*Financial advice*-- M1 selling house-> buy v. rent & getting loans

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@Hazel-rah

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I'd love to get anyone else's thoughts, plans, or experience in this area.

We will be selling our house to move for med school (yay!) and we are moving out of an intense seller's market to another town with a strong seller's market.

[Update: house sold by owner in <48h, so we sold first and now trying to figure out rent vs. buy in new town]
///
Should we sell our house first, then buy another house later?
or
Buy another house first, then sell our house?
or
Try to sell and buy simultaneously?
or
Just sell our house, keep the $$ and then rent?
///


If we purchase in our new town and then move after 4 years, it will be worth it--the market is growing fast there. And we could also just keep it as rental property, which would also be a sure bet as rentals are hard to come by there...

Also:
Can I still qualify for medical student loans if we take on a new mortgage? second mortgage?

Will it be harder to qualify for a new mortgage if I wait until I'm taking out medical school loans?

Anyone have thoughts or experience on these types of questions?? I'm a little stressed as March is a big month for home sales, and I don't want to miss out on a house in a good school district for my kids or miss the chance to sell our own house........... But without selling our current home first, we would have to take out PMI on the "second home purchase."
Also, we're planning to take a sabbatical this summer, so if we wait, we will both be "unemployed"...
 
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dpmd

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I'd love to get anyone else's thoughts, plans, or experience in this area.

We will be selling our house to move for med school (yay!) and we are moving out of an intense seller's market to another town with a strong seller's market.

Should we sell our house first, then buy another house later?
or
Buy another house first, then sell our house?
or
Try to sell and buy simultaneously?
or
Just sell our house, keep the $$ and then rent?

If we purchase in our new town and then move after 4 years, it will be worth it--the market is growing fast there. And we could also just keep it as rental property, which would also be a sure bet as rentals are hard to come by there...

Also:
Can I still qualify for medical student loans if we take on a new mortgage? second mortgage?

Will it be harder to qualify for a new mortgage if I wait until I'm taking out medical school loans?

Anyone have thoughts or experience on these types of questions?? I'm a little stressed as March is a big month for home sales, and I don't want to miss out on a house in a good school district for my kids or miss the chance to sell our own house........... But without selling our current home first, we would have to take out PMI on the "second home purchase."
Also, we're planning to take a sabbatical this summer, so if we wait, we will both be "unemployed"...
I think the usual route is to place your house for sale and then seek a new house contingent upon the sale of your current house. If you have enough money then you could buy a new house then sell your current but you run the risk of not being able to sell in a timely fashion and hurting your credit by not being able to keep up with both payments. Selling and then renting while you figure out where you really want to live and if you really want to buy would be a really good. Would also give you a cushion while you are on sabbatical (presumably not earning any money).

The regular federal loans are not affected by first or second mortgages. If you need to take out more than that they can be. Qualifying for a mortgage after you start school will be hard unless your spouse earns a good income (big down payment from the sale of your current home will help too).
 
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I’m a non traditional student with 3 teenagers and a husband who has been accepted. For scholarship purposes with my two oldest we can’t all move. I’ll be moving alone and we will be maintaining two households during my time in medical school. Any advice on how to go from two incomes to one and one set of house expenses to two? Did any of you meet with school and ask to change COA etc???
 
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dpmd

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I’m a non traditional student with 3 teenagers and a husband who has been accepted. For scholarship purposes with my two oldest we can’t all move. I’ll be moving alone and we will be maintaining two households during my time in medical school. Any advice on how to go from two incomes to one and one set of house expenses to two? Did any of you meet with school and ask to change COA etc???
Any way your family can downsize where they are at? Also do you mean private high school or college scholarships. If it is private high school it might be worth considering whether they could move with you and attend a decent public school. If college they can be on their own and hubby can move with you. May not be your first choice but you have to at least consider it. Or is hubby employed at a place that will get them free tuition as long as he works there? Tougher choice but you have to look at what it will cost you versus what it will save you. If it is for their college and the scholarship is more valuable that the costs of setting up two households then consider having the kids take out student loans to help with paying rent/mortgage and household expenses that hubby can't cover and you stick to using your loans to pay for your school and living. If you want you can pay those off for the kids later after making sure you can cover your loans and fund your retirement.
 
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cpants

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I'd love to get anyone else's thoughts, plans, or experience in this area.

We will be selling our house to move for med school (yay!) and we are moving out of an intense seller's market to another town with a strong seller's market.

Should we sell our house first, then buy another house later?
or
Buy another house first, then sell our house?
or
Try to sell and buy simultaneously?
or
Just sell our house, keep the $$ and then rent?

If we purchase in our new town and then move after 4 years, it will be worth it--the market is growing fast there. And we could also just keep it as rental property, which would also be a sure bet as rentals are hard to come by there...

Also:
Can I still qualify for medical student loans if we take on a new mortgage? second mortgage?

Will it be harder to qualify for a new mortgage if I wait until I'm taking out medical school loans?

Anyone have thoughts or experience on these types of questions?? I'm a little stressed as March is a big month for home sales, and I don't want to miss out on a house in a good school district for my kids or miss the chance to sell our own house........... But without selling our current home first, we would have to take out PMI on the "second home purchase."
Also, we're planning to take a sabbatical this summer, so if we wait, we will both be "unemployed"...

I would lean toward selling your house and renting if at all possible. There may be some significant tax consequence though, especially if you have made a lot of money on the house. I would talk to an accountant before you decide on a plan.

Buying a house for med school is not ideal, as you will have very limited resources and will be there temporarily. You will likely come out ahead with renting over buying on a 4 year time frame---think about all the costs associated with home buying and maintenance plus you will need PMI which is like flushing money down the toilet.
 
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Unless you are drowning in cash and have enough to pay for both med school without loans and buy the house free and clear, renting is going to be your best option.

Transaction costs alone - 6% to buy, 6% to sell, title fees, lien searches, etc, probably 15% of the value - make this a bad bet for a 4 year stay somewhere.

Owning a home outright is often one of the very best investments because the savings in rents aren't taxable, asset appreciation isn't taxable if reinvested into housing, and it holds up against inflation. But its not a good investment if you're borrowing for the house and borrowing for med school, and may generate liquidity problems where creditors don't want to lend you more.
 
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@Hazel-rah

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Unless you are drowning in cash and have enough to pay for both med school without loans and buy the house free and clear, renting is going to be your best option.

Transaction costs alone - 6% to buy, 6% to sell, title fees, lien searches, etc, probably 15% of the value - make this a bad bet for a 4 year stay somewhere.

Owning a home outright is often one of the very best investments because the savings in rents aren't taxable, asset appreciation isn't taxable if reinvested into housing, and it holds up against inflation. But its not a good investment if you're borrowing for the house and borrowing for med school, and may generate liquidity problems where creditors don't want to lend you more.

Well; looks like we're going to be able to save the 6% on selling as we've got an off-market deal. After selling and paying off the rest of our mortgage, we'll have enough to pay for most of med school outright OR put a 50% or greater DP on a house, making our monthly mortgage+tax+ins less than $800. (For comparison's sake, rental house for our family w 2 kids would be ~~$1400/mo)

We could avoid taking out loans and use our life savings to pay tuition and rent.
OR
We could use loans for med school and just put the money in savings and rent.
OR
We could use loans for med school and buy a house.

The market in the town we hope to be going to is strong, gains at 3-5% a year and rentals are rare, so I'm leaning towards a house investment.....

Does that change your advice at all?
 

cpants

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Well; looks like we're going to be able to save the 6% on selling as we've got an off-market deal. After selling and paying off the rest of our mortgage, we'll have enough to pay for most of med school outright OR put a 50% or greater DP on a house, making our monthly mortgage+tax+ins less than $800. (For comparison's sake, rental house for our family w 2 kids would be ~~$1400/mo)

We could avoid taking out loans and use our life savings to pay tuition and rent.
OR
We could use loans for med school and just put the money in savings and rent.
OR
We could use loans for med school and buy a house.

The market in the town we hope to be going to is strong, gains at 3-5% a year and rentals are rare, so I'm leaning towards a house investment.....

Does that change your advice at all?

Are you moving to a town you plan to live in for the next 5-10 years minimum? Are you going to do residency and set up practice there? Otherwise, no...it does not change my advice.

If you have the cash for med school after selling your house, that is the way to go. Being debt free and a renter will buy you freedom. Even if you think you want to stay in that area for a while, you honestly have no idea what kind of residency you want or how competitive you will be. You will likely be forced to sell the house regardless of market conditions in 4 years if you have to do residency out of the area. You can't count on 3-5% gains or any gains at all over a 4 year time period. Think about if we were having this conversation in 2006.....likely would have taken huge losses on the house 4 years later. You don't know what the real estate market is going to do in the next 4 years. No one does.

Plus you are going to pour all that cash into home equity and then have nothing to live on aside from loans. When your hot water heater breaks you are going to be borrowing the money to replace it at 6% interest rate. Not smart.

Believe me. I speak from experience here. Buying a house is usually the wrong decision with a less than 10 year time frame of ownership.

Unclear to me why you would need PMI if you are going to put 50% down.
 
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dpmd

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It would be a terrible idea to put all your money in the house and take out student loans for school since student loan rates are higher than mortgage rates. I would have to calculate out whether mortgage interest plus pmi would be better or worse student loan interest. I suggest you play with a rent versus buy calculator to get a better idea of the overall costs of each as you can't just compare your monthly costs after putting 50 percent down to renting (especially since in the renting case you are essentially earning 6.8 percent on your money by avoiding that loan interest).
 
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@Hazel-rah

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Thanks for everyone's thoughts!
I am married and have a spouse whose salary will pay the bills and we aren't pouring 100% of our $ into the house; the figures I quote still allow for a robust emergency fund and other investments.
I have two kids and would ideally keep them in the 5* public schools in the area we want to buy, if I could secure a residency close--which is reasonable. So yes--I can see our family being in this place for 5-10 years. Even if we left for residency, I could see us coming back...

Its a good idea to play with rent v buy calculators. Thanks!
 
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Thanks for everyone's thoughts!
I am married and have a spouse whose salary will pay the bills and we aren't pouring 100% of our $ into the house; the figures I quote still allow for a robust emergency fund and other investments.
I have two kids and would ideally keep them in the 5* public schools in the area we want to buy, if I could secure a residency close--which is reasonable. So yes--I can see our family being in this place for 5-10 years. Even if we left for residency, I could see us coming back...

Its a good idea to play with rent v buy calculators. Thanks!
It really depends on what market the new home is in? If its in a major city with close proximity to public transportation then to me it makes more sense to take the long view and purchase the home. Its all about minimizing your risk while also having a calculated opportunity. If you rent in the new area, you are effectively playing it as safe as possible while decreasing your savings and thus your ability to purchase a future home with a good down payment. That strategy might feel comfortable in the short term but it is just not wise in the long run. Remember, make sure every decision you make has a potential opportunity built in while also being responsible about the level of risk your taking.
 

cpants

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It really depends on what market the new home is in? If its in a major city with close proximity to public transportation then to me it makes more sense to take the long view and purchase the home. Its all about minimizing your risk while also having a calculated opportunity. If you rent in the new area, you are effectively playing it as safe as possible while decreasing your savings and thus your ability to purchase a future home with a good down payment. That strategy might feel comfortable in the short term but it is just not wise in the long run. Remember, make sure every decision you make has a potential opportunity built in while also being responsible about the level of risk your taking.

Sorry this is bad advice. 4 year timeframe of ownership is basically never a good idea. While in medical school is even worse. You have no idea what is going to happen in medical school.

Coming out of medical school with a couple of hundred thousand dollars in debt and a house you have to sell fast is a very bad scenario to be in. If you match to another city, would you plan on keeping this house and buying another wherever you match??
 
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Sorry this is bad advice. 4 year timeframe of ownership is basically never a good idea. While in medical school is even worse. You have no idea what is going to happen in medical school.

Coming out of medical school with a couple of hundred thousand dollars in debt and a house you have to sell fast is a very bad scenario to be in. If you match to another city, would you plan on keeping this house and buying another wherever you match??
It totally depends on the demand of the immediate local market that the OP would be considering purchasing the home. Impossible to give sound advice without it.
 
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With a spouse earning income it might make sense to do if you stick to a home whose mortgage you can carry even if you have to move for residency (meaning either he stays where his job is or his job is portable enough to count on). You can't rely on being able to sell quickly for a profit or even break even. You can't rely on being able to rent it out. So if it wouldn't be possible to keep paying the mortgage while paying for new housing where you get in to residency you could end up losing the house and ruining your credit. Just remember the current market isn't the market you might find when it comes time to sell. My husband and I bought in med school but we made sure we could carry double housing costs if needed. We ended up renting the place out when we moved which is profitable but is a headache that may be more than you want to deal with in residency especially if you are far (luckily we are only a few hours away). We fortunately bought at a low point and it has appreciated quite a bit so if I had to sell we will have made a good amount, but I have friends who bought when prices were high who are either renting at a loss right now or who had to short sale or be foreclosed on.
 
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cpants

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With a spouse earning income it might make sense to do if you stick to a home whose mortgage you can carry even if you have to move for residency (meaning either he stays where his job is or his job is portable enough to count on). You can't rely on being able to sell quickly for a profit or even break even. You can't rely on being able to rent it out. So if it wouldn't be possible to keep paying the mortgage while paying for new housing where you get in to residency you could end up losing the house and ruining your credit. Just remember the current market isn't the market you might find when it comes time to sell. My husband and I bought in med school but we made sure we could carry double housing costs if needed. We ended up renting the place out when we moved which is profitable but is a headache that may be more than you want to deal with in residency especially if you are far (luckily we are only a few hours away). We fortunately bought at a low point and it has appreciated quite a bit so if I had to sell we will have made a good amount, but I have friends who bought when prices were high who are either renting at a loss right now or who had to short sale or be foreclosed on.

Exactly. Having to sell at a loss or rent it out from a distance are both not unlikely scenarios.

You have to weigh the risks against the potential gains. Gains -- potential modest growth (your estimate was 3-5% per year) over 4 years. Potential losses are very great on this time frame both in terms of dollars and flexibility with regard to your family and career. Don't do it.

I wish I was given this advice before I made the same mistake you are about to make.
 
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Exactly. Having to sell at a loss or rent it out from a distance are both not unlikely scenarios.

You have to weigh the risks against the potential gains. Gains -- potential modest growth (your estimate was 3-5% per year) over 4 years. Potential losses are very great on this time frame both in terms of dollars and flexibility with regard to your family and career. Don't do it.

I wish I was given this advice before I made the same mistake you are about to make.
Where did you purchase? The risk/opportunity varies tremendously with this situation based on the location of where you purchase the home.
 

cpants

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Where did you purchase? The risk/opportunity varies tremendously with this situation based on the location of where you purchase the home.

Honestly, the things the OP said about the town they are considering could easily have been said about where I bought. Record of good growth, great schools, desirable town. I'm not saying I went bankrupt....I ended up selling for about 5 grand less than I bought it for. When you add in the transaction costs and the money I put into maintenance and repairs -- it's a loss. I know at least two others that ended up having to be long distance landlords. To me this would be an even worse outcome, so I'm just glad I was able to sell.

Keep in mind, the house I purchased would probably have been a fine long term investment. It's a great town, like I said. The problem is that in this situation, you are LIKELY to have to sell the place on short notice at a time which may or may not be optimal as far as getting a good price. Because you will need to unload the place in a hurry, you may have to accept less than you could get. Real estate is likely to slowly increase in value over many years. Over 4 or 5 years -- who knows?

There aren't any real estate markets with guaranteed returns. That's 90's/early 2000's thinking.
 
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@Hazel-rah

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Thanks again for everyone's input!

--The market is in the city of Grand Rapids, MI.
--Yes, the potential mortgage+ins+tax monthly payment will be <$700/month with our budget. So, yes, we could keep making that payment even if we had to move.
--No, if we had to move and yet keep the house, we wouldn't have enough for ANOTHER 20% down payment, so we would look to rent for ourselves, say, during residency and hope to rent the house out. But if we couldn't rent it (highly unlikely!), yes we could make both payments with my residency salary plus my husband's.

The other factor is that there are nearly no rentals in good school districts. What rentals there are cost over $1000/month. So part of our decision is simply that we want to live in a good place with good schools for our kids. You can't really put a price on that...

Sure, the city could experience a natural disaster or I might flunk out of med school or some other unforeseen thing might happen. Aren't those just risks in life in general, though? Even if I don't make it to MD and residency, I am an RN, so I could get a good job to fall back on...

Also----even if we sell it in 4 years an only break even, or even take a bit of a "loss"---it would be comparable to having rented during those four years anyways.

I really really appreciate everyone's comments, esp those of you who have personal experience with this and those of you who are pushing me to think long and hard about this decision. Thanks and please add any more thoughts that come to mind!!!
 

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Thanks again for everyone's input!

--The market is in the city of Grand Rapids, MI.
--Yes, the potential mortgage+ins+tax monthly payment will be <$700/month with our budget. So, yes, we could keep making that payment even if we had to move.
--No, if we had to move and yet keep the house, we wouldn't have enough for ANOTHER 20% down payment, so we would look to rent for ourselves, say, during residency and hope to rent the house out. But if we couldn't rent it (highly unlikely!), yes we could make both payments with my residency salary plus my husband's.

The other factor is that there are nearly no rentals in good school districts. What rentals there are cost over $1000/month. So part of our decision is simply that we want to live in a good place with good schools for our kids. You can't really put a price on that...

Sure, the city could experience a natural disaster or I might flunk out of med school or some other unforeseen thing might happen. Aren't those just risks in life in general, though? Even if I don't make it to MD and residency, I am an RN, so I could get a good job to fall back on...

Also----even if we sell it in 4 years an only break even, or even take a bit of a "loss"---it would be comparable to having rented during those four years anyways.

I really really appreciate everyone's comments, esp those of you who have personal experience with this and those of you who are pushing me to think long and hard about this decision. Thanks and please add any more thoughts that come to mind!!!
Is that amount still based on you putting 50% down?
 

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Yes. At lest 50%..
Run the numbers with 20 percent down. You will pay a ton more interest over time if you have a smaller mortgage but a bigger student loan. Also your rent versus buy caclulation is too biased with that down payment.
 
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mk04447

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Evaluate your current home vs. what's available? This means, is the house you own now a good rental? Does it have cheap flooring, minimal complexity, and mid-range appliances, upgrades, or is the location somehow advantageous? This property must be paid for, is either on the ocean at Daytona Beach or somewhere in Hollywood if it is capable of covering your medical school expenses? If so, I'd say it isn't a good rental.

Now, can you purchase and live in a good rental? Medical students have solid income potential and what you initially think is a 4 year investment may simply be the initial investment among many? If so, you need to determine the interest detriment of student loans vs. rental income/tax advantage, this is similar to the analysis you complete purchasing a new car, is the bonus cash and zero interest more valuble than an interest bearing auto loan.

If you are lost, I suspect you should sell and rent. Capitol gains are only applicable if you haven't lived in the residence 2 of the past 5 years (I skimmed the stream). On the other hand if you follow and are moving to a major metropolitan area, it may be possible to take a partial mortgage on a better, more marketable property, and maximize your student loan debt?

As for timing, this is the most important factor and if you are considering purchasing (barring a foolish cash close) you must be gainfully employed? If so, both transactions need to be completed before you matriculate since you won't be able to secure financing when you quit. Ultimately, good luck, this isn't the forum for this discussion and with some luck you realize that or you wouldn't have asked.
 
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Thanks again for everyone's input!

--The market is in the city of Grand Rapids, MI.
--Yes, the potential mortgage+ins+tax monthly payment will be <$700/month with our budget. So, yes, we could keep making that payment even if we had to move.
--No, if we had to move and yet keep the house, we wouldn't have enough for ANOTHER 20% down payment, so we would look to rent for ourselves, say, during residency and hope to rent the house out. But if we couldn't rent it (highly unlikely!), yes we could make both payments with my residency salary plus my husband's.

The other factor is that there are nearly no rentals in good school districts. What rentals there are cost over $1000/month. So part of our decision is simply that we want to live in a good place with good schools for our kids. You can't really put a price on that...

Sure, the city could experience a natural disaster or I might flunk out of med school or some other unforeseen thing might happen. Aren't those just risks in life in general, though? Even if I don't make it to MD and residency, I am an RN, so I could get a good job to fall back on...

Also----even if we sell it in 4 years an only break even, or even take a bit of a "loss"---it would be comparable to having rented during those four years anyways.

I really really appreciate everyone's comments, esp those of you who have personal experience with this and those of you who are pushing me to think long and hard about this decision. Thanks and please add any more thoughts that come to mind!!!

Perfectly reasonable to buy in that kind of a market - the rent will almost pay for itself over the 4 years, and its not like that kind of a price level is going to trigger a lot of new housing.

You could probably find something distressed at a deep discount and be sitting pretty for appreciation.
 
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@mk04447 : what do you mean by this quote?

I know what the title of this forum says, but SDN probably isn't first place I'd seek this kind of advice from; too many moving parts, unless you prefer trial and error to learn new things.
 

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The other factor is that there are nearly no rentals in good school districts. What rentals there are cost over $1000/month. So part of our decision is simply that we want to live in a good place with good schools for our kids. You can't really put a price on that...

!!!

I’m sorry but “no good rentals” is a lie to yourself.

Remember our going to medical school, you need to remember that you are having more outgoing than incoming. The more lifestyle you spend, the more debt you take on.

Renting makes your life simpler. You might make money by owning, but give the short time period, changing political winds could cost you a lot of money and heartache. I know several people who became long distance landlords by default.

Almost every real estate market is hot to white hot right now, but who knows what will happen when you want to sell.
 
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@Hazel-rah

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OK. All advice duly noted. Of course this is not my only source of financial advice; I just like to bounce ideas in multiple places. Thanks to all participants! :angelic:

So, if we end up renting and not purchasing property, what should we do with all our capital from the sale of our current home?? If not invest in a real estate market that is growing at 8% per year, where ELSE can I put the money??
Should I just pay tuition out of pocket and not take any loans?
Any thoughts?
 

dpmd

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OK. All advice duly noted. Of course this is not my only source of financial advice; I just like to bounce ideas in multiple places. Thanks to all participants! :angelic:

So, if we end up renting and not purchasing property, what should we do with all our capital from the sale of our current home?? If not invest in a real estate market that is growing at 8% per year, where ELSE can I put the money??
Should I just pay tuition out of pocket and not take any loans?
Any thoughts?
You can put it into tuition (essentially "making" 6.8% or whatever the current rates are plus whatever origination fees they charge) or into the stock market (variable return based on what you invest in but average about 7%).
 
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I would max out a roth ira while In medical school and keep your student loans down while renting as cheap as possible. The roth ira interest will be tax free when you get it at 58. If you put in $5000 this year it should have doubled a total of three times in a 30 year span. This would mean it will be worth $40,000 and be tax free in 30 years. If you retire with 2,000,000 in a 401k and withdraw 6% annually you would get taxed at around 40% for anything over that first 120,000. The Roth will be completely tax free. It is a great way to splurge on a dream retirement home, motor home, or ect once your retired.
 
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Raryn

Infernal Internist / Enigmatic Endocrinologist
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I would max out a roth ira while In medical school and keep your student loans down while renting as cheap as possible. The roth ira interest will be tax free when you get it at 58. If you put in $5000 this year it should have doubled a total of three times in a 30 year span. This would mean it will be worth $40,000 and be tax free in 30 years. If you retire with 2,000,000 in a 401k and withdraw 6% annually you would get taxed at around 40% for anything over that first 120,000. The Roth will be completely tax free. It is a great way to splurge on a dream retirement home, motor home, or ect once your retired.
You cannot put money into a roth ira unless you (or your spouse) have earned income that year.
 
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redfish955

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I received gifts through undergradu and beyond and reported earnings that weren't enough to tax. Mowing lawns and untraceable stuff.
 

Raryn

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I received gifts through undergradu and beyond and reported earnings that weren't enough to tax. Mowing lawns and untraceable stuff.
Yes, you can fraudulently report low levels of earnings and put money in a roth, or claim the EITC, or other crazy things.

That would also be illegal.
 
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Dec 11, 2018
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This thread is an interesting read! Sorry to revive such an old thread but I have one question for you all since there seem to be knowledgable people here: can you even borrow student loans for medical school if you have a mortgage on your credit? I just wonder if the government would give you any money if you already have such a serious monthly obligation..we were told that they do a credit check for GradPlus loans. Or does the government view mortgage debt differently?
 
Dec 11, 2018
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As long as you don't have a history of bankruptcy or default you will likely qualify for grad plus. But the question throughout medical school is why you have a mortgage even before starting medical school?

True. I guess some people think it is a good investment, with which I generally agree. But during medical school I just think that it is an unnecessary financial obligation and an additional stressor. Renting just makes so much more sense, especially because you do not have to deal with all the hassle when moving for residency. Not to mention possible maintenance or repair costs that could come up....
 
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