Doctor Mortgage Loan Advice

[NinerNiner999]

Would you invest all of your savings in a single stock knowing you will only invest for three years and you can never sell it? Would you do it in an unstable down market?

Don't buy, rent. You can still get great deals in the Baltimore area without risking your savings and future losses. Also, don't forget that when you sell you will also have to cough up 6% of the sales price for your realtor's commission.

It was said earlier - you will probably move after residency. Save, pay 20% cash, and do it right after you have moved permanently out of residency.

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[QfeverQ]

What if you plan on staying for 7+ years?

 

[JShephard]

What if you plan on staying for 7+ years?

If you actually have ties to the area (large family, lived there 10years already, etc.) and answer a definite yes (no doubt) to being there in 10 years then a 30 year fixed is a good buy.

I would say if you've never lived there before and you are just saying you'll live there in 10 years with no family or ties, then renting seems like a better move.

These are all judgement calls. You won't find any consensus.

Also every real estate market is different. Buying in Vegas is different than Texas. Markets that went through crazy expansion really suffered in 2009-2011, but that's not every state in America by any means.

 

[sylvanthus]

Hmm Ill be in Long Island,NY for 5-6 years so am looking at possibilities of buying. Rent alone seems to be 1,800 a month for most 2 bedroom apartments and there are many homes for sale for 200-250k. Granted, likely not the greatest area, but I browsed through listings and they seem like decent places.

I really don't want to throw away 120k on rent if I could pay down a large chunk of a mortgate with that.

Thoughts? People still think renting is the best plan? Edited to add resident starting salary is pretty high where I am at (64,000).

 

[DreamingTheLive]

64K PGY-1 salary?!?! Nice.

 

[EMquest3]

64K PGY-1 salary?!?! Nice.

Sounds like North Shore, I was wow'd by that salary too.

 

[sylvanthus]

Im sure cost of living takes away a lot of it, but it is what it is. I guess looking at things I would spend essentially the same on rent per month as I would buying a house when I factor in taxes, insurance, mortgate,etc. So, I am really leaning towards buying. Anyone in the New York area have any thoughts on the market?

 

[deleted109597]

I really don't want to throw away 120k on rent if I could pay down a large chunk of a mortgate with that.

You can't pay down a large chunk of a mortgage with that. Sorry, but that's not how amortization schedules work. I've paid 65 mortgage payments in 60 months, and I now owe a little under 90% ($172K of original $192K), as I did a doctor's loan and had no down payment. If I hadn't made those 5 principal only payments, I would owe even more.
That's 65 payments of $1400, or $91000.

Now, I also have an ARM, and it actually worked in my favor, as my mortgage is going to go down at the end of the month. I still will continue to pay at the higher amount to pay down the principal sooner, as I desperately want this house to sell. Having renters in it at least lessens the pain.

 

[DeadCactus]

The buy/rent debate relies on so many variables the only thing people on the internet are good for is suggesting things to consider. Talk with residents in your program. Find ones who bought and are happy with the decision and find out how they made it work. If you can't find any, that might be a sign. If you find a mix, figure out what the unhappy people did to screw it up...

 

[Taxguy]

the buy/rent debate relies on so many variables the only thing people on the internet are good for is suggesting things to consider. Talk with residents in your program. Find ones who bought and are happy with the decision and find out how they made it work. If you can't find any, that might be a sign. If you find a mix, figure out what the unhappy people did to screw it up...

+1

 

[deleted109597]

The buy/rent debate relies on so many variables the only thing people on the internet are good for is suggesting things to consider. Talk with residents in your program. Find ones who bought and are happy with the decision and find out how they made it work. If you can't find any, that might be a sign. If you find a mix, figure out what the unhappy people did to screw it up...

Caveat. It is unlikely that any of the residents in your program have tried to sell a house at this point. Most are happy with buying while they live there. It's the selling in 3 years when they move away that they're unhappy with.
Obviously, the market is huge, and can change in 3 years. But there aren't many "sellers" markets out there right now. Sure, you can buy low, but you will likely also sell low.
Finally, the only loan you're going to get is a portfolio loan, as you won't qualify for anything FHA with your low income and high student loan debt.


It is funny, that this is like many of the EM threads. The med students ask for advice. The attendings give advice. The students don't like the advice and ask for what they want in different ways.
Think of it like the "what's the best residency" and "who does the most trauma, it's important to me" threads where our advice is met with an unwillingness to consider that those who have done it might just be right.

 

[sylvanthus]

\

 

[Socrates25]

64K PGY-1 salary?!?! Nice.

Making 64k in NYC/NJ is like making 35k in the midwest. It's still a crappy deal. Besides I know some of those NYC/NJ programs cant even guarantee subsidized housing, making a crappy deal even worse.

 

[DreamingTheLive]

Making 64k in NYC/NJ is like making 35k in the midwest. It's still a crappy deal. Besides I know some of those NYC/NJ programs cant even guarantee subsidized housing, making a crappy deal even worse.

Trust me, I understand the economics. However, I have been told that there are certain residencies which start their interns in the upper $40Ks...a far cry from $64K...small victories, but still...Nice!

 

[UnderwaterDoc]

Trust me, I understand the economics. However, I have been told that there are certain residencies which start their interns in the upper $40Ks...a far cry from $64K...small victories, but still...Nice!

Yup, we start at 47K, although our cost of living is in the lower spectrum.

 

[DreamingTheLive]

Yup, we start at 47K, although our cost of living is in the lower spectrum.

I meant to say that I've heard people talk about Big City east coast EM programs (i.e. in cities with very high COL) starting in the uper $40's. Is that where you're at geographically?

I mean, if you're an intern at an NYC hospital and they're starting you that low, well....ick.

 

[SserPrun95]

I have a friend going to Chicago (IM not EM) and she told me they will make $48k. Eeek!

 

[Cooperd0g]

It is a common misconception to think that money is being "thrown away" on rent versus on buying a home. This is generally true if you are buying a home for the long term, but not always the case for shorter term. First time home buyers generally forget to add in the thousands of dollars in closing costs that generally far exceed the security deposit needed on a rental place. As others have pointed out, without a down payment you are not likely to actually build much equity in a 5 year time span. Then you will lose some of your final selling price to the real estate agent as well. If there are any major faults discovered in the home at the time of sale it is typically on the owner to fix it before the sale or accept a reduced price for the buyer to fix it. This doesn't even get into the "what if I can't sell it" nightmare that I have seen time after time.

Meanwhile most studies on the matter suggest that if you plan on living somewhere for 5 years or less then renting is the way to go because of the reasons listed above. Most of the time, but not necessarily right now in certain parts of the country, you can get more square footage for the dollar when renting. If you really wanted to you could calculate out your costs of ownership versus renting and take the extra money you would have paid in mortgage, property tax, and insurance plus the closing costs and throw that in a mutual fund and you will probably do better than buying a home.

There are downsides to renting as well, but also increased flexibility. Sometimes you can't put a price on that flexibility for someone who is in career flux.

 

[UnderwaterDoc]

Beautiful (and freezing) upstate NY, far from a big metropolis, although after they're done taking taxes not much is left

 

[EMquest3]

Update. We ended up finding a house we loved for under $300K. The loan rates were even more favorable than I was originally quoted. Locked in at 3.25% fixed 30 year by paying 0.8 in points. Mortgage payments are $350/month lower than the rentals we were looking at. I was thinking that this makes even more sense now that I can put that extra $350 onto my students loans which are closer to 7% interest. Thanks for all the advice from both sides of the argument.

 

[WilcoWorld]

Ignoring all of the very good (and true) arguments for renting made above, have any of the prospective buyers considered the simple fact that you're going to want a nicer, bigger house after residency? Thus, in the very near future you're not going to want to own any place you could reasonably afford to live in during residency.

Buying and selling a house isn't only expensive, it's an anxiety-provoking hassle. I'd like to do it as few times as possible.

 

[dotcb]

Update. We ended up finding a house we loved for under $300K. The loan rates were even more favorable than I was originally quoted. Locked in at 3.25% fixed 30 year by paying 0.8 in points. Mortgage payments are $350/month lower than the rentals we were looking at. I was thinking that this makes even more sense now that I can put that extra $350 onto my students loans which are closer to 7% interest. Thanks for all the advice from both sides of the argument.

Can't predict the future reliably, but don't say we didn't try to warn you.

Debt is an anchor.

http://forums.studentdoctor.net/showthread.php?t=998321

 

[EMquest3]

Ignoring all of the very good (and true) arguments for renting made above, have any of the prospective buyers considered the simple fact that you're going to want a nicer, bigger house after residency? Thus, in the very near future you're not going to want to own any place you could reasonably afford to live in during residency.

Buying and selling a house isn't only expensive, it's an anxiety-provoking hassle. I'd like to do it as few times as possible.

We got the 30 year fixed because we are going to rent the place out when we decide to move. That eliminates the cost of selling and makes the 3.25% a great investment.
I'm not sure what your point is with the link. I am very aware of debt, that is why I mentioned paying down my student loans as fast as possible. If we had rented, there would be less money to pay on them. It's a hard argument to make that paying less on a 7% interest loan is a good idea.

 

[EMquest3]

Can't predict the future reliably, but don't say we didn't try to warn you.

Debt is an anchor.

http://forums.studentdoctor.net/showthread.php?t=998321

Of course we can't predict the future, but that doesn't mean we should ignore a good investment when we have the chance. Housing prices and interest rates are very low.

 

[The White Coat Investor]

Update. We ended up finding a house we loved for under $300K. The loan rates were even more favorable than I was originally quoted. Locked in at 3.25% fixed 30 year by paying 0.8 in points. Mortgage payments are $350/month lower than the rentals we were looking at. I was thinking that this makes even more sense now that I can put that extra $350 onto my students loans which are closer to 7% interest. Thanks for all the advice from both sides of the argument.

I hope you enjoy the house and that it works out well for you financially.

 

[tkim]

We got the 30 year fixed because we are going to rent the place out when we decide to move. That eliminates the cost of selling and makes the 3.25% a great investment.

Not sure what you mean by 'eliminates the cost of selling' unless you mean to keep the house as a rental forever. If you rent out the house, you don't eliminate the cost, you just delay paying those costs until you decide to sell. I came to all the same conclusions as you did at the same stage of my life and perhaps the market/economy will be different for you, but I truly regret buying.

I just got a notice that my property taxes for my rental house has increased my overall monthly mortgage payment by 20%, so while I was getting away with paying nothing over what I collected for rent, now I am subsidizing the rental with money out of my own pocket. I can't wait to sell this house next spring.

I fully expect to paying all closing costs and hopefully get away with just that, though likely there be concessions since the house has not been updated in the past ten years. Whatever profit or debt shifting you think you will gain from buying will be swallowed up with one major repair to the house plus the closing costs from the buying and selling.

 

[EMquest3]

Not sure what you mean by 'eliminates the cost of selling' unless you mean to keep the house as a rental forever. If you rent out the house, you don't eliminate the cost, you just delay paying those costs until you decide to sell. I came to all the same conclusions as you did at the same stage of my life and perhaps the market/economy will be different for you, but I truly regret buying.

I just got a notice that my property taxes for my rental house has increased my overall monthly mortgage payment by 20%, so while I was getting away with paying nothing over what I collected for rent, now I am subsidizing the rental with money out of my own pocket. I can't wait to sell this house next spring.

I fully expect to paying all closing costs and hopefully get away with just that, though likely there be concessions since the house has not been updated in the past ten years. Whatever profit or debt shifting you think you will gain from buying will be swallowed up with one major repair to the house plus the closing costs from the buying and selling.

Yes, we want to keep the house and rent it out indefinitely. It's in a good area that rents very well. Everyone on here seem to act like no one has ever made money renting a house. My friend has a few rental properties and has been doing quite well with them. Of course it's not guaranteed, but my wife and I want to make a go of it The fact that she makes more than double my resident salary gives us a good buffer if there are extra costs in the short term.

 

[The White Coat Investor]

Yes, we want to keep the house and rent it out indefinitely. It's in a good area that rents very well. Everyone on here seem to act like no one has ever made money renting a house. My friend has a few rental properties and has been doing quite well with them. Of course it's not guaranteed, but my wife and I want to make a go of it The fact that she makes more than double my resident salary gives us a good buffer if there are extra costs in the short term.

Have you analyzed it as a rental? What would it rent for? For example, if it's a $300K house, and the equivalent rent is $1500 a month, then it's got a cap rate of 3.3, which is a pretty lousy investment. On the other hand, if you could rent it for $4K a month, that's a cap rate of 8.8%, a great investment (especially with such a low interest rate on the loan.) Lots of people think they'll turn their residence into an investment, but that's doesn't mean it'll be a good investment. My primary residence certainly wouldn't be. I think it would have a cap rate of 4, but I'm guessing on what I could rent it for. Perhaps I could get a little more.

 

[EMquest3]

Have you analyzed it as a rental? What would it rent for? For example, if it's a $300K house, and the equivalent rent is $1500 a month, then it's got a cap rate of 3.3, which is a pretty lousy investment. On the other hand, if you could rent it for $4K a month, that's a cap rate of 8.8%, a great investment (especially with such a low interest rate on the loan.) Lots of people think they'll turn their residence into an investment, but that's doesn't mean it'll be a good investment. My primary residence certainly wouldn't be. I think it would have a cap rate of 4, but I'm guessing on what I could rent it for. Perhaps I could get a little more.

The comparable rentals we looked at were around 2000 per month. Our mortgage is about $1260 and about $1650 with tax, insurance, etc. We plan to make some improvements over the 3 years so maybe we can get the rent value up to 2200ish.

 

[WilcoWorld]

You are correct - owning rental properties can indeed be profitable, if you put work into it. So, if you're looking for a second job, than owning rental properties may be a good thing for you to get into.
On the other hand, owning a home is an expense. I want to live in a nice place with a wood-burning fireplace, a gas range and a master suite, so I'm happy to put money in a house, but it is not part of my retirement plan.

If you're looking to get into the rental business - good luck to you. There is definitely money to be made there. Just don't make the mistake of conflating home ownership with a job in the rental business.

 

[ptarmigan]

The psychology of investing is so very well displayed here. It is amazing - people really do tend to buy high and sell low. When the market is high, everyone is filled with confidence that it will go on forever. When the market is low, the sky is falling. Your investment decisions should be exactly the opposite. Your sucess in any short term real estate deal has way more to do with what the market is doing than any other factor (cap rates, rent, realtor fees, etc). If you are buying high, you are going to get screwed as many of the people in this threard have. So you can't really ask people 4 years ahead of you their advice on buying because their reality is so far removed from yours. The market is currently at the bottom with signs of recovery in many areas. People felt the same way about the stock market 5 years ago - what has happended since then? The dow doubled.

 

[EMquest3]

The psychology of investing is so very well displayed here. It is amazing - people really do tend to buy high and sell low. When the market is high, everyone is filled with confidence that it will go on forever. When the market is low, the sky is falling. Your investment decisions should be exactly the opposite. Your sucess in any short term real estate deal has way more to do with what the market is doing than any other factor (cap rates, rent, realtor fees, etc). If you are buying high, you are going to get screwed as many of the people in this threard have. So you can't really ask people 4 years ahead of you their advice on buying because their reality is so far removed from yours. The market is currently at the bottom with signs of recovery in many areas. People felt the same way about the stock market 5 years ago - what has happended since then? The dow doubled.

I hope this is the case. However, I know not to rely on that. I feel good about the purchase because even if the market stays flat for a while my loan is at a very good rate and the house was priced well.

 

[QfeverQ]

I too will be starting residency in the summer and purchased a townhome with my wife. We've been saving for years. We are looking to stay here for a few years after residency though and have no plans on renting.

 

[sylvanthus]

We decided not to buy in New York. We were able to get subsidized housing for pretty damn cheap, so will likely just stay there for the 5-6 years of residency. 1200.00 a month for an 800 square foot apartment seems decent enough for long island that I can't see passing it up. Now maybe the decent salary at this particular program can actually go to something other than cost of living.

 

[The White Coat Investor]

The comparable rentals we looked at were around 2000 per month. Our mortgage is about $1260 and about $1650 with tax, insurance, etc. We plan to make some improvements over the 3 years so maybe we can get the rent value up to 2200ish.

So 2000*12*.55= a Net operating income of $13200. Divide by 300,000 shows a cap rate of 4.4%. Don't expect this to be a good investment. If you want a house, fine, buy a house. If you want a good investment though, this isn't it. Even if you use the $2200 figure, you have to increase the $300,000 figure by the cost of your investments (including your time.) Just something to be aware of going in.

I'd want a cap rate of at least 6 if I were buying an investment property right now.

 

[The White Coat Investor]

The psychology of investing is so very well displayed here. It is amazing - people really do tend to buy high and sell low. When the market is high, everyone is filled with confidence that it will go on forever. When the market is low, the sky is falling. Your investment decisions should be exactly the opposite. Your sucess in any short term real estate deal has way more to do with what the market is doing than any other factor (cap rates, rent, realtor fees, etc). If you are buying high, you are going to get screwed as many of the people in this threard have. So you can't really ask people 4 years ahead of you their advice on buying because their reality is so far removed from yours. The market is currently at the bottom with signs of recovery in many areas. People felt the same way about the stock market 5 years ago - what has happended since then? The dow doubled.

The market is far from the bottom now. There are bidding wars in many cities. It has rapidly turned from a buyer's market to a seller's market in many places.

Remember that to make a profit in residency, assuming rental costs = owning costs and no down payment, you need the place to appreciate about 15% just to break even in order to cover transaction costs. That's a tough order for a 3-4 year residency.

 

[EMquest3]

The market is far from the bottom now. There are bidding wars in many cities. It has rapidly turned from a buyer's market to a seller's market in many places.

Remember that to make a profit in residency, assuming rental costs = owning costs and no down payment, you need the place to appreciate about 15% just to break even in order to cover transaction costs. That's a tough order for a 3-4 year residency.

With a cap rate of 4.4% this might not be a great investment, but you have to consider the alternative is spending at least 2000 a month on rent for 3 years. That is dropping 72000 down the drain. When I consider that option, even losing 15% on this place seems like it would be a great deal. I certainly don't plan on losing 15% though.

 

[The White Coat Investor]

With a cap rate of 4.4% this might not be a great investment, but you have to consider the alternative is spending at least 2000 a month on rent for 3 years. That is dropping 72000 down the drain. When I consider that option, even losing 15% on this place seems like it would be a great deal. I certainly don't plan on losing 15% though.

I'm not sure you get it. Mortgage payments are "money down the drain" too, at least the portion that covers insurance, property taxes, and interest. You certainly don't need the tax deduction as a resident. The money you pay to maintain the place, fix it up, and buy and sell it is also "money down the drain." There's some weird concept out there that realtors have used to brainwash the public that renting is throwing money away . It isn't. It is exchanging money for a place to live, just like buying a home. You must realize you're going to "throw $72K away" either way. You may come out $5-10K ahead by buying, or perhaps $5-10K behind by buying, but you're going to be in the same general ballpark.

 

[WilcoWorld]

What ADMD said.

But again, there's more to this than just the numbers. You're about to start residency. Do you want to have to worry about home upkeep for the next 3 years, or would you rather just be able to call a landlord to fix whatever's broken?

 

[EMquest3]

I'm not sure you get it. Mortgage payments are "money down the drain" too, at least the portion that covers insurance, property taxes, and interest. You certainly don't need the tax deduction as a resident. The money you pay to maintain the place, fix it up, and buy and sell it is also "money down the drain." There's some weird concept out there that realtors have used to brainwash the public that renting is throwing money away . It isn't. It is exchanging money for a place to live, just like buying a home. You must realize you're going to "throw $72K away" either way. You may come out $5-10K ahead by buying, or perhaps $5-10K behind by buying, but you're going to be in the same general ballpark.

I'm really trying to understand here. Here's how I compare the options. The money "thrown away" on the mortgage (interest + tax/insurance) starts out at about $1100 and goes down with every payment compared to the $2000+ that is gone for rent and would likely increase each year. For tax benefits, with my wife's salary we will have a combined income just below $150K so I would hope we can get some tax deduction. As far as I know we don't get any tax breaks for renting. Additionally, I can put more money on my loans which average to a weighted 7% interest (Stafford and Grad plus) if we are paying less monthly for housing.

What ADMD said.

But again, there's more to this than just the numbers. You're about to start residency. Do you want to have to worry about home upkeep for the next 3 years, or would you rather just be able to call a landlord to fix whatever's broken?

We've rented 4 apartments over the past 10 years and 3/4 of the landlords were really slow with fixing things and would often times hire someone who does shoddy work. We are actually looking at fixing things ourselves as a benefit because we can do it right the first time and not end up calling about a problem multiple times.

 

[wholeheartedly]

We've rented 4 apartments over the past 10 years and 3/4 of the landlords were really slow with fixing things and would often times hire someone who does shoddy work. We are actually looking at fixing things ourselves as a benefit because we can do it right the first time and not end up calling about a problem multiple times.

I said that too until my basement flooded. Then when we had the drywall down we discovered the foundation was cracked and bowing.... so that was $10k right there. Homeowner's doesn't cover that. It was enough of a pain in the butt to deal with with a full-time job and commuting for school, can't imagine dealing with that crap on a resident's crazy schedule. Figuring out who does good work isn't always an easy thing to do, especially if you're new to the area.

Even if you plan ahead & research well, the amount of money you will spend fixing things and on upkeep will surprise you. That 350/month mortgage vs rental difference will disappear very fast. My house was built in '84 and inspected well.

I hope things work out for you. I can't wait to sell mine. As much as I love ownership, working in the yard, being in control of who does what and when, I'm looking forward to going back to renting til I'm done with school/training.

 

[deleted109597]

The money "thrown away" on the mortgage (interest + tax/insurance) starts out at about $1100 and goes down with every payment compared to the $2000+ that is gone for rent and would likely increase each year.

Go ahead and post your amortization schedule so you can see exactly how much of each payment goes towards the principle on your loan. You may be surprised.

 

[EMquest3]

Go ahead and post your amortization schedule so you can see exactly how much of each payment goes towards the principle on your loan. You may be surprised.

I did my schedule on a calculator, interest was around $780 to start. Edit: So really my number above should have been $1180 but that's still way less than $2000

 

[deleted109597]

I did my schedule on a calculator, interest was in the $700's to start.

That makes almost no sense. Your first payment of 1260 (1600 with tax and insurance) cannot possibly have 560 going to the principle. Again, post your amortization schedule, don't calculate it.
On edit, I went and used an online calculator myself. And you aren't off by a ton, you're still not making a sizeable dent in your principle, even with those payments. Each month you decrease the principle by 0.16%. By the end of 3 years, it's gone up by a whopping $40 (0.18%).
It's not an investment. It's a house. If you want a house, buy a house, just don't buy it as an investment.


My less expensive house that I've been paying that much on for 5 years is only putting 315 in the principle with each payment. It goes up about $1 per month too.

 

[EMquest3]

That makes almost no sense. Your first payment of 1260 (1600 with tax and insurance) cannot possibly have 560 going to the principle. Again, post your amortization schedule, don't calculate it.

I don't know what you mean by "post it." If you go to an amortization calculator like this one and put in a loan of 290K with interest of 3.25% fixed 30 year you will see that the interest is $785 to start and principal paid is $476 to start. I edited my post above as technically I'm paying $1180 to interest, taxes, etc. I think the premise still holds that $1180 << $2000

We close on May 15th. Maybe at that time I will get a schedule from the bank if that is what you are asking for, but I expect it will look exactly the same as the calculator since it's all a formula based on loan amount, interest rate, and 30 years fixed.

What is the interest rate on your house?

 

[EMquest3]

That makes almost no sense. Your first payment of 1260 (1600 with tax and insurance) cannot possibly have 560 going to the principle. Again, post your amortization schedule, don't calculate it.
On edit, I went and used an online calculator myself. And you aren't off by a ton, you're still not making a sizeable dent in your principle, even with those payments. Each month you decrease the principle by 0.16%. By the end of 3 years, it's gone up by a whopping $40 (0.18%).
It's not an investment. It's a house. If you want a house, buy a house, just don't buy it as an investment.


My less expensive house that I've been paying that much on for 5 years is only putting 315 in the principle with each payment. It goes up about $1 per month too.

The impetus to buy the house was not for investment. It was because everything we looked at seemed better to buy than rent. That is the whole discussion here. We don't pay down the house much over 3 years, but we do get to pay a lot more on my loans that are more than double the interest rate. I am definitely taking that into account as money saved in the long run.

 

[deleted109597]

What is the interest rate on your house?

5%, but it's going down in May. The ARM actually helped out, for once.

Still want to sell it.

$314 is still the same 0.16% that you're paying with each month. Hence my numbers from way at the top of the page.

 

[EMquest3]

5%, but it's going down in May. The ARM actually helped out, for once.

Still want to sell it.

$314 is still the same 0.16% that you're paying with each month. Hence my numbers from way at the top of the page.

I just want to say the impetus to buy the house was not for investment. We bought because after we looked at everything it seemed better to buy than rent. That is the whole discussion here. I'm trying to understand why so many people still think it was a mistake. We don't pay down the house much over 3 years, but we do get to pay a lot more on my loans that are more than double the interest rate. I am definitely taking that into account as money saved in the long run. Then, when we decide to move we will rent the house out instead of sell because the interest rate is low.

 

[pooh86]

I'm also on the path of buying a Condo or Co-op for the next 3 yrs of residency. I know I'll still be paying a lot of money in terms of maintenance fees and mortgage but even when I add those up per month, it seems less than the rent I'd be paying for the same apartment.

 

[The White Coat Investor]

I'm really trying to understand here. Here's how I compare the options. The money "thrown away" on the mortgage (interest + tax/insurance) starts out at about $1100 and goes down with every payment compared to the $2000+ that is gone for rent and would likely increase each year. For tax benefits, with my wife's salary we will have a combined income just below $150K so I would hope we can get some tax deduction. As far as I know we don't get any tax breaks for renting. Additionally, I can put more money on my loans which average to a weighted 7% interest (Stafford and Grad plus) if we are paying less monthly for housing.



We've rented 4 apartments over the past 10 years and 3/4 of the landlords were really slow with fixing things and would often times hire someone who does shoddy work. We are actually looking at fixing things ourselves as a benefit because we can do it right the first time and not end up calling about a problem multiple times.

Now we're getting somewhere. Given your income (3 times a resident's incidentally) you may do better buying.

$24K is comparable rent

$785 in interest* 12 = $9420
$476 in principal* 12 = $5712
Insurance (let's say $100 a month) = $1200
Maintenance (let's say 1% a year) = $3000
Loss of earnings (opportunity cost) from $10K downpayment and 5% buying closing costs = $25K * say 8%= $2000
Buying and selling costs divided over 3 years, 5% to buy, 10% to sell. = $45K/3 = $15K.

Total = $36K per year. Subtract out the $5712 in principal since you don't lose that and you're at around $30K a year vs $24K "thrown away." I didn't count the tax deductions but I also didn't count the property taxes, so let's assume they cancel each other out. Basically, you need the house to appreciate 2% a year to break even. Not a horrible gamble, if you really want to own a house.

Why "hope for" a tax deduction? You can't calculate it up front?

It's also not clear to me where this extra money is coming from that you're planning on paying down loans with? Are you not planning on insuring, maintaining, or paying the taxes on this house? Did you mention you wanted to fix it up too? I estimate your cash flow will be a lot worse buying than renting, even if you come out ahead in the end. If you really want to pay down the loans (you don't seem to) rent a cheap apartment, use that $25K you're going to sink into this house to pay off loans, and then use the difference between renting the house and renting an apartment to pay down loans. Don't just pretend a mortgage payment can somehow be compared to a rent payment just because the realtor's billboard seemed to do that.

Too many first time homebuyers (and for those of us who are really dense it takes us 2 or 3 times) underestimate maintenance costs and transaction costs.

All that said, you can afford this given your spouse's salary, so don't let too many critics make you feel bad about buying. Just realize that it probably isn't the screaming deal you thought it was at first.