buying a home

[hillofbeans]

I've been renting for the past few years. Now that I'm starting med school, I'd like to buy a home (family of four).

How will a mortgage company lend me money for a home if I will be living off loans?

Our credit is good, and current debts are small (until next year).

Would this be done more easily by getting the mortgage and school loan from the same lender? Does that hold any advantage or disadvantage?

---

Members don't see this ad.

 

[NinerNiner999]

Shouldn't be much of a problem since you haven't started school yet (i.e. no active loans). As far as your "income" is concerned, you shouldn't have a problem qualifying for a mortgage as a medical student. If your spouse is making an income, it might be feasible to have him/her qualify for the loan to keep your loans out of the equation.

I would, however, make a suggestion to you. I don't know about your past housing history, but if you AND your spouse have never owned a home before, I would rent a house while you are in medical school. This does two things - it gets you used to a (slightly) higher monthly housing payment, and allows you to qualify for the Doctor's loan when you are ready to start residency.

The Doctor's loan applies to first time home buyers with good credit. It allows for a ZERO down payment, no monthly mortgage insurance payment, and a reduction below the best interest rates available at the time. It can only be used once. Of course, there is no predicting what the rates will be like four years down the road, but the down payment is a MAJOR plus when you are out of medical school and probably won't have much to put down.

In my experience, it is AMAZING how much home one can qualify for out of school despite over 100k of loan debt. If you wait until you graduate from school, the sky is the limit.

I am not familiar with any programs that incorporate school loans with mortgage loans. In fact, it would probably be best to keep them separate for tax reasons. There is an annual federal deduction for continuing education, and there are also tax benefits from mortgages.

 

[oldtimer]

While that Doctor's loan sounds pretty tempting, keep in mind that if you buy smartly your home will appreciate in value. If you are in a hot real estate market like San Francisco, Phoenix, etc, you will have a great return on your investment.

Other advantages:

1. 150K (don't remember exact amount) in profits from selling the house is tax-free.

2. If your home is your primary residence, the equity that you have in it does not get considered when your financial aid is calculated.

 

[mpp]

If you credit is very good, you might qualify for a 'no-doc' loan in which you do not need to provide any documentation of income, i.e., nothing but sign a statement says that you are able to make your mortgage payments. They don't need to know that your income is mostly from loans.

 

[BlackPuma]

Originally posted by mpp
If you credit is very good, you might qualify for a 'no-doc' loan in which you do not need to provide any documentation of income, i.e., nothing but sign a statement says that you are able to make your mortgage payments. They don't need to know that your income is mostly from loans.

wait, I've never heard of this no doc loan...

I bought a townhome during my first year, and I placed a huge downpayment, as well as putting down the mortgate payments each month...

this is the thing that annoys the hell out of me, my dad put in 40% of my downpayment as well, and when I tried to get the house in my name as well, they were like, since I don't have any "income" I can't apply for the loan as well as the title

so I'm paying the monthly mortgage, and everything, but the place is in my dad's name...it sucks big time?!

so you mean I could have had a place, just based on a no-doc loan sucks big time...

 

[OrthoFixation]

No doc loans come at a price . . . higher interest rates. You can get a loan the day after a Chapter 7 Bankruptcy too, from certain lenders. It is all about risk and return.

I do not know how a student with only loans for income would be able to qualify for a conventional or FHA loan. If you have a spousal income, sure. Student only would surprise me.

I second the idea of buying a home as soon as you can. This allows you to participate in itemized deductions for interest paid (caution: one must have income in order to have deductions!), although that may depend on a spouse that works. More importantly, a home is an investment. This is an appreciating asset (typically) unlike an auto which only depreciates. So when you are ready to move on, you can sell and cash out. There's your next home down payment.

Buy right = Sell right & make a profit

Pro: less cost of housing usually, building equity, tax deductions, could rent to other student(s). A hot market could make you many thousands and avoid an escalating price rental market.

Con: less flexible, a quick sell would include realtor fees of 5-7%, market could go down (unlikely over 4-9 years), repairs are your responsibility.

After school, you can always rent the house to other med students and pay a firm to manage the property for you (10%). Then it wouldn't matter where you wind up.

FYI, 0-3% down loans are very common today. Down payments of 20% aren't the norm.

 

[mpp]

The competition for mortgages right now is fierce so borrowers are at an advantage. Have the lenders compete against one another by counter-offering. My no-doc loan was only 0.1% higher (4.65%) than a regular loan for which I did not qualify since I did not have enough income. This was with Countrywide. Just be sure to do all your mortgage shopping in a short amount of time...too many credit checks will look suspicious and if you do it all at once it only counts as 1 credit check against you.

 

[edmadison]

Just a few notes on what Orthofixation said.

1) I got an FHA loan without any real income. What I did have was a cosigner. It will be hard to get a house with no income without one. It was a great decision. My house payment is much less that my rent. Any total housing cost are only slightly that before.

2) Be careful about looking at your house the same as other investments. The previous poster implied that the appreciation is the norm for real estate. That is not always the case. You have to be very carefull where and what you buy. It is not unusual for new construction and town houses to lose value. Also remember that you will likely be selling your home in March or April. This may or may not be a good time (in my area the weather is miserable then).

3) When buying a house for the short term (3-4 years) you will be lucky to break even. Remember, the buyer pays the closing costs and when you sell, you are going to pay 6-7% to your real estate agent (unless you can sell it yourself). On a 10,000 house, that means you start close to 10,000 in the hole. Top that with the fact that most of your early payments is interest so you build little equity.

If I can sell my house for what I paid for it, I figure I'll lose a little money, but it was well worth it.

4) Renting is tough -- especially as a absentee landlord. You also have to have the right property. I would never rent the house I live in now. It's value is in the amazing interior condition. Other properties are perfect for rental, however.

Ed

 

[LotusGirl]

I would definitely buy a home if you can! We bought our townhouse about 6 months before I started school (I am an MS1 now), while I was still working and had an income to put on the loan applications. I would absolutely recommend it to anyone who can afford it. We have a low interest rate 5 1/8th (no points or anything) and best of all we are not throwing our money away. By the time you spent four years renting you would be throwing away thousands - while if you are a homeowner you are building a lot of equity to create a huge "downpayment" for your next house! The doc loan sounds good for those who have to rent - but if you don't have to rent you will save a lot more $ by creating equity then you would with 0 downpayment ! Plus, you have an added bonus of really feeling like it is your place and your family does not have to live the student life the whole time you are in school! It has been one of the best decisions we have made
Good luck!

 

[mpp]

A 'no-doc' loan is a mortgage on a house which you buy and it does require a downpayment. With interest rates so low, you are better off putting down as little as possible without having to pay for private mortgage insurance.

 

[edmadison]

Just one caution. Unless your house appreciates significantly, you will not earn a "huge" amount of equity only owning it for 3 or four years. Mortgages require you to pay interest on the outstanding principal. Thus, you pay a large amount of interest in the first few years. This is good for getting a tax deduction, but sucks for building equity. You can earn equity more quickly with a 15 year mortgage, but that will increase your payment alot. When you sell your house, you'll lose 6-7% on real estate commission.

I will be selling my house after being in it for three years. I will finish with 6-7K in equity. I figure if I use a real estate agent and sell it for what I paid for it, I will walk away even (not factoring the tax deductions). I'll be happy with that outcome.

Ed

 

[jennij]

Mortgages only earn you tax deductions if you are paying in your taxes. No earnings (i.e. living off loans), mean not paying in to uncle sam=no refund. Unless you have someone else who is earning money and able to use the mortgage as a write off, the tax benefits are null.

I really think it comes down to personal situations and location more than anything. I actually bought a place, and it was a great decision for me and my financial situation. I am paying less than I would in rent, and I bought a condo in a great area so my place is appreciating like crazy. My advice: look at all your options, do some research on the area you plan to live in and what type of house you want (figuring upkeep into the picture), and do what works for you.

 

[organic]

all these benefits for docs in terms of buying a property....
do you guys know if similar stuff exists for other medical professionals, say dentists, nurses and therapists?

I remember that I once read someone studying in Ann Harbor
is using student loan to pay for morgage of his apartment. How can that be possible? Could someone explain to me how you can buy a property and use the student loan to pay for it?

 

[mpp]

Many medical students use their student loan money to pay their mortgage. As long as you qualify for the mortgage (either by purchasing the home before school starts while you still have an income or by using a 'no-doc' loan as described above) you can use your student loan money for paying the mortgage just as you might use it for paying rent.

 

[calcrew14]

Originally posted by oldtimer
While that Doctor's loan sounds pretty tempting, keep in mind that if you buy smartly your home will appreciate in value. If you are in a hot real estate market like San Francisco, Phoenix, etc, you will have a great return on your investment.

Other advantages:

1. 150K (don't remember exact amount) in profits from selling the house is tax-free.

2. If your home is your primary residence, the equity that you have in it does not get considered when your financial aid is calculated.

Sell Your House Tax-free!
Tuesday January 13, 12:24 pm ET
By Selena Maranjian


If you're thinking of selling your home, know that you may be able to avoid paying taxes on $250,000 of capital gains when you sell it -- if you meet a few requirements. Anyone planning to sell a primary residence in the near future should read up on the exciting home-sale exclusion rules, which are just a few years old. While you used to be able to exclude up to $125,000 of gain just once in your life, you can now exclude up to a whopping $250,000 every few years.
If that isn't tantalizing enough, consider that married couples can exclude up to a half-million dollars. That amounts to many tens of thousands of dollars in savings. Here are some of the requirements:


You (the seller) must have owned and lived in the home as your principal residence for at least two of the five years preceding the date of sale. The two years don't have to be consecutive, though.


In most cases, you can only take advantage of this home sale exclusion once during any two-year period.


A married couple may exclude up to $500,000 of their home sale gain if all of the following apply:

They file a joint return for the year of the home sale;
Either spouse owned the home for at least two years in the five-year period ending on the sale date;
Both spouses used the home as a principal residence for at least two years in the five-year period ending on the sale date; and
Neither spouse had used the new exclusion on the sale of another residence within the two-year period ending on the date of the current home's sale.
Since this is such a big tax break, make sure you plan your home sale carefully to ensure that you qualify. This includes living in it for the required amount of time. Proper planning can save tens of thousands of tax dollars.

 

[Spang]

The above is not news, the tax laws have been changed to reflect the 250K/500K married-filing jointly for a while now.

I had another career before entering medical school and have owned several properties including the two I have now. I've been and "absentee landlord" for 4 years for a house that is now worth twice what I paid for it and because of low interest rates I have a fifteen year loan for the price of a 30 year standard mortgage 7 years ago. My tenants make my principal and interest payments and much of my insurance and taxes. It is only occasionally inconvenient but making money can be that way sometimes.

The house I have now is financed through a LOCAL bank, the application processed by the VP for loans himself. It is a 1 year ARM tied to the overnite fed. I can't recall exactly but I think it's at 4.5%. Because the bank holds the loans in house they do not have to meet Fanny Mae guidelines to sell the mortgage on the secondary market so the application was much easier than any other I've done. I put either 3 or 5% down and pay no PMI since the bank is holding the note. The rate is not likely to change anytime soon (ie. go up) an even if it does it will be .25 to .50 of a point, each time the fed raises. If the fed raises a full 2 or 3 points before I get my MD, I and the rest of this country have bigger problems than my mortgage rate!

I have income from some other sources during school and my wife works, but there are two couples, one of which are both med students living on loans only, who borrowed as much as we did and did not have either the real estate equity or the stocks/mutuals that my wife and I did, so I don't think that's a factor.

I recall reading an article some time ago about building wealth and one of the invariable predictors was real estate ownership. Even if you choose not to rent and decide to sell when you leave school, what you learn in the process of buying, owning, and selling a house will benefit you the rest of your financial life. And isn't learning what these four years are all about!!

More than you asked, but it was type this or study pharm......


Spang

 

[oldtimer]

After giving it much thought, I think that I will purchase a home when I go to med school. I have saved up enough from working to put down a large payment on the house. However, I won't be ready to buy the house until the summer when I'll know where I'll be going. Here's my question. If I'm going to use this money to buy a house before school starts but after I file my FAFSA, do I have to report that money on my FAFSA? I'm not sure because I won't have that money anymore once I buy the house and FAFSA specifically does not consider home equity for financial aid purposes. If I report that money on my FAFSA, my school will assume that I will still have that money when I won't. Thoughts?

 

[mpp]

You can gift up to $11,000 to people tax free. Give that much money to your parents before you fill out the FAFSA. Then, have them 'gift' it back to you when you want to buy your house. Actually this is a good tip for anyone needing to legally 'hide' some money from FAFSA.

 

[oldtimer]

Ummm...what if the amount is in the 6 figures? I don't have enough close people that I would start doling out 11K checks to and trust that they would give it back to me. I want as much home equity as I can so I plan to plow most of it into the house. Can I give the money to my parents "on loan" and have them return that money to me when I'm ready to buy the house later this year?

 

[DoctorWannaBe]

Is it possible to get a mortgage without income (i.e. if I have a cosigner, or show my assets)? Also, a lot of people say it is not worth buying a house for only 4 years because you won't make money on the deal. Even if you do lose money because of the various fees or if your home depreciates slightly, won't you most likely lose less money than you would by paying rent for four years)?

 

[edmadison]

Originally posted by DoctorWannaBe
Is it possible to get a mortgage without income (i.e. if I have a cosigner, or show my assets)? Also, a lot of people say it is not worth buying a house for only 4 years because you won't make money on the deal. Even if you do lose money because of the various fees or if your home depreciates slightly, won't you most likely lose less money than you would by paying rent for four years)?

This depends. If you have no income, you will not benefit from the Mortgage interest deduction. You do build equity, but not very much in the first few years (a look at an amortization tables for 100K mortgage: after four years you will have paid about 19,400 in interest and 6,400 in principal). On a 100K house, you will loose 6-7,000 in real estate comission when selling, and have to pay 1-2,000 in closing costs. So with no appreciation and no tax benefits you loose a few thousand dollars. In my opinion this is worth it because you have more room, less noise.... You have to watch out, though. If you get paid utilities at your apartment, you loose even more owning home -- especially in the cold part of the country.

In general, if you can use the tax write off or live in an appreciating market its a fantastic deal. Otherwise its a question of lifestyle.

Ed

 

[mpp]

Originally posted by oldtimer
Ummm...what if the amount is in the 6 figures? I don't have enough close people that I would start doling out 11K checks to and trust that they would give it back to me. I want as much home equity as I can so I plan to plow most of it into the house. Can I give the money to my parents "on loan" and have them return that money to me when I'm ready to buy the house later this year?

No, it would be considered a gift and everything above $11,000 would be taxable to them, and then to you when they give it back.

I think putting a six figure amount into a house is too much anyway. Mortgage rates are so low you should borrow as much as you can and invest your money in the booming market. You can even find decent bond funds that will earn more than home mortgage interest...even without the benefits of the tax deduction (although you will likely have to pay taxes on the dividends and income from your six figure sum so you could use the tax deduction anyway).

 

[edmadison]

Originally posted by mpp
No, it would be considered a gift and everything above $11,000 would be taxable to them, and then to you when they give it back.

Just to be pedantic (I can't resist). The taxes work the other way. Gift tax is paid by the giver not the recipient. Plus, in addition to being able to give the annual amount, every person has a lifetime exemption which most use at death to exempt the first 1,000,000 from estate taxes. This can actually be used for gift tax as well if you want.

One caveat. I would be very carefull about hiding assets by gifting them away and then having them gifted back at another time. First of all, you'll need to closely read all financial documents you sign, you don't want to commit bank fraud. The second problem, god forbid, is if something happens the loved one you have gifted your life saving to. You could find yourself out of luck. Finally, you can still get good loans with decent rates even if you have assets, I did. The big downside is that your interest accrues during school (I think).

Ed

 

[OrthoFixation]

How about stuffing $30K in cash in my home safe. There would be no record for FAFSA, then I could buy my house and the cash is overlooked as equity. The cash transfer of >$10K might trigger the IRS looking, but I could show a paper trail and prove it wasn't illegally acquired.

The problem is the early need for FAFSA (sooner the better) vs knowing what city to buy a home. What is the latest you can fill out your FAFSA and keep all the opportunities open?

 

[mpp]

Even with cash in a safe at home you are still required to report it on FAFSA...they may never know about it, but if they do that's probably a bad thing. Again, the savings you'll get by not having that money on FAFSA won't amount to more than a couple thousand dollars at most in the long run. Unsubsidized loan rates are low right now and that interest does not capitalize until after you finish school.

Not sure that there really is a best date, as it probably depends on each school and how they distribute funds. You can try calling schools you have a good shot in or are already accepted and ask when they prepare packages and how they determine allocation.

 

[calcrew14]

The only thing the cash transfer of over $10,000 would trigger is the application of the exceeding amount to the Unified Gift Tax exemption which is max at $1,000,000.

I myself don't worry too much about the IRS at either ends of such passionate transaction. It is unlikely for anyone to qualify for such taxes (either the income or estate tax) anyway.

The $11,000 is most likely the amount exempted from personal income tax per giver per year. If I had three parents and 6 grandparents and everyone of them is rich and generous, I could received a non-taxable $99,000 this year. And of course, this noble transaction could be continued until them, dear hearts, don't want to live anymore.

Furthermore, I hope that all nine of those dear hearts extraordianaire would listen carefully to Ed about the once in a life time exemption of the Unified Gift Tax (which is max to the amount of $1,000,000 per giver, accumulated or lump sum). I would keep all my fingers and toes crossed for some $9,099,000 windfall this year. And no one owes IRS a single penny.

 

[BlackPuma]

Originally posted by mpp
No, it would be considered a gift and everything above $11,000 would be taxable to them, and then to you when they give it back.

I think putting a six figure amount into a house is too much anyway. Mortgage rates are so low you should borrow as much as you can and invest your money in the booming market. You can even find decent bond funds that will earn more than home mortgage interest...even without the benefits of the tax deduction (although you will likely have to pay taxes on the dividends and income from your six figure sum so you could use the tax deduction anyway).

can you please give some examples of some decent funds?!

 

[donnyfire]

what if...

you are applying for a mortgage (i am), and have to fill out the FAFSA for this fall.
does the mortgage lender see that I've applied for financial aid?
am i required to tell him that i'm leaving my 52k/year job to go to med school?
should i wait to fill out the fafsa until i get the mortgage?

sorry, i know it's a lot of questions.
any help?

 

[mpp]

The mortgage company will only see loans that are in repayment. You are only required to be honest on the mortgage application...I don't think they ask your future plans but I obviously have not seen every mortgage application so perhaps they do sometimes. You can wait to complete the FAFSA after you have purchased the home as they will not count any equity in the home against you when determining your EFC. But if that is ont going to be soon, then I would just complete it sooner. The amount of your mortgage payment will be irrelevant in determing your financial aid.

 

[oldtimer]

Originally posted by WatchaMaCallit
can you please give some examples of some decent funds?!

Index funds are the way to go. Vanguard has the biggest and cheapest funds. I strongly recommend them. Pick funds that mirror the market broadly such as the S&P, Russell 2000, bond market. I would stay away from individual stocks or actively managed funds that try to beat the market. Avoid the latter because they are more expensive than index funds and over a long period most do not beat their market averages. I would stay away from individual stocks simply because as a med/dental/etc student you won't have time to closely follow them. As a result, you could lose your shirt. Think Enron, WorldCom, etc. Furthermore, if you've ever traded stocks, you know that there is a large psychological component to it. Many people aren't cut out for actively managing a stock portfolio. Let the pros handle it. Lastly, DO NOT put your loan money into the stock market. Put it in something safe and guaranteed like a savings or checking account or CD. Loan money is not your money. It has to be repaid someday. When the money is yours clear and free, do what you will with it.

 

[zinjanthropus]

Originally posted by mpp
The mortgage company will only see loans that are in repayment. You are only required to be honest on the mortgage application...I don't think they ask your future plans but I obviously have not seen every mortgage application so perhaps they do sometimes. You can wait to complete the FAFSA after you have purchased the home as they will not count any equity in the home against you when determining your EFC. But if that is ont going to be soon, then I would just complete it sooner. The amount of your mortgage payment will be irrelevant in determing your financial aid.

why does the mortgage company only see the loans that are in repayment? aren't all of your student loans listed on your credit report? i believe that they are and that the ones that are not in repayment have *deferred* marked next to them but the amount still appears. Does this factor into a mortgage application?

 

[Neurodent]

[The mortgage company will only see loans that are in repayment. You are only required to be honest on the mortgage application...I don't think they ask your future plans but I obviously have not seen every mortgage application so perhaps they do sometimes. You can wait to complete the FAFSA after you have purchased the home as they will not count any equity in the home against you when determining your EFC. But if that is ont going to be soon, then I would just complete it sooner. The amount of your mortgage payment will be irrelevant in determing your financial aid.]


What about private education loans? After purchasing a home, if if FAFSA loans are not enough, and I have to get a private education loan to pay for school. Would I still be able to get a loan. Also does anyone know how will a 3 year old bankruptcy effect buying a house and then getting a private loan for med school.

Thanks

 

[mpp]

Having a 3-year old bankruptcy will likely affect your ability to qualify for a mortgage and a private education loan. The best way to find out what effect it will have is to apply for the loans and see what happens.

 

[mpp]

Originally posted by zinjanthropus
Does this factor into a mortgage application?

It didn't in mine.

 

[carcrazyguy]

My wife and I are planning to sell our house where we live now and buy a house where she got accepted for school. My parents are going to pay 10k and her parents are going to pay 10k towards the down payment. We will also be getting almost 10k back from equity in our current home. If we put that 30k down on a house 2 months from now, is that going to affect her ability to get student loans?

 

[mpp]

As long as you are using it for your primary home, it should have no effect on any kind of financial aid.