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Effect of Med School Loan on Credit/Buying Condo

Discussion in 'Finance and Investment' started by +ve, Apr 27, 2007.

  1. +ve

    +ve Keep Ur Head Up! 5+ Year Member

    Apr 5, 2005
    Hello everyone,
    I'm a 24y/o female starting med school this fall in a new city and would love to buy a condo by the end of this year but no later than next summer (b/w 1st & 2nd yr). I am still debating whether to buy or rent, so I figured I could use the first semester to get a feel of the city/real estate market, speak & explore some places with the agent recommended by my school's financial aid director, and figure out the best area to buy where property value is likely to increase. My ideal plan is to buy a 2 bedroom 2 bathroom condo no more than $200,000 in a desirable location and rent out 1 bedroom to a student. That way, I cut my mortgage payment in half.

    My concern is whether or not waiting till end of first semester will affect my chances of getting a mortgage since first year loan (tuition + living expenses ~ $60,000) will be reflected on my credit. Does anyone know whether the whole first year loan will show up in my credit record say by December this year or just the amount disbursed for M1 first semester only (1/2 ~ $30,000)?. Also, I don't have much money saved up for down-payment, but have decent credit. What are my chances of qualifying for a 100% mortgage with my parents as cosigners considering that I'll have no income in med school (my parents have very good credit). Will I get brownie points for being a med student with the potential of making $$ in the future or does that only apply to residents? On average, how much do you think the other expenses will amount to (closing cost, taxes, insurance, association/maintenance fee). How much commission do you pay the real estate agent? Sorry to be asking all these questions, but I know nothing about buying a property. I'll appreciate if someone can break down the process for me. Thanks.

    What are your opinions on this - does it make sense to buy instead of renting when it's just a short-term investment?. Assuming I buy a condo by next summer, I would have had it for only 3 years by the time I graduate from med school. I have no intention of doing residency where my school is located (unless of course I don't match anywhere else), so I would be selling the condo after 3 years. The only other alternative is to hold onto it and rent both rooms out to students through residency, but how will I organize that if I'm doing residency in another city? Are there people that manage properties for others?. How much do you have to pay them?.

    Any tips on Richmond, Virginia market especially close to VCU campuses [Downtown, Shockoe and Fan area]?
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  3. bkpa2med

    bkpa2med 10+ Year Member

    Jun 26, 2004
    I believe that if it is not in repayment it is not calculated into your debt to income ratio.
  4. blackdiamond

    blackdiamond 10+ Year Member

    Oct 8, 2006
    It all really depends which bank you go to for the mortgage. I am entering residency in two months and I went to Bank of America (the largest bank and also the most conservative in terms of their lending policies). To get the doctor's loan, you need a credit score of 720 and have a contract with the hospital where you will be doing your residency (no special mortgage for medical students who haven't matched). To get 100% financing, you would have to pay >7.5% interest on 20%, which makes your profits diminish considerably. In addition, when you purchase a property, you will pay about 4-6% of the property's price on closing costs. These are money you need UP FRONT. You might be able to get a bank to finance that too, but it's not easy. IF you are going to stay at your property for only 3 years, real estate experts say that your property must appreciate at least 15% to break even. With the current trend in home prices, make sure your market is on its way up. If you are going to hold onto your property for rental purposes during residency, be aware that when you sell a rental property you lose a lot of the home ownership tax breaks and will have to pay capital gains tax on your property. In addition, it's tough to own a rental property from far away. Say your tennants complain of the heating/AC system breaks. YOU, the owner, will have to pay to replace/fix it.

    Your main consideration is the financial gain vs. various hassels of home ownership (especially now as a med student).
  5. mshheaddoc

    mshheaddoc Howdy Moderator Emeritus 10+ Year Member

    Apr 24, 2002
    Wild west of Mistytown
    Your loan will show up on the credit report, but it will probably show deferrral or you can get a letter saying its deferred until graduation.

    Problem you'll have? You're a student with no income. You won't be able to buy the house on your own most likely because the no doc type of loan that you would need where you don't have to claim your income is getting harder and harder to find right now. So if you parents are willing to cosign with you that will probably be your only method of getting a mortgage while a student.
  6. urmd2007

    urmd2007 5+ Year Member

    Dec 13, 2006
    I'm going to be starting my first year of medical school and am heavily debating whether or not to buy a house. I have my eye on a brand new single family home in a townhome community. I would have HOA dues but the exterior of my house would be taken care of. As it stands now, there is a very likely that I will be able to be approved of a mortgage on my own but come the beginning of August I will be living only on financial aid money.

    I really like the idea of having my own place and paying rent to myself instead of a landlord. However, after four years I don't think I would have built that much equity in the house.

    I see a lot of posts about couples buying houses together where one person is working and the other is in school. Have any single medical students bought a house prior to entering medical school? Do people recommend this option? How easy was it to find a roommate after you bought your place?

  7. mshheaddoc

    mshheaddoc Howdy Moderator Emeritus 10+ Year Member

    Apr 24, 2002
    Wild west of Mistytown
    If you're going to plan on buying a house, make sure you can afford it without a roommate. Usually those in lower housing cost areas take advantage of this where you might pay rent of $600 a month but find a house for payment of say $700. If you budget well you could afford the condo and maybe even use it for investment after you graduate. But many also will tell you that the ownership issues could be a headache when you try to sell your house.

    My advice would be to review your options and if you think its a stable investment go for it. But each situation and location has its pros and cons.
  8. ?DreamsRMadeOf

    ?DreamsRMadeOf Banned Banned

    Dec 9, 2006
    In Your Dreams

    If I were you, I wouldn't do it. I would never buy a condo to begin with, but anyway, here's the thing, mshheadoc is right. You must be able to comfortably cover the entire mortgage on your own. You cant depend on a roommate. If you can find a reliable roommate that's great extra money, but you can't depend on this, to make due.

    Secondly, you only plan on living there for three years. This would not be a wise investment, whatsoever. You mention that you don't have a down payment, that means that all of your closing costs and fees will be written into the balance, the likelihood of you having any equity are null.

    Selling a condo is much harder than selling a house. With no equity, you will not be able to list your unit at a competitive price. Most people in the market for condo's, want brand new condo's. Old condo's are very hard to get rid of. If you are looking at a brand new condo, and selling in 3 years, chances are there will still be many new units available, probably listed much cheaper, than what you could list your old one for, and most people will pay more for a new one anyway. Plus people are always putting up new condo's all over the place. The only exception is if you are in a hot market where any property is scarce.

    You should definitely rent. While in med-school, work on polishing your credit and try to bring all your accounts down to a zero balance. Then maybe look at buying, when you find out where you will complete your residency. You can also try searching for a person that needs a roommate in the condo you want live in, and just agree to pay them rent. One more thing, a lot of investors buy those new condo's and rent them, so you could look into renting a condo instead of buying :)
  9. sonso

    sonso residency resident 5+ Year Member

    Apr 7, 2005
    I'm in a similar mind-state of buying for 3 year period with a roommate/tenant to cut the mortgage payment down. I understand that I would not be able to depend on getting a tenant, but what about in the event that I do? In that case, how does that effect the general advice regarding this? In an ideal situation where I do have someone paying 1/2 or close to that of my mortgage, does it become a good or at least a fair investment?

    Specifically, if I can buy a $100,000 condo (I'm looking at one with 1200 SF, 2 rooms 2 baths) and charge a tenant $600 over 3 years that's almost $23,000 (minus months that the extra room may be unfilled but still close to $20,000). Also, there are still tax deductions as an owner even with a tenant (against capital gains tax :)). That alone in the end should cover the upfront closing costs (let's exxagerate it to $5,000) I'd have to pay as well as the 6% I'd have to pay to a sellers agent (lets say $6,000) and then some.

    People rarely want to comment on my numbers, when I present this to them. To add to this $20,000 I could get from a tenant, if I did rent I'd give up about the same amount to thin air..$20,000. If I add those two numbers, that's $40,000 I can think of as a buffer (forgive my word choice) against any potential loss as an owner occupant land lord versus if I decided to rent, i.e. tolerate a $40,000 loss and I can still say if I rented I'd have come out the same (but in this case I'd have experience in my future real estate investments).

    Maintenance cost I'd put at $10,000 over 3 years. Now, for my numbers, my condo could have no change in value and I'd still do better than if I rented (even if I had a hard time selling the unit). Assuming I have a roommie more months than not.

    Anyone care to comment on my train of thought or point out the error in my numbers...

    Thank you
  10. Sol Rosenberg

    Sol Rosenberg Long Live the New Flesh! 10+ Year Member

    Feb 11, 2006
    Living in America

    You are over-thinking your situation big-time. The rent that you take in just offsets your cost of owning the condo (mortgage insurance, taxes, maintenence, repairs, closing costs on either side of the deal.) If you come out ahead when you compare the costs of renting vs. buying, then it is a no-brainer to buy.

    I think the others were just suggesting that you can afford the payments without a roommate to make sure you don't end up going into foreclosure if your roommate moves out or something like that.

    Also, I'm not sure how you think you can offset capital gains taxes by renting, but renting half of your property will give you income against which you can write off mortgage interest and property taxes, etc. You can depreciate the part of your condo that you rent out and write the depreciation against any excess income that you have, but that will actually INCREASE the capital gains taxes that you pay on that part of your condo (because you are depreciating its cost basis) when you eventually sell it.

    Do lots and lots of careful math, and consult an accountant/financial planner before going through with this. I didn't understand what you were talking about in your 3rd paragraph at all.
  11. sonso

    sonso residency resident 5+ Year Member

    Apr 7, 2005
    Thanks for the reply.

    In the 3rd paragraph what I am trying to say is that if I rent for three years I'd pay about $20,000 to my landlord.

    If I rent my 2nd Bedroom fairly successfully over three years that can come out to about $20,000.

    So instead of me renting I can put that $20,000 towards my investment. I can also put my roommate's $20,000 toward my investment. That is where I got $40,000 from.

    For example, if I sold in 3 years and after all the math I "lost" $40,000, I could say to myself I broke even in that $20,000 of that my roommate covered and the other $20,000 would have been me paying rent to a landlord.

    Is that any clearer?

    Not to complicate things but as I've been doing more and more aggressive research and in turn am slowly starting to gain some understanding, I see the error in my thinking. In my initial post, I neglected to consider interest and the amount of my payments that will be chewed up by this as opposed to principal. I'm still trying to figure it all out though.

    This is an article that I coincidentally posted a lil while back and completely forgot about. I'm trying to fully understand it, but on the surface it's discouraging for me.
  12. CookieBear

    CookieBear 5+ Year Member

    Oct 1, 2006
    East Coast
    That's a fairly depressing and disconcerting article. I'm glad you posted it, though.

    In my case, I have a down payment. However, once school starts this fall, I will lose my income and will pay for my housing on my student loans.

    I know I could borrow as high as $53k/year by borrowing in addition to Stafford loans with a GradPlus loan to get up to the $53k. Or, I could rent and, with my estimates, borrow around $45k/year or possibly less. The homes I have looked into buying have appreciated (just raw sold price 4 years ago vs. selling price now) about 25%, so that appears to be healthy. Whether or not that will continue... is a good question.

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