I live in University Heights so I am very familiar with this commute. The walk through the hospital starting from the far south end is not really that much further than walking outside, so that is my normal route especially in the colder months. I'd say 10-12 minutes depending on walking speed. If it is nice outside I will walk/bike outside which honestly is not always faster but boy is it good for the soul - as a med student you spend so much time studying especially when it comes time for Step 1 that you cherish all the outside time you can get. If you are living on Harlocke, the bike ride in the late spring, summer, and fall is very nice IMO. Just make sure you have a decent bike, a lock, and a helmet please! It annoys me so much when I see my classmates/future doctors not partaking in preventative medicine. #endrant
That sounds like a fine amount to spend if you are comfortable with it. Going to med school in NYC, DC, Boston etc, you would be paying MUCH more than that. Personally, I value having a nice home considering I spend so much time there studying. If you are just as happy not having newer/nicer construction, I would say absolutely save the money and live somewhere different. Also location=money, but I believe this has already been talked about. For reference, very near University Heights area (5 min walk to UIHC) and a renovated home, it is 1500-1700 range for a 2 br house. I also know there are nice 2 br condos in the area for 1000-1400 range. I personally know many med students in my class that live in condos/apartments at about this range.
I'll try to give a quick breakdown based on what I know of people from my class: University Heights and Coralville are most common. Heights has the proximity but is more expensive. Coralville is cheaper but you have to take a bus which are pretty reliable. Right by the med school + dental school (N of Newton on Wolf, Lincoln, etc) there is some housing that is the closest to the med school by far, but there aren't that many options and even fewer that have been renovated. If a commute doesn't scare you and you want to live like a king on a med school budget then North Liberty is for you, but you'll probably have to pay for a parking spot to rent near campus. Some med students and some residents I know live in the peninsula area which has very new construction but the commute has always scared me away. The East side - if you want to continue your undergrad experience but at the #1 party school in the country (2013) then the east side is for you. Lastly, like my classmate researchlover mentioned, AKK has affordable housing close to med school along with Phi Rho. These are both great options and you get a chance to interact with your classmates a lot. Phi Rho also has meals prepared for you included in the rent, which are quite tasty I can say.
Disclaimer: this is all just my opinion but if you have anymore questions I'd love to help
Edit: Changed a number