buying a house in med school - am I insane?

[trustwomen]

Hi all,

I am pretty confident about getting in to a local school for this fall (I know, I know, "wait and see", but I'm trying to make plans early). Housing prices are on the rise here and will almost definitely keep increasing (city is WAY undervalued compared to other large cities). Pretty much anyone who wants to match for residency locally can do so, and that's what I would do (this is home).

So I'm looking at staying in the same place for 7-9 years guaranteed, and I thought, why not buy an apartment? Probably in the 160-200K range. Plus, my last "free" summer could be spent fixing it up the way I like it.

My SO makes just over 50K, I make 20K at a job which takes up so little of my time that I could keep it during med school (trust me on this one). He recently moved to Canada so he has no credit rating, but mine is great (FICO over 800). As a med student, I can get a 150K line of credit at prime. Med school will only cost about 22K for the four years (god bless socialism). I have a 4K student loan so far and no other debt. We are thinking about buying a 15-20K car (probably on the line of credit unless we get a better rate from the dealer, but we are disciplined enough to pay it over 48 months anyway).

Can I use my credit line to make a decent downpayment and get a good rate, or is that not considered a "real" downpayment? Do mortgage lenders love med students the same way other lenders do? Am I insane to even be considering this?

Advice please!

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[wook]

Hi all,

I am pretty confident about getting in to a local school for this fall (I know, I know, "wait and see", but I'm trying to make plans early). Housing prices are on the rise here and will almost definitely keep increasing (city is WAY undervalued compared to other large cities). Pretty much anyone who wants to match for residency locally can do so, and that's what I would do (this is home).

So I'm looking at staying in the same place for 7-9 years guaranteed, and I thought, why not buy an apartment? Probably in the 160-200K range. Plus, my last "free" summer could be spent fixing it up the way I like it.

My SO makes just over 50K, I make 20K at a job which takes up so little of my time that I could keep it during med school (trust me on this one). He recently moved to Canada so he has no credit rating, but mine is great (FICO over 800). As a med student, I can get a 150K line of credit at prime. Med school will only cost about 22K for the four years (god bless socialism). I have a 4K student loan so far and no other debt. We are thinking about buying a 15-20K car (probably on the line of credit unless we get a better rate from the dealer, but we are disciplined enough to pay it over 48 months anyway).

Can I use my credit line to make a decent downpayment and get a good rate, or is that not considered a "real" downpayment? Do mortgage lenders love med students the same way other lenders do? Am I insane to even be considering this?

Advice please!

trustwomen:

I would suggest buying only if you mortgage would be in the ballpark of what you would pay in rent. Your long time frame at the same place would push me toward buying, but again only if it created a monthly mortgage close what you would pay in rent.


Wook

 

[trustwomen]

trustwomen:

I would suggest buying only if you mortgage would be in the ballpark of what you would pay in rent. Your long time frame at the same place would push me toward buying, but again only if it created a monthly mortgage close what you would pay in rent.


Wook

See, that's the tricky part. I'd probably be paying about 200/month more for the mortgage as I would for rent on an equivalent place, simply because rent control here is very strong. An interest-only mortgage would probably be comparable to renting. There has been a major increase in housing prices and a smaller increase in rent. Thing is, it's either I buy now or in 6-9 years (I'm assuming that I won't have time during med school/residency to get it all organized) and housing prices will have gone up a whole lot by then, for sure. I just can't get my head around paying 1000/mo in rent I guess. I pay far less than that now, but I'm only in a 1 BR (too small) and not near school (too far) - but for a nice 2br right downtown by school, it's at least 1000/mo (or the aforementioned 160-200K to buy). Though a crappy 2BR can probably be had for 800/mo, but I've been living in so-so apartments for twelve years, dagnabbit.

 

[wook]

See, that's the tricky part. I'd probably be paying about 200/month more for the mortgage as I would for rent on an equivalent place, simply because rent control here is very strong. An interest-only mortgage would probably be comparable to renting. There has been a major increase in housing prices and a smaller increase in rent. Thing is, it's either I buy now or in 6-9 years (I'm assuming that I won't have time during med school/residency to get it all organized) and housing prices will have gone up a whole lot by then, for sure. I just can't get my head around paying 1000/mo in rent I guess. I pay far less than that now, but I'm only in a 1 BR (too small) and not near school (too far) - but for a nice 2br right downtown by school, it's at least 1000/mo (or the aforementioned 160-200K to buy). Though a crappy 2BR can probably be had for 800/mo, but I've been living in so-so apartments for twelve years, dagnabbit.

If you can budget out the 200/month, it's probably going to be worth it. However, make sure you can afford it. I would suggest that you figure you budget INDEPEDENT of your SO, just in the off chance you end up having to carry the financial load yourself. Generally, realty prices climb, BUT there are no guarantees. If it were me, I'd probably do it as long as I could meet/address the aforementioned concerns.


Wook

 

[SomeGuy]

Keep in mind, if you buy a condo, you'll have to pay property taxes and insurance out of your pocket. Don't forget about condo fees either.

Tally these up, they can add up to A LOT, especially the fees around where I live.

What you really need to ask yourself is, will the condo appreciate more than the rate of inflation, and if so, by more than the above fees? Don't forget to account for rising interest rates (unless you were talking about a fixed rate term). Is this an up and coming area with upside, or has it appreciated so much in the last while that there'll need to be below-average appreciation to make up for it?

As well, if rent control is really strong, does that also mean that you'll have to get on a waiting list for a place, or you'll still have your choice of places?

At least your time-frame is decent enough for buying outright, and it really seems like the whole "for sale by owner" thing should really take over a lot of urban real estate dealings in 5-10 years.

 

[trustwomen]

Keep in mind, if you buy a condo, you'll have to pay property taxes and insurance out of your pocket. Don't forget about condo fees either.

Tally these up, they can add up to A LOT, especially the fees around where I live.

What you really need to ask yourself is, will the condo appreciate more than the rate of inflation, and if so, by more than the above fees? Don't forget to account for rising interest rates (unless you were talking about a fixed rate term). Is this an up and coming area with upside, or has it appreciated so much in the last while that there'll need to be below-average appreciation to make up for it?

As well, if rent control is really strong, does that also mean that you'll have to get on a waiting list for a place, or you'll still have your choice of places?

At least your time-frame is decent enough for buying outright, and it really seems like the whole "for sale by owner" thing should really take over a lot of urban real estate dealings in 5-10 years.

I'd been looking for apartments in duplexes/triplexes, not condos. (They're like townhouses but vertically stacked instead of horizontally squished). So no condo fees, but insurance would be necessary. (And, of course, I'd have to maintain the place myself).

Do you think I'd be penalized for getting the down payment from a separate line of credit?

 

[Khenon]

Do you think I'd be penalized for getting the down payment from a separate line of credit?

I don't think you can use other forms of credit as your down payment. In fact when I bought my first house they were very particular about the down payment. I couldn't even borrow money from friends or significant others (not that I wanted to, but they made that fact clear to me). Immediate family only. I had to show via bank statements that I had the money, and if I got money from family I had to have a letter from them stating that they are "giving" me the money and it's not a loan. Maybe this was just this particular lender though. I'm not a real estate guru or anything.

 

[pagemmapants]

They are very particular about where you get your downpayment. If you get a "gift" from your parents or other relatives to use for it you have to have it IN WRITING that you don't have to pay them back for it.

Also, there are a lot of hidden fees with buying a place. I'm looking in to doing the same thing in Durham because the cost of living is just so darn cheap and I'll probably be taking multiple 3rd years at Duke and I don't think I'd mind at all sticking around for residency, so I've already started doing QUITE a bit of research into it. With some townhouse/condo/duplex complexes there're homeowners association fees, and then there's property taxes on top of your mortgage, and if you have less than a 20% downpayment (the ideal) you'll also have private mortgage insurance fees on top of that. Also, you must keep in mind that you need a little bit of a reserve fund in case something catastrophic happens and you need a repair (new roof, flood damage, etc) and of course the maintenance costs on your own place are going to be higher than in an apartment. Plus if something breaks, it's on your head not the apartment manager.

I highly recommend going out and buying "Home Buying for Dummies" and maybe "Personal Finance for Dummies" as well. HBfD is really clear and easy to understand and virtually everything about the buying process is outlined.

From what I've heard, mortgage lenders love med students as much as other lenders, even if we do pay the rent with loans, simply because they are GUARANTEED loans for the next 4 years and after that we're pretty much guaranteed employment by the system. Then, of course, if they're nice to us early we'll come back to them to finance our prestige automobiles and lovely new houses when we're making $500k/year in dermatology (or so they hope).

Good luck!

 

[Doctor Bagel]

From what I've heard, mortgage lenders love med students as much as other lenders, even if we do pay the rent with loans, simply because they are GUARANTEED loans for the next 4 years and after that we're pretty much guaranteed employment by the system. Then, of course, if they're nice to us early we'll come back to them to finance our prestige automobiles and lovely new houses when we're making $500k/year in dermatology (or so they hope).

Good luck!

Can you recommend any specific lenders that feel this way? I'm getting more enthused about the idea of buying because I now have 3 cats, and I'm not declawing them. If I owned my place, it wouldn't be an issue.

 

[dilated]

With some townhouse/condo/duplex complexes there're homeowners association fees, and then there's property taxes on top of your mortgage, and if you have less than a 20% downpayment (the ideal) you'll also have private mortgage insurance fees on top of that. Also, you must keep in mind that you need a little bit of a reserve fund in case something catastrophic happens and you need a repair (new roof, flood damage, etc) and of course the maintenance costs on your own place are going to be higher than in an apartment. Plus if something breaks, it's on your head not the apartment manager.

It's a little more complicated than that. People spend entire careers just coming up with creative real estate financing methods. There are a number of ways to get around the 20% dp without going to a "hard money" lender (the RE equiv of a loan shark). Seller financing is probably the biggest, which there are gazillions of books on. The key is that it will be an owner occupied property which gives you a significant advantage in the buying process. There are a lot of programs designed to help poor people get their first house; fortunately, as a medical student, they probably think you're poor (parental assets are irrelevant).

For example, there's the govt FHA 203b, designed for first time homebuyers that can allow you to get a house with like 3% down. There are a lot of state and local programs similar to this; I once took advantage of a local program that gave me 0% interest for 3 years because I bought in a "targeted" area for redevelopment.

If I was going to live in a market for 4+ years and could scrounge up the money I would undoubtedly buy provided I wasn't in one of the worst bubble markets. There are costs but simple logic tells you that obviously the rent is going to be more expensive in the long run (the landlord incurs the same costs and I hear they like to make a profit too) and you'll build equity.

 

[mshheaddoc]

Whomever said med students can get loans easy they have to be joking. Unless you are going into residency with contract in hand, med students can not get mortgages. You can get private loans to handle downpayments (just make sure you have the assets longer than 60 days or you can have a gift from a family member.

If you aren't going to have any income while your buying it and have great credit 700+ or 680+ I'm going to suggest doing a no-doc loan. You don't have to show income and some you don't even have to state assets. The interest rate is a little higher b/c there is more risk but it's only a percentage point or so. Otherwise you will need a cosigner and most likely it would be categorized with the cosigner having a 2nd property. If you have a spouse or SO that works, then you can use them if they're living with you. If not, the scenario I mentioned above it one of the few options you will have. We tried to do this last year. I worked in the mortgage industry at a large national mortgage company and trying to get financing we had to go to small brokers. We were told that going to some of the local banks they will help out med students/doctors. That was wrong as it was with doctors/residency not med studentsEven at that point they couldn't do much for us that was at a REASONABLE price. They were trying to give up a rate about 9% which I said no way and walked away (not to mention the fees).

If you have the credit history meaning you've had car payments, credit card payments, rent paid, etc over the past few year then you are set. Which exxlawgrrl I think you probably do. Check out the major lenders in the US and do some research into NO DOC loans.

 

[monkey7247]

You could also try the FHA Kiddie Condo program. Specifically set up for people still in school.

 

[blkprl]

You have to call around different mortgage companies to find someone who will be willing to underwrite your mortgage.
the easiset way is to get a co-borrower who is working to supplement your loan income.
mortgages are always more expensive than rent because of property taxes, PMI, and regular insurance so you can't compare the two. Also, there isn't much of a tax write off for the property taxes unless you're working while in med school or are filing with someone who works.
the advantage of buying (if you can afford it) is that over the period say 6-9 years in the OP's case, the property would have appreciated enough (i.e. in certain real estate markets) to cover your housing budget over the years while you're in school.

PM me about information on the lender that approved my loan



[/QUOTE] Can you recommend any specific lenders that feel this way? I'm getting more enthused about the idea of buying because I now have 3 cats, and I'm not declawing them. If I owned my place, it wouldn't be an issue.[/QUOTE]

 

[blkprl]

Whomever said med students can get loans easy they have to be joking. Unless you are going into residency with contract in hand, med students can not get mortgages. You can get private loans to handle downpayments (just make sure you have the assets longer than 60 days or you can have a gift from a family member.

If you aren't going to have any income while your buying it and have great credit 700+ or 680+ I'm going to suggest doing a no-doc loan. You don't have to show income and some you don't even have to state assets. The interest rate is a little higher b/c there is more risk but it's only a percentage point or so. Otherwise you will need a cosigner and most likely it would be categorized with the cosigner having a 2nd property. If you have a spouse or SO that works, then you can use them if they're living with you. If not, the scenario I mentioned above it one of the few options you will have. We tried to do this last year. I worked in the mortgage industry at a large national mortgage company and trying to get financing we had to go to small brokers. We were told that going to some of the local banks they will help out med students/doctors. That was wrong as it was with doctors/residency not med studentsEven at that point they couldn't do much for us that was at a REASONABLE price. They were trying to give up a rate about 9% which I said no way and walked away (not to mention the fees).

If you have the credit history meaning you've had car payments, credit card payments, rent paid, etc over the past few year then you are set. Which exxlawgrrl I think you probably do. Check out the major lenders in the US and do some research into NO DOC loans.

......true...
in the case of high interest you can ask the seller to help with the dwon payment to buy down your interest rate......
IF you don't have a FHA loan already you can use that to help with the interest rate

it is difficult but not impossible to do!

 

[chawkes]

You can contact Tom Sutton at Bank of America for guidance regarding no money down medical residents/doctor's loan. He's helped out a number of my friends, he also has a community comittment loan that has no pmi. You can find him doing a search in google for doctor loan tom sutton. Good luck

They are very particular about where you get your downpayment. If you get a "gift" from your parents or other relatives to use for it you have to have it IN WRITING that you don't have to pay them back for it.

Also, there are a lot of hidden fees with buying a place. I'm looking in to doing the same thing in Durham because the cost of living is just so darn cheap and I'll probably be taking multiple 3rd years at Duke and I don't think I'd mind at all sticking around for residency, so I've already started doing QUITE a bit of research into it. With some townhouse/condo/duplex complexes there're homeowners association fees, and then there's property taxes on top of your mortgage, and if you have less than a 20% downpayment (the ideal) you'll also have private mortgage insurance fees on top of that. Also, you must keep in mind that you need a little bit of a reserve fund in case something catastrophic happens and you need a repair (new roof, flood damage, etc) and of course the maintenance costs on your own place are going to be higher than in an apartment. Plus if something breaks, it's on your head not the apartment manager.

I highly recommend going out and buying "Home Buying for Dummies" and maybe "Personal Finance for Dummies" as well. HBfD is really clear and easy to understand and virtually everything about the buying process is outlined.

From what I've heard, mortgage lenders love med students as much as other lenders, even if we do pay the rent with loans, simply because they are GUARANTEED loans for the next 4 years and after that we're pretty much guaranteed employment by the system. Then, of course, if they're nice to us early we'll come back to them to finance our prestige automobiles and lovely new houses when we're making $500k/year in dermatology (or so they hope).

Good luck!

 

[Sol Rosenberg]

trustwomen:

I would suggest buying only if you mortgage would be in the ballpark of what you would pay in rent. Your long time frame at the same place would push me toward buying, but again only if it created a monthly mortgage close what you would pay in rent.


Wook

NOTE: This is not quite correct. You want to look at your Mortgage INTEREST payment in relation to your rent. Mortgage Interest + Prop. Taxes + Maintenence - Income Tax Savings = Cost of Owning the Property. If Cost of Owning Property < Rent, then you are better off owning that property AS LONG AS your housing market is not DEPRECIATING. If Cost of Owning Property > Rent then it may only make sense to own that property if the housing market in your area is APPRECIATING.

I don't include principal in these calculations because when you ultimately sell the house, you will get the principal back as long as your housing market is not depreciating.

I'm obviously a big fan of home ownership, but I agree that it may be difficult to get a mortgage if you are a single student with a small down payment. If you have a chunk of cash and can put down a sizable down payment, lenders will be more receptive.

 

[Sol Rosenberg]

taxes on top of your mortgage, and if you have less than a 20% downpayment (the ideal) you'll also have private mortgage insurance fees on top of that. Also, you must keep in mind that you need a Good luck!

There is almost no circumstance where you need to take out a loan that involves PMI anymore (if you have a decent credit score.) 80/10/10 and 80/15/5 loans are common these days and circumvent PMI.

 

[SOUNDMAN]

We did a "stated Income" loan, but had a sizable chunk of money to put down on the house, so our mortgage payment would be under 500 bucks. Really if you can do it a house would be your best investment during medical school, as long as it doesn't drain you, but you have to be smart and make sure you budget for everything.

 

[trustwomen]

Wow - the thread was revived! Thanks for all the advice everyone.

Two weeks after my original post, I did get in to the school I wanted. Two weeks after that, I wound up finding an affordable condo and jumped on it. I'm very happy! We needed a letter from my mom "stating" that the 5% she was giving me was a gift not a loan (I paid her back from my credit line as soon as the mortgage was discharged), and of course my SO and I are both working, which helped. The "cost of ownership" (as jota explained) was almost the same as our current rent, but lower than the rent would have been on a comparable apartment to the one we bought (bigger and nicer than the tiny apt. we rent now). The neighbourhood is gentrifying fast (really, really fast) and investment-wise it's pretty advantageous.

I realize now that SDN was probably not the best place for me to seek advice, as the rules seem to be different across borders. In Canada there is:
-no income tax deduction for mortgage interest
-no 80/10/10 type loans that let you avoid PMI (but the property price was low, so the PMI was not a huge burden)
-standard amortization is 25 years instead of 30, and they encourage accelerated biweekly (no tax break, so no incentive to pay slowly - interest becomes your unadulterated enemy. We chose acc-bi and it'll be paid in just under 21 years.)

I hope the thread will help others who are looking into this possibility, and thanks again to all who offered advice!!!

 

[mshheaddoc]

whoops, I should have known the canadian part. Sorry I wouldn't have spouted so much.


As for advice on this thread, many different people are sort of saying different things. It really has to do with the situation you are in. If you are working when you purchase the home then its not really and issue. If you aren't working, there are ways to get around it. FHA loans are great for first time homebuyers as there are alot of extra perks but they require you to be working. If your parents will co-sign as a 2nd home this is not an issue. Stated and no-doc loans are great as well if you go through MAJOR mortgage companies. I have never heard of good experiences with brokers as it seems you end up paying WAY too much money on fees and interest rates. As well as the major mortgage companies have fairly decent credit score cut offs for stated/no doc loans (around 660/680/700).

PMI really is a thing of the past. Many loans can go up to 95%, 97.5% and 100% without PMI. They will just give you a slightly higher rate. Some huge budget crunchers might do an analysis and show that you are paying more over the long run like this. Which might be true. But also when purchasing a home, consider how long you expect to be there. Most for med school consider either 4-8 years. Your PMI won't be much of a deal for that. But if you are going 15+ years, then I would look into PMI. Especially if you plan on making accelerated payments down the road (with med students, I really don't see that happening though ).

jota_jota had great post about cost of ownership. Remember some also like more space and renting a home is usually more expensive than an apt. Every situation is different. Look into options you have and good luck.