't even add to it, that grows to just under $3,000,000 in 30 years.

So far being a homeowner has been great, though it's tough to afford anything nice on the amount of loan money you're allocated. I've had a few tight months and have had to cut out some extras but I think things will work out in the end. It helps to buy a cheap used car with cash because those car payments will really hold you back.

I did. Don't do it unless you know what you're getting into. Make sure you have at least a $5K cushion at all times during the school year. S*^& will happen. Oh, and DON'T get a house with a yard/lawn. They need to be mowed.

Finally, make sure that you buy the home before you quit your job, unless you have a parent/spouse co-signing. I bought mine, all by my lonesome, and had I not been working for a year prior, my rates/options would have been completely different.

GL.

There are a lot of first time buyer programs out there--especially if you're going to school in a big city. Some of these programs help you out by reducing the required down payment (while still leaving the rate pretty low), eliminating PMIs, or even giving you a "grant" as a down payment.

Also, make sure you know what you're getting yourself into. Right now, most people are saying it's the beginning of a buyer's market (in most areas). This means that you can be a bit more selective. But you still have to budget your money quite well. You have to remember some of the costs that you usually don't need to worry about when renting--insurance, assessmets, costs of anything that goes wrong.

It's great owning a place if you make sure you can really do it.

Also, I recommend not closing or having important deadlines close to exams. I closed in the first week of school and it was still a pain in the arse. It's a HUGE pain--and then there is the moving.

Good luck

Just remember the market works both ways. I am moving in a few days and have not been able to sell my condo. Will be paying rent and mortgage until it sells. I did enjoy owning though

Ok, a couple things. Buying a house is something to consider as long as housing costs in your area are not toooo bad.

Also, consider asking parents for help as many med students do, ask your tax advisor about this. There are lots of areas to reduce the out of pocket on a home using tax breaks.

Finally, in response to the above.

hyperorchidism said:

1) Buy house and pay house payment while in school with student loan money.

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Maybe an ok Idea...if you allready have a big nestegg or outside support. Most student loans will give you about 500 bucks a month for housing. That is about enough for a 75-90k (if you can find a house for this, then go ahead, I have no idea where it would be though) loan depending on your rate. If you could rent to a roommate, that would help a bunch as long as you can come up with the 20% down payment and manage the property with ALL your free time.

hyperorchidism said:

2) Move to new city for residency, rent house out to cover house payment and live in inexpensive apartment. Pay off house as quickly as possible.

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Because managing a property while you work rediculous hours far away for little money is an easy thing??

hyperorchidism said:

3) Sell house and invest all proceeds in ~10-15% mutual fund. Do not touch. Pay off student loan as slowly as possible and beat the student loan interest rate on the market.

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Considering all things, since I am buying a house and a finance and acounting professional going to med school, I think I have some credential to say probably not going to pan out this way.

Assuming you have poured all your equity into the house since you started working. Maybe you end up taking away 80-90k in gain. If the market stands or goes up. This is a pretty risky time to bet on that. I would plan on not going up at this point.

Finally, 10-15% mutual funds grow on trees. Haha, good luck with that. assuming you pull out 75k in gain when done with residency at 30, assume you beat your loan rate by 5% (this is probably a huge overestimate with a small amount of money like 75k). It would take you 20 years to catch up to pay a loan that was 150, from your original 75. Remember the loan grows as does your investment. Assuming you didn't put more of your own money in.

hyperorchidism said:

4) Become debt free in 40s with sizable portfolio.

If you get 100,000 for your house and find a conservative 12% mutual fund to invest in and don't even add to it, that grows to just under $3,000,000 in 30 years.

So far being a homeowner has been great, though it's tough to afford anything nice on the amount of loan money you're allocated. I've had a few tight months and have had to cut out some extras but I think things will work out in the end. It helps to buy a cheap used car with cash because those car payments will really hold you back.

Click to expand...

Being frugal and conservative is the first step to wealth. Props on the hard work and gumption to get it going. I just want to shed a little opposing light so we don't have a bunch of eager people jumping on houses unprepared.

If you do...cheap house, very frugal life, a decent chunk of work outside of school, and no guarantees.

ortho060802 said:

Just remember the market works both ways. I am moving in a few days and have not been able to sell my condo. Will be paying rent and mortgage until it sells. I did enjoy owning though

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I'm a non-trad & starting school in the fall. I have been working for several years and have owned a house for a couple of those. I haven't been able to sell my place either (although I didn't try that hard), so I decided to rent it out, which will be fine (rent covers the mortgage and most of my rent in a new city). However, I don't know if I would have wanted to buy my first house while I was in school... there can definitely be hidden expenses that your loans aren't meant to cover (what if your property taxes suddenly go up one year, or your furnace dies and needs to be replaced, or something simple breaks and you have to spend a bunch of time fixing it or time finding someone else to do it). However, when you think about how much money rent is for 4 years ($600 X 48 months = $28,800), owning really can be a good investment.

Moving to Finance and Investment as there are poster here who can speak to pros and cons on home ownership. Allopathic students can follow and post if desired.

Hey, this is a good debate.

Maybe an ok Idea...if you allready have a big nestegg or outside support. Most student loans will give you about 500 bucks a month for housing. That is about enough for a 75-90k (if you can find a house for this, then go ahead, I have no idea where it would be though) loan depending on your rate. If you could rent to a roommate, that would help a bunch as long as you can come up with the 20% down payment and manage the property with ALL your free time.

My medical school allocates $1300 a month for room and board during term (but remember its a 9 month loan). This was enough for a $100000 house and $800 payment + bills. It's a little tight sometimes but really not bad at all. It will be much better year 3 because school is year round. Still there are many ways to make $$$ in the summer during years 1 and 2.

Because managing a property while you work rediculous hours far away for little money is an easy thing??

I never said it was easy.

Assuming you have poured all your equity into the house since you started working. Maybe you end up taking away 80-90k in gain. If the market stands or goes up. This is a pretty risky time to bet on that. I would plan on not going up at this point.

S&P 500 rose an average of 11% over the past 70 years. I hope to beat that but don't plan to. I anticipate the property going up in value (it went up $5000 this last year), but I also concede that it will cost money to sell it too. Hopefully these will even out, give or take.

Finally, 10-15% mutual funds grow on trees. Haha, good luck with that...

Didn't quite understand this sarcasm. What leads you to believe this cannot be done?

...assuming you pull out 75k in gain when done with residency at 30, assume you beat your loan rate by 5% (this is probably a huge overestimate with a small amount of money like 75k). It would take you 20 years to catch up to pay a loan that was 150, from your original 75. Remember the loan grows as does your investment. Assuming you didn't put more of your own money in.

The whole point is to put money into investments INSTEAD of putting the money in your loan. As opposed to putting your extra dollars into a loan payment to pay it off more quickly each month, add it to an investment. You make more money in the long run even though your student loan sticks around longer.

Being frugal and conservative is the first step to wealth. Props on the hard work and gumption to get it going. I just want to shed a little opposing light so we don't have a bunch of eager people jumping on houses unprepared.

It is indeed a risk and I am in no way suggesting that people should "jump on houses unprepared" because they read my post on SDN, or that people should make uninformed financial decisions. I'm not sure if this is what you are insinuating or not. I worked for a year before med school so I had cash for the down payment, but really that is the only thing special about my circumstance and I'm trying to make it work. I'd be happy to answer any questions.

hyperorchidism said:

Hey, this is a good debate.

Maybe an ok Idea...if you allready have a big nestegg or outside support. Most student loans will give you about 500 bucks a month for housing. That is about enough for a 75-90k (if you can find a house for this, then go ahead, I have no idea where it would be though) loan depending on your rate. If you could rent to a roommate, that would help a bunch as long as you can come up with the 20% down payment and manage the property with ALL your free time.

My medical school allocates $1300 a month for room and board during term (but remember its a 9 month loan). This was enough for a $100000 house and $800 payment + bills. It's a little tight sometimes but really not bad at all. It will be much better year 3 because school is year round. Still there are many ways to make $$$ in the summer during years 1 and 2.

Because managing a property while you work rediculous hours far away for little money is an easy thing??

I never said it was easy.

Assuming you have poured all your equity into the house since you started working. Maybe you end up taking away 80-90k in gain. If the market stands or goes up. This is a pretty risky time to bet on that. I would plan on not going up at this point.

S&P 500 rose an average of 11% over the past 70 years. I hope to beat that but don't plan to. I anticipate the property going up in value (it went up $5000 this last year), but I also concede that it will cost money to sell it too. Hopefully these will even out, give or take.

Finally, 10-15% mutual funds grow on trees. Haha, good luck with that...

Didn't quite understand this sarcasm. What leads you to believe this cannot be done?

...assuming you pull out 75k in gain when done with residency at 30, assume you beat your loan rate by 5% (this is probably a huge overestimate with a small amount of money like 75k). It would take you 20 years to catch up to pay a loan that was 150, from your original 75. Remember the loan grows as does your investment. Assuming you didn't put more of your own money in.

The whole point is to put money into investments INSTEAD of putting the money in your loan. As opposed to putting your extra dollars into a loan payment to pay it off more quickly each month, add it to an investment. You make more money in the long run even though your student loan sticks around longer.

Being frugal and conservative is the first step to wealth. Props on the hard work and gumption to get it going. I just want to shed a little opposing light so we don't have a bunch of eager people jumping on houses unprepared.

It is indeed a risk and I am in no way suggesting that people should "jump on houses unprepared" because they read my post on SDN, or that people should make uninformed financial decisions. I'm not sure if this is what you are insinuating or not. I worked for a year before med school so I had cash for the down payment, but really that is the only thing special about my circumstance and I'm trying to make it work. I'd be happy to answer any questions.

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A fund yeilding 10-15-%? Sign me up!

Sartre79 said:

A fund yeilding 10-15-%? Sign me up!

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https://flagship.vanguard.com/VGApp/hnw/FundsSnapshot?FundId=0059&FundIntExt=INT

15.12% since 1984. but then again, you had to buy all of your position at the right time, which never happens.

etf said:

https://flagship.vanguard.com/VGApp/hnw/FundsSnapshot?FundId=0059&FundIntExt=INT

15.12% since 1984. but then again, you had to buy all of your position at the right time, which never happens.

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Someone doesn't understand the difference between yield and total return.

I would also love to find a "conservative" mutual fund which will average a 12% return/year in the future.

biomama said:

Did anyone buy a house while they were in school? I would really appreciate any and all advice concerning home buying & home ownership.

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I bought in med school and count it among my top 4 financial mistakes I've made along with buying whole life insurance, loaded mutual funds, and signing up with the military to pay for medical school.

Although it is possible for this scenario to work out well for you, in general one should not buy unless #1, you can put 20% down, #2, the mortgage, taxes, and insurance are less than 25% of your gross pay, and #3, you can stay put at least 4 years.

With the incredible returns of the real estate market over the last few years, many have ignored these rules and profited thereby. However, there are many time periods in the past when real estate has remained stagnant or even lost money. The best thing to do is to perform a calculation of what it would cost you to buy vs what it would cost you to rent a similar place. Be sure to consider 1%+ or so per year for maintenance, your taxes, your insurance, your utilities (some are covered when your rent usually like waste/water etc.), 3% closing costs when you buy, 6% closing costs when you sell. Count the tax break from the interest if you itemize your taxes (who itemizes during med school?). Figure out exactly how much that home would have to appreciate for you to break even. Are you willing to bet that the market will appreciate that much over the next 4 years? If not, start looking for places to rent. If you don't know how to do these calculations you have no business buying a home for such a short time period when you will have no income anyway.

My story. I bought a condo for $80K, spending about $2-300 more per month than I would have for rent. I sold it four years and two months later (two months when I had to pay rent at my residency AND a mortgage at my med school) for $83K. After real estate commissions and inflation I definitely lost a significant sum.

Good luck with your decision.

ActiveDutyMD said:

My story. I bought a condo for $80K, spending about $2-300 more per month than I would have for rent. I sold it four years and two months later (two months when I had to pay rent at my residency AND a mortgage at my med school) for $83K. After real estate commissions and inflation I definitely lost a significant sum.

Good luck with your decision.

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Assmuing you were using loan money to make your initial house payments do you still feel that you lost money as a whole??

One thing that i've noticed with my fellow colleagues at my medical school is the over enthusiasm to enter the housing market with the so called "doctor's loan" I'm not an expert but with the housing market the way it is, you can't assume that your house will increase in value any time soon. On top of that, some residencies are only for 3 years...add the closing costs and selling your property after 3 years with the 6 percent commission...not so good.

check out thehousingbubbleblog.com - i used to read this everyday just to see the various articles on the falling housing markets throughout the nation.

Sartre79 said:

A fund yeilding 10-15-%? Sign me up!

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This is not impossible, jeez. But really it's beside the point because it's not like it suddenly becomes dumb to invest if you're making 8% a year or whatever.

Bottom line for me: procure a substantial sum, invest it, and be in a financial situation where I can forget about it/add to it.

biomama said:

Did anyone buy a house while they were in school? I would really appreciate any and all advice concerning home buying & home ownership.

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My husband and I are buying a home for me while I'm in veterinary school. We carefully calculated costs of renting vs. buying.

The things we have/had working in our favor are:
1) We have a 20% down payment
2) I'm staying there for at least four years
3) He/we will itemize deductions for the mortgage interest tax benefit
4) We both have stellar credit/FICO scores

We couldn't find a decent home around $80k that didn't need major work, so we are going to spend more, and I have secured one roommate and am seeking a second.

We carefully itemized all our monthly costs several times, using Excel, and used the loan mortgage calculator (free download) at wheatworks.com to estimate our PITI payments (principal, interest, taxes and insurance) on the home.

So feel free to ask me later on how this worked out for us. Hopefully it will.

Based on what your school gives you for room and board will determine if you can or not. My wife luckily works and so we have enough with my fin aid and her salary. What we did was that we bought the house to live in and as an investment. We are definitely planning on moving to a different city for residency so are only in our house for 4 years. As such, we took out an interest only 5 year ARM for our big loan (80%) and a 30 yr fixed for our smaller loan (20%). This way, we didn't have to put anything down and by taking two loans we avoid private mortgage insurance (have to get this insurance if one of your loans is more than 80% of the entire loan. This way, we are basically paying rent and we will make a nice profit in the end while still being able to have plenty of "emergency" money in savings instead of putting it all down towards the house. The 5 year ARM was great because it is a lower interest rate, but don't do it if you are considering staying in the house more than 5 years because the rates could be much higher after 5 years and your rate would switch to those higher ones. It is definitely doable, but make sure and conservatively estimate and figure into your monthly cost escrow(taxes). You always want some money in your bank accounts because with houses, something is always wrong and you have to fix it...no land lord! Good luck!!!

hyperorchidism said:

This is not impossible, jeez. But really it's beside the point because it's not like it suddenly becomes dumb to invest if you're making 8% a year or whatever.

Bottom line for me: procure a substantial sum, invest it, and be in a financial situation where I can forget about it/add to it.

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No, not impossible. But I wouldn't consider a fund expected to return 12% from today's market valuations to be "conservative." 8% is a good estimate for the overall stock market going forward assuming inflation remains where it has been the last few years.