Buying a House as a Med Student

[SeminoleFan3]

So, I'm thinking about buying a house right before I start med school considering I'll be in one place for 4 yrs, and possibly more. Anyone have any experience with this they'd like to share? Pros or cons that anyone's thought of?
Do you go about getting pre-approved for a loan before or after you get all your financial aid stuff in order?
Any help would be much appreciated. Thanks guys!

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[Sol Rosenberg]

So, I'm thinking about buying a house right before I start med school considering I'll be in one place for 4 yrs, and possibly more. Anyone have any experience with this they'd like to share? Pros or cons that anyone's thought of?
Do you go about getting pre-approved for a loan before or after you get all your financial aid stuff in order?
Any help would be much appreciated. Thanks guys!

Real estate is not for the faint of heart. You will likely get lots of posts after mine telling you how buying a house is not something you should be doing in Medical School, especially in the "horrible" housing market right now.

You need to do lots of research, and spend lots of time talking to people to find out what the market is doing in the specific area of the specific city/town where you are going to medical school. You know the old hackneyed saying that the 3 most important considerations when buying real estate are: location, location, and location.

Also, some financial things that might apply: If you aren't married (with a working spouse) or if you won't have a co-signer, it is likely that you WON'T be approved for a loan since you have no income. Also, you won't be able to realize any possible tax benifits from the house because you have no income from which to deduct mortgage interest, property taxes, etc. Compare your mortgage + extras payment to rents in the area where you want to move. On a purely financial basis, you will come out ahead if:

Rent > (Mortgage INTEREST + Property Taxes + Homeowner's Insurance + Upkeep - Income Tax Savings)

.....as long as the market stays the same or increases (though if the market stays constant you may still realize a loss from the property -- see "cost to sell house" below.) 4 years is kinda short, and I wouldn't necessarily assume much market appreciation in 4 years.

Some of my rules of thumb:

Upkeep = 15% of your monthly mortgage payment
Cost to sell house = 10% of sales price (includes commission, seller-paid closing costs, etc)

There are a lot of hidden costs, and lots of stuff that you need to learn before you start playing in real estate. Do lots of research, and try to find a good real estate agent.

There are, of course, other benefits besides financial ones from owning a house, so you may decide that even at a slight cost (relative to renting,) home ownership is for you.

 

[smugtroll]

Do you have an income? If not how are you going to get a mortgage loan?

I went to UK and lived in Lexington and your not going to find anything decent for under $170,000. Even if you put 5% down you'll still have to fork over a ton of cash each year. Then you have to deal with selling in 4 years and Florida is nothing like Kentucky....You could rent and be next to campus or you could buy and have to drive 30 minutes.

Forget buying a house....just rent and let someone else fix the plumbing. Besides your going to be spending all you time in books.

I'm just glad my house is paid for. Just taxes and insurance for me and all by age 31!

 

[smugtroll]

And besides crap happens that you'll never expect. My sewer line had roots from the trees growing in them! It was a smelling, foul and disgusting mess not to mention $1500 expense. Could you deal with that in med school?

 

[bkpa2med]

double post

 

[bkpa2med]

So, I'm thinking about buying a house right before I start med school considering I'll be in one place for 4 yrs, and possibly more. Anyone have any experience with this they'd like to share? Pros or cons that anyone's thought of?
Do you go about getting pre-approved for a loan before or after you get all your financial aid stuff in order?
Any help would be much appreciated. Thanks guys!

I am actually closing on a home that I am buying in 3 weeks. My payment ( P&I, taxes, homeowners insurance) is alot less than what it would cost to rent in that area by over $100/month. Also you'll build some equity in your home and you may keep it as a rental property in the future. I used quickenloans for my mortgage and used their no doc mortgage. PM Me for details.

 

[DrMidlife]

I'm astonished and rather appalled. No, not you. Assuming you were a guy, I was thinking "don't do it." Then I looked at your mdapplicants and you're a woman, and that has me thinking "go for it." Elsewhere I was called a bigot today, for the first time in my life, and apparently that's correct. Who knew?

Anyway, I sold my house to do med school (premed, actually) because it's too much work, too much money, and too much of a distraction.

Please don't do it if you're single, or if you think it'll be fun and exciting, or if you think it's an investment. The single part isn't a bigot thing, it's just that being the only person in charge is overwhelming. Also please don't buy a house that needs work. You won't have time to do it and it'll drive you nuts.

If you have at least one financial/residential partner, and you can afford it, and you've got other good reasons, then it's possible. I have friends who did it with parental help, and it was extremely convenient to not have to move for four years, PLUS she got local residency so it turned into seven. (Peds.)

If you're able to use financial aid to pull this off, I'll be stunned. You have other assets, right? Your financial aid isn't loans, right? Yikes.

Best of luck to you.

 

[LuckyBambooGirl]

My husband and I bought a house the December before I graduated college. They were a little hesitant about giving us a loan knowing that I was about to graduate and need to start paying off my student loans....until they found out I was going to med school. I had a to write a letter saying that I was planning on attending medical school in the fall. Then it was no problem for us to get the loan! (I don't know exactly how it will work if you are single though).

I am happy that we have a house, because we were both sick of renting and we wanted pets. However, as the other posters have mentioned there are lots of things that come up. For example, we came back from spending Christmas break with our family to find a colony of fire ants had made a nest in our bathtub plumbing! That's just one example of the unexpected things we have needed to take care of. I am glad that I have my husband to handle most of that since I'm doing school.

Basically, owning a house in med school is very doable and I am happier having my own house than I was when I was renting, but make sure you know what you're getting in to before you buy!

 

[cubbbie]

I'm glad to see this thread. I'm also seriously thinking about buying a house. My boyfriend/fiance and I have lived together for the past five years and have signed 5 leases for 5 different apartments and lived with 8 different roommates during that time. I REALLY want to settle in. Right now we're looking at going to med school in Pittsburgh or Cleveland, which, by happenstance, seems to have a relatively buyer-friendly real estate market. Granted I currently know almost nothing about buying a house, but it does seem like a good time in my life to do it, especially if we do end up in a cheap city like Pitt or Cleveland. We both have been working for the past few years and will be starting med school with more or less a clean slate. I'm excited!!

 

[deleted77919]

My boyfriend/fiance and I have lived together for the past five years

So the three of you have been together 5 years? Wow . . .

How does your boyfriend feel about you having a fiance? Or more importantly, how does your fiance feel about you having a boyfriend?

 

[braluk]

Theres a student in my class that had a condo purchased for him as an investment...assuming the housing market will rise again, he could make some money when he sells it again. An interesting venture to say the least.

 

[cubbbie]

So the three of you have been together 5 years? Wow . . .

How does your boyfriend feel about you having a fiance? Or more importantly, how does your fiance feel about you having a boyfriend?

We all get along quite nicely ...

Thanks for asking.

 

[AggieJohn]

Here is a good link when trying to decide whether to rent or buy.

 

[8744]

Rent. When you move you will probably lose, in realtor fees, whatever appreciation you have realized. Or if you live in a stagnant housing market you may lose money in the deal.

Not to mention upkeep and the many other things that suck money out of a homeowner. Imagine you have to replace the roof. That's four or five thousand bucks. Major plumbing emergency equals $800. Lawnmower, weedwhacker, blower, etc. Painting.

Fixing the roof or painting the house, unless you bought the house cheap as a fixer-upper, does not increase its resale value. People are going to pay a certain amount per square foot for a given area and they kind of expect the roof not to leak and the walls to be painted. Same with all of the other maintenance tasks that will suck up time and money. You will never realize a return on upkeep.

I have a suspicion that if you rent for thirty years and invest the money you save, you would have enough to buy a house outright.

Well, maybe not. But if I were a young single or married-without-too-many-children-and-pets medical student I would rent, if only so I wouldn't have to mess with all of the troubles that go with home ownership. Not to mention that when you match you can just move out without having to sell the place.

If I didn't have so many dogs we would happily rent a three bedroom apartment for a lot less than our mortage, property taxes, and maintenance costs. And we would be mobile. As readers of my blog know, we almost didn't sell our house in time to move up here to Michigan and I came very close to having to live in my car while my wife sold the house because we surely couldn't afford two mortages. The worst part was that twice a week for four months we had to "show" the house which meant that we had to keep it spotless and my poor wife had to take our (then) three kids and five dogs out of the house until the prospective buyers came through.

Just an aside: If you're not really interested in buying don't get a realtor to show you houses. If you have a family you really have to jump through your ass to get the house ready even for somebody casually looking at real estate.

 

[8744]

I am actually closing on a home that I am buying in 3 weeks. My payment ( P&I, taxes, homeowners insurance) is alot less than what it would cost to rent in that area by over $100/month. Also you'll build some equity in your home and you may keep it as a rental property in the future. I used quickenloans for my mortgage and used their no doc mortgage. PM Me for details.

I have to laugh. Now, if it was $500 less per month I'd be impressed but $100? That's chickenfeed. Some of my friends go out a few times a month and blow that much on drinks. You're going to lose that several times over every month just in maintenance. Not to mention increased utility costs.

But if you can turn a profit renting it (which given what little you have told us seems doubtful) that's fine.

 

[lilnoelle]

We own but if it were just me and my hubby we'd rent. I'm guessing we probably save money on mortgage vs renting but we probably spend more once you figure in maintenance, etc. I'm happy with owning. I like feeling like the house is mine and I can pretty much do what I want with it. It wasn't a fixer upper in any way, but its amazing how much work you realize a house needs once you move in. We plan on doing a lot of things to it before we leave it, but we're hoping to stay in it during residency as well (obviously I'll make my decision in residency based on more than the city its located in, but that will be a factor.)

Selling is a pain. Especially if you haven't lived at the house long enough to build up some equity. Selling our last house was a huge dissapointment. Everyone wants to rip the seller off and if you haven't built up equity, this is a problem. Not only do you have to pay the realtor's costs, but the buyer wants you to fork over money to them for closing costs, carpet allowance, etc. Then you have to decide if its better to sell right now or wait and then be ripped off 3 months down the road... (we were carrying two mortgages for a few months when we sold the last house, not the best way to do things) And then it is very difficult to keep the house viewable. I'm not the neatest of persons, and having two children (three if you count my hubby) just makes everything messy. Realtors don't always call in advance and I had one very embarassing experience where the house looked like a tornado had hit and a realtor stopped by. I didn't know anyone had looked at the house till the next day!

Buying is a pain as well. Anything in our price range looked like crap. Anything that didn't look terrible had foundation issues or something like that. Our price range went up $30K from the time we started looking to the time we bought and we didn't notice a huge change in the quality of houses we looked at.
This is why I'm determined to have our house in fantastic shape when we sell it down the road.

By and large, I'm very happy with owning and excited about getting this house how we want it. Maybe if I can get a residency here we'll stay in the house after residency for 5-10 years or so and get my loans paid off rather than moving up. If I do that, this house will be a gem when I sell it...
I do think it would be better for us to stay here more than four years and if we end up moving for residency I will probably be dissapointed with our return.

 

[AggieJohn]

I'm surprised by most people's comments. I guess it shows my ignorance. I've always rented.

My feelings are - who cares if I make money? I mainly want to lose the least amount of money. If I rent 4 years, $950 a month (for my wife and I) we're looking at throwing $45,600 away. Now would I lose that much through property taxes, insurance, closing costs, selling costs, maintenance, and interest on the mortgage? Even if I sold the house for exactly what I bought it for, it seems like I would come out ahead compared to renting. Is this inaccurate?

By the way, I've rented my duplex for 2 years, and I don't think my owners have spent a dime on maintenance

 

[mshheaddoc]

Some reading for you:

rent vs buy

thread that was general residency forum but some good discussion on rent vs buy

Buying a home while in med school

I'm also requesting that this be moved to the finance forum.

I disagree with some of the advice on this thread but overall people make good points that have been debated on other threads that I've mentioned.

Read what I've posted and come back with comments.

 

[pagemmapants]

I'm closing on a townhouse in less than two weeks, so I can't very well talk about how it is owning a house, but I can talk about how it is to find/buy a house.

First, there are very few areas of the country where this would be advisable right now. There are also very few areas of the country where I would expect a med student (heck, even one with a working spouse) to really be able to afford a house without creative financing.

Second, if you do not have a working spouse or your parents can't co-sign for you, you will not get a mortgage approved even if your living expenses allocated by your med school loans are $2000 a month. No way no how, and this is because loan disbursments simply do not count as income. I had my Dad co-sign, and I'm damn grateful he was up for it. I wouldn't have been able to do it without him.

As far as maintenance/upkeep. . . you can minimize this by going down the middle and buying a townhouse rather than a single-family house. They don't appreciate as quickly as stand-alone houses, but they tend to sell faster (esp. in areas with high employee turnover [read: residents]) and, best of all, the external upkeep (including roof) is left up to the housing association. Mine is 21 years old but has new roof, new carpets, and a pool. Sweetness.

As far as the financing - the more you can put down the better. If you put down <20%, then you also have to pay "primary mortgage insurance" which is essentially flushing $$ down the toilet. ALSO, the break-even point for when you'll actually start making a profit (after closing costs, realtor fees, etc) is 4-5 years for most places, so unless you manage to find a lender who will cover your closing costs or get some of them covered by the seller in the sales contract (or are sure that your house will appreciate faster than average), it's not worth it for a shorter period of time than this.

NOTE: if you have a bank of america account or credit card, take a look at the "mortgage rewards" program - the pay a good chunk of your closing costs.

More questions? PM.

 

[sprinkibrio]

I'm surprised by most people's comments. I guess it shows my ignorance. I've always rented.

My feelings are - who cares if I make money? I mainly want to lose the least amount of money. If I rent 4 years, $950 a month (for my wife and I) we're looking at throwing $45,600 away. Now would I lose that much through property taxes, insurance, closing costs, selling costs, maintenance, and interest on the mortgage? Even if I sold the house for exactly what I bought it for, it seems like I would come out ahead compared to renting. Is this inaccurate?

By the way, I've rented my duplex for 2 years, and I don't think my owners have spent a dime on maintenance

I'm with you. There are certain pockets of some cities that are almost guaranteed to rise in value within the next four years. My boyfriend owns quite a few properties in our city and sells them within a year to other friends in real estate (no selling fees) and makes enough money to upgrade to a better property. I think it takes a knowledge base that a lot of people don't have if they are moving into a new town and that gets taken advantage of. If you're in the country, get new house near where the Walmart/Lowe's complexes are popping up. New houses=less upkeep for the busy med student. If you're in the city, look to the areas where renovation is just beginning. Buy a decently renovated condo in a duplex/four family and let maintenance take care of the majority of problems. It's a buyers market right now in many places and if you're lucky it'll flip before you move out.

 

[mshheaddoc]

Ok, some of this is just really not accurate on a generalized basis ... alot of home buying is individually specific and depends on how well you know what you are doing. This user has a pretty good post but there are some generalizations that need to be addressed.

First, there are very few areas of the country where this would be advisable right now. There are also very few areas of the country where I would expect a med student (heck, even one with a working spouse) to really be able to afford a house without creative financing.

Not true, you have to know areas where you are looking to live and what you can afford. On a generalization many people say this and honestly have no idea what they are talking about. Its realistic expectations about what you can afford compared to what you want. There are some areas where it is harder for med students to buy (large cities mostly) but if you want to live in the city of course you can't afford it. Most live outside in suburbs. It really is location dependent and what you are looking for in a home ...

Second, if you do not have a working spouse or your parents can't co-sign for you, you will not get a mortgage approved even if your living expenses allocated by your med school loans are $2000 a month. No way no how, and this is because loan disbursments simply do not count as income. I had my Dad co-sign, and I'm damn grateful he was up for it. I wouldn't have been able to do it without him.

This is mostly true for the average med student. non-traditional students have the upper hand as they have credit already built most likely and can get the no-document and limited document loans where you don't need to prove assets and/or income. Having your parents co-sign with you as their 2nd home will take care of this problem for the most part (or if you have a working spouse). FHA is really good with these types of loans.

As far as maintenance/upkeep. . . you can minimize this by going down the middle and buying a townhouse rather than a single-family house. They don't appreciate as quickly as stand-alone houses, but they tend to sell faster (esp. in areas with high employee turnover [read: residents]) and, best of all, the external upkeep (including roof) is left up to the housing association. Mine is 21 years old but has new roof, new carpets, and a pool. Sweetness.

excellent point here. Condos are the same thing, watch for what to buy in the market though. Buying a 1 bdrm 1 bath condo isn't as good at resale as a 2bdrm 2 bath ... little things like this you need to know because when you purchase as house you HAVE to be thinking about the future resale value. Also, look out for houses that are fix'er-uppers ... you don't have the time or money for these.

As far as the financing - the more you can put down the better. If you put down <20%, then you also have to pay "primary mortgage insurance" which is essentially flushing $$ down the toilet.

If you are paying PMI these days, you've been had. PMI no longer exists if you have a good broker.

ALSO, the break-even point for when you'll actually start making a profit (after closing costs, realtor fees, etc) is 4-5 years for most places, so unless you manage to find a lender who will cover your closing costs or get some of them covered by the seller in the sales contract (or are sure that your house will appreciate faster than average), it's not worth it for a shorter period of time than this.

I agree and disagree with this ... some areas you can get away with owning for 3 years, others it will be 5 years, others might be 10. As I said, really location is important. You HAVE to know the area you are buying and really do your research. Its not really about breaking even, its about being smart with your money in comparison to renting in some regards. Owning a house for less than 5 years or even 10 years most likely can look on paper as a waste of money but there are other things to consider in the rent vs. buy debate. Too much for me to go into right here ... I'd be here all day. But you aren't going to turn a profit owning a home, but the equity you are building will be useful in the future, even if you don't think it will be now. Owning a home is like a business venture where you start off in the red but end up in the black if you play it right.

 

[mshheaddoc]

I'm surprised by most people's comments. I guess it shows my ignorance. I've always rented.

My feelings are - who cares if I make money? I mainly want to lose the least amount of money. If I rent 4 years, $950 a month (for my wife and I) we're looking at throwing $45,600 away. Now would I lose that much through property taxes, insurance, closing costs, selling costs, maintenance, and interest on the mortgage? Even if I sold the house for exactly what I bought it for, it seems like I would come out ahead compared to renting. Is this inaccurate?

By the way, I've rented my duplex for 2 years, and I don't think my owners have spent a dime on maintenance

This is the attitude that most people NEED to take rather than the financial comparison. Yes, the financial comparison is important but its not the only factor to consider.

 

[mintendo]

I'm surprised by most people's comments. I guess it shows my ignorance. I've always rented.

My feelings are - who cares if I make money? I mainly want to lose the least amount of money. If I rent 4 years, $950 a month (for my wife and I) we're looking at throwing $45,600 away. Now would I lose that much through property taxes, insurance, closing costs, selling costs, maintenance, and interest on the mortgage? Even if I sold the house for exactly what I bought it for, it seems like I would come out ahead compared to renting. Is this inaccurate?

By the way, I've rented my duplex for 2 years, and I don't think my owners have spent a dime on maintenance

I agree completely. If after four years of owning a condo I come out even or even a few thousand short, that's still tens of thousands better than renting and throwing your money away.


I'll be starting med school this fall and I've been thinking about buying a condo with a friend (who will be a first year with me at the same school). I don't really know anything about what it takes to buy property. My question is: is it possible to use the loan to pay for property?? It just sounds kinda tricky because you're borrowing money to pay for the condo, and then you're borrowing money AGAIN to pay for the mortgage.

 

[mshheaddoc]

I'll be starting med school this fall and I've been thinking about buying a condo with a friend (who will be a first year with me at the same school). I don't really know anything about what it takes to buy property. My question is: is it possible to use the loan to pay for property?? It just sounds kinda tricky because you're borrowing money to pay for the condo, and then you're borrowing money AGAIN to pay for the mortgage.

Honestly you will have to pay for rent anyway so why not use the money to pay your mortgage? Many med students do it. If you can, buy the house while you have a full time job before you quit, if you aren't working, disregard this statement.

If you are buying with a friend: BEWARE! If things don't work, its tough. I've had quite a few friends try this, it ALL ended up badly. Some had to have their parents step in and buy the other own out because she wanted out. I would suggest one of you purchase and the other rents. Just from what I've seen ... sometimes this can get messy. Because equity refinancing is hard and usually the person who ends up holding the mortgage gets screwed with extra payments and all sorts of headache. If you do buy it together, have an agreement in writing over how you will handle if one person wants out of the mortgage. PLEASE PLEASE PLEASE listen to me on this. Many people say "but we are friends!, we don't need that" and the fact is, life sucks and when you get in a fight with someone, its not pretty.

But if you have any other specific questions, I'd be glad to try to answer them.

 

[lilnoelle]

Somethings to consider... My house that is worth $130K right now may be worth $150 in 10 years, but that doesn't mean I'm actually making money unless I can buy a house that is equal in size and as nice as the house that I'm selling for a price that is lower than what I'm selling. If your house has appreciated in value, so has all of the houses around you and most likely, your going to be spending just as much as you recieved on the house you just sold just to break even in quality of house.
And.... in a years worth of time you may have spent $1200+ on mortgage payments and only put about $1000 of that into principle (generalizing a bit here). Therefore, if you sell your house in 5 years, you will only have $5000 equity (provided you didn't make a downpayment) and that will not even cover the realtor fees. On top of this, your house may be worth a little more than it was when you bought it, but (as mentioned earlier) the house you buy will be worth more than the one you sold (most likely) and it will most likely need work which requires either having a willing seller or cash in your pocket.
The only way to build up relatively fast equity is to pay more than your mortgage payment (like twice the payment.) Then in one year you'll have payed $24,000 on your $130,000 home and will have built up $13,000 equity in one year instead of $1,000.

I guess the real question is if your rent payment and mortgage payment are approximately equal, will you put more than $1000 into maintenance and extra expenses into your house in a years time? Probably. On top of this, if you sell in five years, all of your equity will go straight into your realtors pocket.

 

[mshheaddoc]

Somethings to consider... My house that is worth $130K right now may be worth $150 in 10 years, but that doesn't mean I'm actually making money unless I can buy a house that is equal in size and as nice as the house that I'm selling for a price that is lower than what I'm selling. If your house has appreciated in value, so has all of the houses around you and most likely, your going to be spending just as much as you recieved on the house you just sold just to break even in quality of house.
And.... in a years worth of time you may have spent $1200+ on mortgage payments and only put about $1000 of that into principle (generalizing a bit here). Therefore, if you sell your house in 5 years, you will only have $5000 equity (provided you didn't make a downpayment) and that will not even cover the realtor fees. On top of this, your house may be worth a little more than it was when you bought it, but (as mentioned earlier) the house you buy will be worth more than the one you sold (most likely) and it will most likely need work which requires either having a willing seller or cash in your pocket.
The only way to build up relatively fast equity is to pay more than your mortgage payment (like twice the payment. Then in one year you'll have payed $24,000 on your $130,000 home and will have built up $13,000 equity in one year instead of $1,000.

I guess the real question is if your rent payment and mortgage payment are approximately equal, will you put more than $1000 into maintenance and extra expenses into your house in a years time? Probably.

I'm trying to figure out how to put this. Building up equity is not a bad thing. Most people trade-up in value within a specific area, unless you are moving to a new locale. While what you say is true if you were looking from a purely financial aspect but often the equity you can make in your house even if it is a little can help you out alot. In various markets, seller/buyer fees can be negotiated to make it more appeasing for one side or the other. Which is why I reiterate that location is really dependant on whether to decide to rent or buy.

You have great points. I wanted to type out an example of what you are describing but I really don't have the time (I shoudl be studying!) to do a full description with amortization schedule and do a mock HUD-1 etc. That would be a great asset for me to post in an FAQ and I will consider doing that in the future.

 

[MeganRose]

So, I'm thinking about buying a house right before I start med school considering I'll be in one place for 4 yrs, and possibly more. Anyone have any experience with this they'd like to share? Pros or cons that anyone's thought of?
Do you go about getting pre-approved for a loan before or after you get all your financial aid stuff in order?
Any help would be much appreciated. Thanks guys!

It really depends on your situation and the housing market in your area. A house is really a lot of responsibility in terms of time and money so I opted to purchase a condo. My condo was purchased for 50k (furnished) in 2003 and now is worth ~72k. Its about a mile from medical school so I plan on holding on to it as a rental property. I'm lucky in that I have an HPSP scholarship that counted as income but I'm really glad that I purchased it. There's no easy answer but I say that purchasing a condo in a market with a lot of appreciation (esp if its likely that you will stay in that city for residency) can be a great financial move.

 

[cubbbie]

A few people have said be sure to research things thoroughly about the market and where you're buying. How is this done?

 

[lilnoelle]

I'm trying to figure out how to put this. Building up equity is not a bad thing. Most people trade-up in value within a specific area, unless you are moving to a new locale. While what you say is true if you were looking from a purely financial aspect but often the equity you can make in your house even if it is a little can help you out alot. In various markets, seller/buyer fees can be negotiated to make it more appeasing for one side or the other. Which is why I reiterate that location is really dependant on whether to decide to rent or buy.

You have great points. I wanted to type out an example of what you are describing but I really don't have the time (I shoudl be studying!) to do a full description with amortization schedule and do a mock HUD-1 etc. That would be a great asset for me to post in an FAQ and I will consider doing that in the future.

As mentioned before, I own a home and am happy that I own a home. We purchased last June and didn't really consider the option of renting.
I was mostly responding to individuals whom seem to think owning a home instead of renting will put more cash in their pocket.

My experience with my last house sale has convinced me to try to keep my current home as long as possible rather then sell.

 

[Sol Rosenberg]

As far as the financing - the more you can put down the better. If you put down <20%, then you also have to pay "primary mortgage insurance" which is essentially flushing $$ down the toilet. ALSO, the break-even point for when you'll actually start making a profit (after closing costs, realtor fees, etc) is 4-5 years for most places, so unless you manage to find a lender who will cover your closing costs or get some of them covered by the seller in the sales contract (or are sure that your house will appreciate faster than average), it's not worth it for a shorter period of time than this.

PMI = Private Mortgage Insurance, and is essentially a stupidity/ignorance/lack of creativiy in financing tax. You can easily get an 80/10/10 or 80/15/5 loan which side-steps the PMI requirement for < 20% down.

The thing is that there is probably not that much difference if you have no income against which to write off the mortgage interest, since the second mortgage loans as part of those packages usually have slightly higher interest rates.

 

[Sol Rosenberg]

I'm surprised by most people's comments. I guess it shows my ignorance. I've always rented.

My feelings are - who cares if I make money? I mainly want to lose the least amount of money. If I rent 4 years, $950 a month (for my wife and I) we're looking at throwing $45,600 away. Now would I lose that much through property taxes, insurance, closing costs, selling costs, maintenance, and interest on the mortgage? Even if I sold the house for exactly what I bought it for, it seems like I would come out ahead compared to renting. Is this inaccurate?

By the way, I've rented my duplex for 2 years, and I don't think my owners have spent a dime on maintenance

This is what my calculations from my first response compare against. In the first years of a loan, it's not a terrible _approximation_ that ALL of your mortgage payment is interest. Therefore, it is a real possibility that Mortgage Interest + Prop. Taxes + Upkeep, etc is greater than what you are paying in rent. To be fair, however, you also need to estimate what you can earn on the house due to market appreciation, etc.

A big part of the attraction in short-term home ownership is the financial gain that you receive (in a favorable market) from being able to earn money on borrowed money (you only really invest ~5% cash, but earn/build equity on 100% of the value of the house.) It's kind of like a less risky (though definitely not without risk) way of trading on margin.

I also agree that people are overstating the cost of upkeep. Yeah, you can get unlucky and have to replace a roof (but that's why you hire a home inspector to tell/estimate how old the roof is.) I own and manage/rent property, and that's what my 15% rule of thumb is based upon. So, upkeep is something you have to account for, but if you have to spend more than 15% on upkeep, you're unlucky.

 

[DrMidlife]

A few people have said be sure to research things thoroughly about the market and where you're buying. How is this done?

The short answer is to pick up a "buying a house for dummies" book. They won't leave much out.

A longer, biased, old fart answer is to do stuff like this: Get obsessed with the local real estate market for about 10 years. Don't let a day go by without seeing what comes on the market. Drive by and go in open houses. Have 40 million water cooler conversations about amortization and safe neighborhoods and earthquake retrofitting, etc. (This kept me distracted from a job I hated, until I figured out I wanted to go to med school.)

Okay the real list:

1. Find an MLS (multiple listing service) website for your area. The biggest local real estate firm is probably the best site. This lets you see what's for sale, how fast stuff sells, and it gets you going on vocabulary.

1a. Look at craigslist for your area. This will give you a very small subset of the houses for sale, but sometimes a totally different picture.

1b. Stop when you see a for sale sign. Steal a flyer. Get comfortable with the real estate agency names and figure out which ones are big and successful. Think about everything listed on the flyer (bedrooms, yard size) and be scared at the sale price.

2. Find city and county home sales records online, if they exist. This lets you look up "comps" (comparables) to houses that interest you.

3. See if zillow.com has details for your area yet. The information on this website is staggering, including satellite pictures, valuation trends, neighborhood sales history. Seriously great site.

4. Look at local police records about crime rates and maybe the sexual offender residency reports, things like that. See if there's a neighborhood breakdown. You can typically go meet with a cop to talk about what they know. Don't assume a neighborhood is safe because it has an elementary school or a playground.

5. If there are obvious neighborhoods you're looking at (close to school etc.) go see, go walk around, look for graffiti and abandoned cars and homeless teenagers, talk talk talk to people. If you're looking right before school resumes, you'll have no idea what the noise levels are going to be like; this stuff is why you have to talk to people.

Then there's the whole "how to get financing" topic that I don't enjoy so I'll let others take it on.

When you're looking at a house or condo, here are some good things to do:

1. Visit multiple times, morning and night, walk the neighborhood, talk to people. Ideally you would get a feel for how loud it is during morning/evening commute, during Friday/Saturday night party windows, and you might witness neighbor behavior that impresses or scares you. See how hard it is to get to school/work from there AT RUSH HOUR, and how hard it is to park.

2. Unless you're truly loaded, don't play the competition game. Be totally willing to walk away from a house you think you love. Don't buy with your heart, buy with your brain. Don't make an offer until you know what you're getting into, by paying for a good home inspection, walking through with cynical friends, talking to neighbors.

3. If you're looking at a condo, talk to other owners about assessments and upcoming large expenses. Ask to see the last couple years' worth of association meeting minutes. Don't just trust the realtor/owner/board president. Lots of condos are sold just as the association is about to levy a $x000 charge per unit for roof repair.

4. Unless you have the time to learn how to close a sale, you need a buyer's agent (the realtor that works "for you"). You can't use the seller's agent even if he/she is nice. Each is getting 3% of the sale price of the house, typically paid by the seller. This is a TON of money. You are not going to feel like they earned it, unless you're really lucky. My advice is to find the old guy with the cheap car who has owned rental properties in the town for 30 years and went to school with the seller's agent's dad and tries to talk you out of everything. Dump any agent who doesn't kiss your a.s.s like it's never been kissed.

Like I said, it's a lot of work, expensive, and it sucks to do it alone. Best of luck to you.

 

[Sol Rosenberg]

I just want to preface this by saying that the advice you gave is excellent, and, although I'm sure you don't need my cheerleading, I think that any prospecitve homebuyers here would be wise to follow it/learn from it.

One minor nit:

4. Unless you have the time to learn how to close a sale, you need a buyer's agent (the realtor that works "for you"). You can't use the seller's agent even if he/she is nice. Each is getting 3% of the sale price of the house, typically paid by the seller. This is a TON of money. You are not going to feel like they earned it, unless you're really lucky. My advice is to find the old guy with the cheap car who has owned rental properties in the town for 30 years and went to school with the seller's agent's dad and tries to talk you out of everything. Dump any agent who doesn't kiss your a.s.s like it's never been kissed.

Like I said, it's a lot of work, expensive, and it sucks to do it alone. Best of luck to you.

Whether or not you HAVE to use a buyer's agent is going to vary by location. In some places, buyer's agents are almost unheard of, and the details of closing a sale are handled by real estate attorneys (closing takes place in an attorney's office) who work for a more-or-less flat fee. This is not the case here in TX where law mandates that closings take place at the office of a title company, and you are free as a buyer to use any (including the seller's agent) or no agent at all. It is generally foolish, however, to not have a buyer's agent.

Also, about commissions. This also depends on the market. The market has been slow here for a few years, and 1% realty places have sprung up (one even calls themselves "1% realty.") These are seller's agents that will list your home in the MLS, put a keybox on it, etc for 1%. You will still have to pay the buyer's agent 3% (unless the buyers are not using an agent) so it's possible to sell a house for 4% total commission. They are obviously becoming more and more popular, but now that the housing market has picked up here, I wonder if we will see them try to increase their commissions. <shrug>

Because all of this stuff varies so much by locale makes it even more important to do lots of research to find out what things are like where you are planning on buying a house.

 

[cubbbie]

The short answer is to pick up a "buying a house for dummies" book. They won't leave much out.

A longer, biased, old fart answer is to do stuff like this: Get obsessed with the local real estate market for about 10 years. Don't let a day go by without seeing what comes on the market. Drive by and go in open houses. Have 40 million water cooler conversations about amortization and safe neighborhoods and earthquake retrofitting, etc. (This kept me distracted from a job I hated, until I figured out I wanted to go to med school.)

Okay the real list:

Thanks. This is really helpful. So far I've just been daydreaming and perusing craigslist. There's a huge variance there and I'm never sure why. I'm assuming it has to do with neighborhoods. I'm not one who enjoys spending money, so I'll definitely be sure to know my sh** before I put anything into it.

 

[DrMidlife]

...perusing craigslist. There's a huge variance there and I'm never sure why. I'm assuming it has to do with neighborhoods.

This will come down to location, intangibles, sentiment, and ambience. Did I miss anything? If the sellers aren't just delusional, you can tell why a property is priced high/low by driving by or walking through.

Location is how far you are from bad things and good things. Close to a freeway but far enough to not hear it. Close to a park but far enough that people don't park in your yard. I sold once because of the likelihood that a light rail tunnel would be built DIRECTLY under my house.

Intangibles are things like good or bad neighbors, tastefulness (you'd be absolutely appalled at what some people consider "remodeling"), wood vs. vinyl siding, the quarterly cultural/drumming/yodeling festival in your neighbor's backyard, the pitbull breeder down the street, anybody dying there, your neighbors having the same number/age kids as you, house is the only non-rental for miles, etc.

Sentiment: old fashioned charm, name brand architecture, the gorgeous expensive dining room table that makes you blind to the house's flaws, curb appeal, any house not built mass production, somebody famous lived there, historical registry, all that

Ambience: light-filled rooms, views, hot tub, trees, killer organic/flower garden, wood or brick vs. vinyl or metal or concrete, gas vs. electric heat/stove, how it feels, stream in the backyard, can't hear any noise but birds, etc.

OK there's a 5th category: health. How soon is the furnace/roof/carpet/plumbing going to die? How cheap is the hot water heater? Is your basement going to flood if the neighbor's plumbing backs up? Is the siding asbestos? Is the lawn full of moss? Are any of the plugs grounded? Is the foundation cracked? Etc.

To quote "Zen and the Art of Motorcycle Maintenance" : "quality is what you like." What a lot of people like costs more, and sells faster.

 

[DougFlutie]

My feelings are - who cares if I make money? I mainly want to lose the least amount of money. If I rent 4 years, $950 a month (for my wife and I) we're looking at throwing $45,600 away. Now would I lose that much through property taxes, insurance, closing costs, selling costs, maintenance, and interest on the mortgage? Even if I sold the house for exactly what I bought it for, it seems like I would come out ahead compared to renting. Is this inaccurate?

This is exactly my question as well. Like AggieJohn, I don’t really care about gaining equity or turning a sizable profit, I just don’t want to throw away my rent.

In my case, I may be in an area for the next 5 years, which amounts to anywhere between $40,000 and $50,00 in rental fees to the owner. In my worst-case scenario, I buy a condo and I lose $20,000 when I sell. Did I not just save $30,000?

 

[lilnoelle]

This is exactly my question as well. Like AggieJohn, I don't really care about gaining equity or turning a sizable profit, I just don't want to throw away my rent.

In my case, I may be in an area for the next 5 years, which amounts to anywhere between $40,000 and $50,00 in rental fees to the owner. In my worst-case scenario, I buy a condo and I lose $20,000 when I sell. Did I not just save $30,000?

This is NOT how it works out. When I make a mortgage payment, it is very similar to a rent payment. I have two mortgages that equal out to approximately $1100. Only about $100 of that is principle (I think I'm rounding up). So $1000 goes to interest, ESCRO (property tax), insurance, etc. In five years I will have about $6000 in equity. (Assuming no downpayment and no appreciation) The rest is lost, same as renting. Selling $130K house will cost me ~$8K in realty fees. I've just "lost" $2K on top of the $66K that I paid on the house the last five years.
Now, I realize the true math would not be this neat. Everytime you make a payment you pay a little less interest and a little more principle but I'm guessing the amount of change due to that in a year will be counteracted by the amount in change of property tax in a year. Even with a fixed interest rate, it is quite likely that each year my monthly payment will go up $50 due to property tax hikes.

 

[Sol Rosenberg]

This is exactly my question as well. Like AggieJohn, I don’t really care about gaining equity or turning a sizable profit, I just don’t want to throw away my rent.

In my case, I may be in an area for the next 5 years, which amounts to anywhere between $40,000 and $50,00 in rental fees to the owner. In my worst-case scenario, I buy a condo and I lose $20,000 when I sell. Did I not just save $30,000?

You have to count the amount of mortgage interest and property taxes that you pay while living there.

For example, on a 100,000 30-year loan with 6% interest, you will be paying approx. $500 a month in mortgage interest. If you have income from which you can deduct this interest on your taxes, you can get some of that back, but assume you don't (like most traditional medical school students) you will pay exactly $23,392.96 in mortgage interest on that loan in its first 4 years.

Property taxes on that house vary widely according to location, but would be about $2500/yr here, for a total of $10,000. Again, you could write them off if you have income against which to write them off, but that will not typically be the case for most medical students.

There is your $30,000 savings (and then some) gone right there.

I will keep repeating myself until I am hoarse (or, more suitably, until my fingers hurt) you need to crunch these numbers for your individual situation. There are lots of variables, and no one here can give a blanket answer.

 

[lilnoelle]

The best way to make money on owning is to buy substantially less than you can afford. Get the least interest % possible, make the largest downpayment you can afford, and then double up your payments every month. In 15 years, one could potentially own a $50K house when they would only have approximately $20K in equity on a $130K house. Then when you've paid off your $50K house, use that equity to buy a $100K house, and start over with the same payments you were making on the $100K house and so on.

 

[Sol Rosenberg]

I disagree.

Equity = Value of House - Amount Owed on House

You don't need to pay down your mortgage to build equity, you just need to do research and buy property that will tend to appreciate in value quickly. What determines whether a property will appreciate quickly in value? 3 guesses: location, location, location.

I would also recommend putting down as little as possible, and buying as much of a house as you can afford, because, as I said before, you earn based upon the entire value of the house, but you only need to put down a small fraction (5%, or maybe even 3% (with an FHA loan) or maybe even 0% (with a VA loan)) of a down payment. Just like trading on margin (with many of the risks too, no doubt.))

 

[lilnoelle]

I disagree.

Equity = Value of House - Amount Owed on House

You don't need to pay down your mortgage to build equity, you just need to do research and buy property that will tend to appreciate in value quickly. What determines whether a property will appreciate quickly in value? 3 guesses: location, location, location.

I would also recommend putting down as little as possible, and buying as much of a house as you can afford, because, as I said before, you earn based upon the entire value of the house, but you only need to put down a small fraction (5%, or maybe even 3% (with an FHA loan) or maybe even 0% (with a VA loan)) of a down payment. Just like trading on margin (with many of the risks too, no doubt.))

I don't necessarily disagree with the first part of your statement. I took appreciation out of my figures because generally any appreciation on your house occuring will also be occuring on your neighbors house and also whatever house you choose to move into after selling your house. Unless you move to a worse neighborhood after selling your current house any appreciation will not exactly be equity "in your pocket". If you can by some miracle find a neighborhood where appreciation is occuring at a greater rate than the rest of the city or wherever you'll be living after you move, then you will have a good deal.
I disagree with your second paragraph. If you are making the same payments on a $100k vs a $200K home, far more will go to principle and far less to taxes and interest in the $100K home. The amount of principle that goes into your home from your mortgage payment (the one the bank arranged) is rather small and does not build up fast enough to make a good deal of equity. Now if your interest rate is very low and property taxes is low as well, maybe a bigger house (with a fixed interest rate) is a better deal, but that isn't the case where I live.

 

[Northerner]

Now are people thinking about paying their mortgage payments and utility bills and homeowner's insurance and maintenence with student loan money? On the mortgage, that's doubling up on interest, and adding eventual interest costs to utility bills, homeowner's insurance, maintenence, etc.

Am I wrong?

 

[lilnoelle]

Now are people thinking about paying their mortgage payments and utility bills and homeowner's insurance and maintenence with student loan money? On the mortgage, that's doubling up on interest, and adding eventual interest costs to utility bills, homeowner's insurance, maintenence, etc.

Am I wrong?

It depends on whether individuals are figuring interest and property taxes into their monthly mortgage payment. (It seems some on this site are not)
I'm not sure about the rest of the country, but in Missouri, my "mortgage payment" includes ESCROW, interest, and home owners insurance.
Maintenance is obviously not figured into the mortgage, nor is utility bills. Thats why one needs to make sure the utilities on the house aren't going to be much greater than renting and make sure some is saved aside for maintenance. As long as all of the above don't equal more than renting, the concept of adding interest to interest is somewhat irrelevant.

I think renting for one or two people is probably cheaper than owning, but if you add more into the picture (3+ bedroom) owning is probably more worthwhile.

 

[Sol Rosenberg]

Unless you move to a worse neighborhood after selling your current house any appreciation will not exactly be equity "in your pocket". If you can by some miracle find a neighborhood where appreciation is occuring at a greater rate than the rest of the city or wherever you'll be living after you move, then you will have a good deal.

Good point, but there are many ways to skin this cat. You can buy a run-down house in a good neighborhood (my in-laws, who have made literally millions by investing in real estate gave us this advice: Buy the worst house in the best neighborhood) and then renovate it. This method is probably not too relevant here because it requires a certain amount of cash on hand. You can move to another city (probably the most relevant for this particular discussion) where real estate prices are low. And, you can still find good deals in the same city in good neighborhoods -- you just need to be vigilant and patient.

I disagree with your second paragraph. If you are making the same payments on a $100k vs a $200K home, far more will go to principle and far less to taxes and interest in the $100K home. The amount of principle that goes into your home from your mortgage payment (the one the bank arranged) is rather small and does not build up fast enough to make a good deal of equity. Now if your interest rate is very low and property taxes is low as well, maybe a bigger house (with a fixed interest rate) is a better deal, but that isn't the case where I live.

We're obviously different types of [real estate] investors, and that's cool. I don't assume I'm making anything off the equity I build by paying down my mortgage. If I do, that's great, but that's not really a realistic assumption for short-term property ownership. Like you said, you can pay extra to your principle, but then again, you could've done something else more interesting with that money too. I look at interest and taxes, etc as the cost of the investment (For most property owners, these costs are tax-deductable, mitigating them to some extent.) The real payoff from the investment comes from rising property values.

I'm not trying to get into a debate about investment styles, as that is pretty pointless, but I was just trying to point out that there are two ways to increase your equity = property value - amount owed: 1) Increase property value and 2) Decrease amount owed. You are advocating increasing your equity by decreasing your amount owed, while I look to increase it by primarily increasing the property value (or buying property whose value is likely to increase.)

 

[Sol Rosenberg]

Now are people thinking about paying their mortgage payments and utility bills and homeowner's insurance and maintenence with student loan money? On the mortgage, that's doubling up on interest, and adding eventual interest costs to utility bills, homeowner's insurance, maintenence, etc.

Am I wrong?

Yes, you are wrong, because you incur the student loan interest whether you rent or buy (assuming you use student loan money to pay your rent,) so you can neglect it when comparing the two. Make sense?

 

[DougFlutie]

You have to count the amount of mortgage interest and property taxes that you pay while living there.

For example, on a 100,000 30-year loan with 6% interest, you will be paying approx. $500 a month in mortgage interest. If you have income from which you can deduct this interest on your taxes, you can get some of that back, but assume you don't (like most traditional medical school students) you will pay exactly $23,392.96 in mortgage interest on that loan in its first 4 years.

Property taxes on that house vary widely according to location, but would be about $2500/yr here, for a total of $10,000. Again, you could write them off if you have income against which to write them off, but that will not typically be the case for most medical students.

There is your $30,000 savings (and then some) gone right there.

I will keep repeating myself until I am hoarse (or, more suitably, until my fingers hurt) you need to crunch these numbers for your individual situation. There are lots of variables, and no one here can give a blanket answer.

Excellent points and very well said, thank you jota. One follow up that I have which may be entirely obvious: In order to make these deductions, I would need to be making more money monthly than the sum of my deductions? (Thus, I can't just toss in a part time research gig and attempt to deduct from that, right)? And of course, student loans do NOT count as income...

To sum it up: without significant income and the ability to make a sizable down payment, owning is a poor choice.

 

[Law2Doc]

To sum it up: without significant income and the ability to make a sizable down payment, owning is a poor choice.

True, unless property values shoot upwards rapidly over the next few years. Which is probably not a smart bet in the current housing market in much of the country. It becomes a better choice if you plan on staying through residency, but that is hard to bank on.

 

[mshheaddoc]

Or if you are in a market where what you need to rent is the same or cheaper if you buy it (per monthly payment). You can't just say b/c you can't take the deductions its a bad choice to own. I'll say with MOST med students, you aren't going to stay in the same area for residency but some people might, it might work in their advantage. And there are other reasons for owning as well (such as space). I agree that without income the deductions is useless but every circumstance is a little different and every market is a little different. In the long, that investment might just pay off, but that is the risk you take wtih home ownership. No investment is without risk.

 

[bkpa2med]

Let me give some people my example and the way I see it. The rent the home I am buying costs $750/month. My mortgage, including taxes and insurance will be $600.

4 years renting = $36000
4 years mortgage = $28800

I put down $8500 plus closing costs and what not = $11000 due to sellers concession. Besides the point, my mortgage balance will be ~$76k. Now minus about $4000 of principal I will pay in 4 years. This leaves me with $72k.

I am buying the home for $84k and it is worth about $92k at the moment. So lets say conservatively that I will sell it for $95k in 4 years, minus 5% realtors fee will leave me with $90k. Minus this from what I owe which will be about $72k, you can see that I'll be left with ~$18k. So I got my initial downpayment back and made $7k.

Subtract the $7k from $28,800 and I'm left with $21,800. You can see that is alot cheaper than renting. Mind you Erie, PA has an extremely low cost of living and whatnot, if housing were more expensive I probably would just rent. You need to look at the situation and compare and see if you will benefit.

 

[Sol Rosenberg]

Excellent points and very well said, thank you jota. One follow up that I have which may be entirely obvious: In order to make these deductions, I would need to be making more money monthly than the sum of my deductions? (Thus, I can't just toss in a part time research gig and attempt to deduct from that, right)? And of course, student loans do NOT count as income...

To sum it up: without significant income and the ability to make a sizable down payment, owning is a poor choice.

You need to consider the following:

1. Yes, you need to be making at least the amount of your deduction
2. When you choose to itemize deductions (which is where you write off mortgage interest and property taxes) you lose your standard deduction. Therefore, if in "year 1" (the year before you buy a house) your AGI = 10,000 you are only paying taxes on your AGI - Standard Deduction. In "year 2" (the year that you buy a house) you are paying taxes on AGI - Itemized Deductions. Therefore, your additional tax savings is only on the amount of your itemized deductions (i.e. Mort. Interest + Property Taxes) that is above your standard deduction. Combining 1 and 2 leads to another "corollary" that you must earn more than your standard deduction to get the full benefit from writing off interest + taxes.

Did I just make that clear as mud?

Not trying to discourage anyone or anything -- just giving it to you straight.

...and once again, I disagree with the "sizeable down payment part." I don't want to beat a dead horse, but my personal belief is that one should put down as little as possible (especially in this era of low interest rates,) but debating that is probably more appropriate for the Finance forum, and, once again, drammatically depends upon your specific market conditions.