renting vs. buying confusion

I own my place right now, and am going to be renting in my new city. Somethings that you might want to think about include:

Don't overlook or minimize the property taxes. These can vary EXTREMELY from location to location and from property to property within a given place and you need to be sure you are taking that into consideration. Fortunately, this is generally (always?) publicly available info.

Make sure you are aware of any additional local fees such as homeowners association dues. These can add hundreds of dollars to your monthly payments.

Owning comes with some freedoms, obviously. You don't need to ask anyone's permission to paint for example. But it also comes with responsibilities. If the heat stops working, it's you who is going to have to find someone to come out, and wait for them, and pay them. It's also you (or the person you hire) who is going to have to do any exterior/yard maintenance - unless you live in a condo, in which case you're paying for that in your homeowner's association fees.

Make sure you are comparing apples to apples. In my new city, many places include utilities in the rent. If you buy, obviously your utilities will be separate from the mortgage.

You may need PMI (mortgage insurance) especially if you are putting 0% down. I don't have this, so I don't know much about it, but I know it can be pricey, so check into that.

You haven't accounted for closing costs, but they can run several thousand dollars. When you sell your place, you'll most likely have to pay a broker's commission, that's also likely to be several thousand dollars.

Homeowner's insurance costs more than renter's insurance.

It can take a long time to actually go through the process of finding a house, making an offer, going back and forth with the seller, etc. before you actually close. If you decide to go this route, I'd start looking ASAP. You should also get in touch with some mortgage lenders in your new city, to see if you can get pre-approved for a loan. Many sellers might not even look at your offer unless they know you're likely to have the financing.

I'm definitely not saying it's a bad idea to buy. A lot depends on your personal situation//location/how long you plan to stay/if you plan to increase your family size, etc. Just trying to give you some ideas of other costs/issues that you should be taking into consideration in your calculations. Maybe talk to some of the current residents in your new program to see if you can get some ideas of how much they pay for some of these things.

Agree with above. Let's start with the assumption that as a first-time homebuyer you may not qualify for prime rate. Rolling in $10K in lending fees and factoring in taxes (anywhere from 1-4%), insurance, and PMI and it'd be safe to plan for something closer to $900/month as your base payment on a $125K mortgage as opposed to $400. And that's before utilities, maintenance costs, and deferred costs (such as closing costs as a seller).

Still renting is almost always going to be slightly more expensive per sq ft, but you're not tied to the property and get certain perks (maintenance, utilities, location, etc). Buying is more risky and has lots of hidden costs... you don't really need to buy a lawnmower in an apartment or need to worry about suddenly needing to sink $15K into a new roof.

Various banks offer resident physician mortgage plans. I imagine they vary from institution to institution, but they often have no PMI, 100% financing, low interest rates (fixed) - just a good deal all around. It's something to ask about and look for.

The best thing to do, though, is to find a reputable bank, submit a loan pre-approval application, and have the loan officer crunch the numbers with your credit score, etc. and have him tell you what you can afford. Then you can go looking for houses. You're not obligated to buy after having gone through that anyway. If you plan on living in the area for a long time, it can be worth it to buy, but it can also be wise to rent for a year and then buy (if you're there for 5+ years).

Studious said:

Various banks offer resident physician mortgage plans. I imagine they vary from institution to institution, but they often have no PMI, 100% financing, low interest rates (fixed) - just a good deal all around. It's something to ask about and look for.

The best thing to do, though, is to find a reputable bank, submit a loan pre-approval application, and have the loan officer crunch the numbers with your credit score, etc. and have him tell you what you can afford. Then you can go looking for houses. You're not obligated to buy after having gone through that anyway. If you plan on living in the area for a long time, it can be worth it to buy, but it can also be wise to rent for a year and then buy (if you're there for 5+ years).

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Good advice. Having moved a lot, I've learned the lesson of moving to an unfamiliar area (like new interns often do) and buying almost right away. It's better to get to know the area for at least 6 months before commiting to something as big as owning a home.

Also, I highly encourage everyone to think of owning a home as a long-term investment, which we've sort of gotten away from in the last decade or so. If you're only going to be in an area for a 3-year residency, let's say, then you don't want to be stuck with a home on the market when you have to be in a different city by July 1, Year 4.

Do banks even do those physician loans anymore? I thought many of them got scrapped when the housing market took a plunge?

I bought a small condo for med school with 0% down and a co-signatory (mom, LOL), and I came out ahead even with the condo fees and the fact that most of my mortgage payment was just for interest, as the market had gone up. For residency I rented because Family Med is only 2 years, but if I was in a longer residency I'd have considered buying again.

But for houses, you have to consider the possibility of large unforeseen expenses. Your roof might need fixing, or something else that you wouldn't need to worry about as a renter (or condo owner). And if you intend to move away post-residency but the market still sucks, will you be able to afford the mortgage while paying another mortgage or rent wherever you'll be living? You could rent it out, but being an absentee landlord is a headache too.

It's not necessarily a bad thing. As I said, I came out ahead on my first condo, but there's more to consider than just how much your property tax and utilities will be.