Buying a house in medical school

[ThanosThighs]

Is it financially stupid to buy a house in medical school? My wife and I currently work, but neither of us will be working while in medical school because my wife is pregnant and due in 2 weeks, and she wants to be home with the baby. We have a really good amount in savings, and after looking at COL and the housing market in the area where we will be, the mortgage will be the same it would to rent a similarly sized apartment. Is buying a house worth it at this point? We are planning to have more kids in medical school, and will want a couple bedrooms to grow our family in. I guess I may be pretty naive about buying a house and all the costs and headaches it causes, but I would like any thoughts and opinions.

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[type1doc]

No, rent is the most you will pay a month while a mortgage is the least you will pay a month. You should definitely look into the hassle and money that is required to maintain a house. All of that is not required for renters.

 

[wysdoc]

Is it financially stupid to buy a house in medical school? My wife and I currently work, but neither of us will be working while in medical school because my wife is pregnant and due in 2 weeks, and she wants to be home with the baby. We have a really good amount in savings, and after looking at COL and the housing market in the area where we will be, the mortgage will be the same it would to rent a similarly sized apartment. Is buying a house worth it at this point? We are planning to have more kids in medical school, and will want a couple bedrooms to grow our family in. I guess I may be pretty naive about buying a house and all the costs and headaches it causes, but I would like any thoughts and opinions.

It really depends on the house prices in your area. My son bought a small house in med school and enjoyed living there for 4 years, thinking also if he did his residency in the same city it would be so easy to stay.
Matching to a residency in a different state, he was able to sell his house for slightly more than he paid for it.
However, he discovered that house prices in the new state are 3x or more in comparison, so it didn’t make sense to do it there & he’s renting.

 

[Rachapkis]

I would advise against buying a house in medical school unless you plan to hold the house regardless of whether you move to another city for your residency and any fellowship. The transaction costs involved in selling a house are substantial (typically, 5%–6% of the home's sale price, although the percentage is going down after the NAR settlement). In addition, housing loans are structured so that you pay down very little principal during the early part of the loan. Plus, home repair costs can be substantial if something major goes wrong. Lastly, interest rates on a 30-year fixed mortgage are around 7.5%--a far cry from the uber-low rates that existed several years ago.

 

[saxyotter]

I’ve always wondered this… is it legal to use student loans to pay your mortgage like you would for rent? Similarly is it legal to use student loan as a down payment?

 

[Rachapkis]

I’ve always wondered this… is it legal to use student loans to pay your mortgage like you would for rent? Similarly is it legal to use student loan as a down payme

It would not be illegal but it would likely violate your loan agreement, which will typically specify that the proceeds of the loan must be used for educational purposes.

 

[Mr.Smile12]

It was more tempting during the COVID pandemic when interest rates cratered to 2.x%. Nowadays, I would be wary.

It also depends on the school and whether you are "on tour"/away during your clinicals.

 

[WildWing]

No, rent is the most you will pay a month while a mortgage is the least you will pay a month. You should definitely look into the hassle and money that is required to maintain a house. All of that is not required for renters.

There are also benefits to being able to call a landlord when something breaks versus having to manage getting it fixed yourself, and your time will be limited during medical school, especially with a new baby.

Ramit Sethi does really good breakdowns on how to calculate the real costs of buying versus renting, including providing some spreadsheets/worksheets for how to calculate overhead costs (for things like taxes and maintenance).

 

[Mr.Smile12]

It's 38% more expensive to buy a house than rent in US, analysis finds

Buying a house in the U.S. is considerably more expensive than renting right now, according to a new analysis.

abcnews.go.com

 

[Med Ed]

but I would like any thoughts and opinions.

What is a "really good amount of savings"?

 

[ThanosThighs]

No, rent is the most you will pay a month while a mortgage is the least you will pay a month. You should definitely look into the hassle and money that is required to maintain a house. All of that is not required for renters.

Yeah that is a good point! I am currently working on getting more research done about what it all entails to own a home, thanks!

It really depends on the house prices in your area. My son bought a small house in med school and enjoyed living there for 4 years, thinking also if he did his residency in the same city it would be so easy to stay.
Matching to a residency in a different state, he was able to sell his house for slightly more than he paid for it.
However, he discovered that house prices in the new state are 3x or more in comparison, so it didn’t make sense to do it there & he’s renting.

That is exactly what I was thinking about trying to do. I am a bit nervous though that the housing market will crash or something in the next couple years.

I would advise against buying a house in medical school unless you plan to hold the house regardless of whether you move to another city for your residency and any fellowship. The transaction costs involved in selling a house are substantial (typically, 5%–6% of the home's sale price, although the percentage is going down after the NAR settlement). In addition, housing loans are structured so that you pay down very little principal during the early part of the loan. Plus, home repair costs can be substantial if something major goes wrong. Lastly, interest rates on a 30-year fixed mortgage are around 7.5%--a far cry from the uber-low rates that existed several years ago.

I did not realize that the closing costs/transaction fees were that substantial! Thank you for the insight! That definitely will be a factor I need to weigh more heavily.

There are also benefits to being able to call a landlord when something breaks versus having to manage getting it fixed yourself, and your time will be limited during medical school, especially with a new baby.

Ramit Sethi does really good breakdowns on how to calculate the real costs of buying versus renting, including providing some spreadsheets/worksheets for how to calculate overhead costs (for things like taxes and maintenance).

That is very true, and I am not much of a handyman lol. Thank you for the info, I will look into Ramit Sethi's stuff!!

It's 38% more expensive to buy a house than rent in US, analysis finds

Buying a house in the U.S. is considerably more expensive than renting right now, according to a new analysis.

abcnews.go.com

This is a very interesting article, thanks for sharing! I am definitely starting to really think twice about buying right now. I guess a big part of owning a home is just that, knowing you own a home lol.

What is a "really good amount of savings"?

100K+

 

[Med Ed]

100K+

Great job. That sort of financial discipline will pay off down the road.

That said, it's difficult to recommend making your savings illiquid at this point in your life. Especially in an asset with high transaction costs, significant (and uncertain) maintenance expenses, and an uncertain horizon for appreciation of value. Early in a mortgage the big benefit is the interest deduction on your taxes, but that doesn't come in handy if no one is working.

If I were you I'd place my money in a high yield savings account and then transfer the max allowed each year into a pair of Roth IRAs. Even without additional contributions, 30 years of 8% average return on a 60K investment will yield 645K.

 

[Angus Avagadro]

It takes roughly 5 yrs for your house to appreciate enough to recover closing costs. You also don't know what the housing market may be like when you want to sell, it may have gone down and then you have to write a check to sell your home. Renting gives you much more flexibility as noted above.