Financing Medical School and a House

[deleted896822]

Hello;
I plan on attending ACOM fall 2020. I am looking for advise on financing, what you did, what you wish you would have done.

I and my girlfriend will be moving some time in the early/midsummer. I plan on buying a ~100k house in or Dothan, if I have to move for rotations, I’ll sell it, hopefully I’ll be there for 4 years but what happens happens. I’m open to renting a house and will consider when the time comes but as of now I see buying as a better option; similar monthly payment, the families of my girlfriend and I are willing to help shoulder some of the other expenses like insurance and utilities.

Is federal loans the way to go? Loans through a bank a better option?

Please excuse my ignorance; looking to optimize the situation, as everyone is, but figure some of you may be able to steer me away from some pitfalls you’ve experienced.

Thanks!


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[DrStephenStrange]

Federal loans is usually the best way to go for medical school because of the repayment programs they offer later (PAY or REPAY), the ability to defer during residency if need be, and the possibility of getting PSLF later if you want/can.

My advice concerning buying a house, DON'T. Medical school is a very unstable time of your life as you never know where you will eventually end up. So the less tied up you are to a place the better, which is why I would advice finding a cheap place to rent instead. I know a few of my upperclassmen that did buy a house, but when it came time for rotations, they had to move and couldn't find anyone to buy or rent the place because of the location, they were not even able to find students to rent to because most of us like the convenience of living on campus, so now they are stuck paying for an empty house (for several months until they finally get rid of it) plus the added Bills of the other place they moved to. I also wanna say that as a medical student you wanna live as cheap as you possibly can and start saving money. Come 3rd and 4th year, especially as DO student, you're gonna need money not only for a possible relocation for rotations, but also for your board exams (Level 2 PE, Level 2 CE and Step 2 CK are gonna cost you close to $3000), audition rotations (At some residency programs you have to pay to do a Sub-I), residency applications and interviews (Will run you another few thousands of dollars), so you need to think about saving early if you want a better outcome later.

 

[vin5cent0]

You should never buy a house you can't afford (as evidenced by needing federal loan money and assistance from both families).

You should never buy a house with a girlfriend/boyfriend.

Those are both two generally bad ideas when it comes to finances. Medical school doesn't change that. In fact, medical school makes that an even worse decision - it's a turbulent time, you don't know where you'll end up, you don't know if your relationship will last the stresses of med school, you don't know if you can even resell a house easily in that city, etc.

 

[Schwifty]

I highly recommend you do not buy a house, in the event that you have to sell it after 2 years its just going to add to the stress of medical school. Just rent something for the next few years and look into a house during residency.

 

[Chibucks15]

Echoing the first points. 1) you’re moving with a girlfriend, not a fiancé/wife, and as much as you doubt it, breakup possibility is there cuz med school SUCKS for SOs. 2) there is no guarantee you can just go and sell the house no problem. It sounds like a good idea in theory but unless you’re 100% there for 4 years I wouldn’t do it.

 

[Ho0v-man]

In addition to what’s been said, having to do repairs/lawn maintenance/whatever else with the general upkeep of a house is not something you have time for in med school. Just rent.

 

[AMEHigh]

I own a house with my boyfriend, but we’ve been dating for many many years and have no plans to get married (both have been there and done that), so I won’t comment on your relationship. However, agree with everyone else that I’d recommend against buying a house while in med school.

The future is too up in the air. Even if on paper your mortgage might be the same as rent, there are other expenses and time that come with being a home owner. There really is no rush to becoming a home owner, so wait the 4 years until school is over and then do it.

In addition, it doesn’t even sound like you have enough money for the down payment, closing costs, savings, etc to afford this. If you do have that much money in the bank, then I’d put that money towards paying for school so you don’t have to take out as many loans as student loan interest rate is higher than mortgage interest rate.

 

[deleted896822]

Ok so I think I’ll seek out small house for rent. To clarify, my girlfriend and I have been together for 6 years, really just not married because we don’t want to until we are out of school. Not that that means that school won’t ever come between us.

As far as the financing itself; do you guys have any recommendations for where the loans should come from? I have regions account but haven’t looked into Sallie Mae yet. Is federal the way to go?


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[DrStephenStrange]

Ok so I think I’ll seek out small house for rent. To clarify, my girlfriend and I have been together for 6 years, really just not married because we don’t want to until we are out of school. Not that that means that school won’t ever come between us.

As far as the financing itself; do you guys have any recommendations for where the loans should come from? I have regions account but haven’t looked into Sallie Mae yet. Is federal the way to go?


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Private loans can be tricky sometimes even when you get it with lower interest rates. Federal loans is always a safe option. For reasons I mentioned above.

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[BorntobeDO?]

Ok so I think I’ll seek out small house for rent. To clarify, my girlfriend and I have been together for 6 years, really just not married because we don’t want to until we are out of school. Not that that means that school won’t ever come between us.

As far as the financing itself; do you guys have any recommendations for where the loans should come from? I have regions account but haven’t looked into Sallie Mae yet. Is federal the way to go?


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You do federal because with REPAYE your interest will be effectively cut in half during residency (they pay half the interest thats left after your minimum payment). There is no option for this with private loans, and you still can't discharge those private loans same as the federal ones. Unlike the federal tho there is no 'pay so many years and the loan is forgiven' option with private. Even if you don't believe in PSLF, repaye will still get rid of your loans in 25 years. Plus if your poor the deferrement/income based repayment is much better for federal.

But the main problem with private loans is their interest rate is only minimally lower anyhow. The rates would have to be near 3% before I would even consider a private loan. And the only time they hit that number is when you are refinancing as an attending, not when you are just getting into medical school.

 

[Medic741]

Hello;
I plan on attending ACOM fall 2020. I am looking for advise on financing, what you did, what you wish you would have done.

I and my girlfriend will be moving some time in the early/midsummer. I plan on buying a ~100k house in or Dothan, if I have to move for rotations, I’ll sell it, hopefully I’ll be there for 4 years but what happens happens. I’m open to renting a house and will consider when the time comes but as of now I see buying as a better option; similar monthly payment, the families of my girlfriend and I are willing to help shoulder some of the other expenses like insurance and utilities.

Is federal loans the way to go? Loans through a bank a better option?

Please excuse my ignorance; looking to optimize the situation, as everyone is, but figure some of you may be able to steer me away from some pitfalls you’ve experienced.

Thanks!


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If you go private loans make sure to know what happens to that debt if you are injured/disabled during medical school. Federal seems to be the way to go to maximize the loan forgiveness that you're eligible for

 

[AMEHigh]

Ok so I think I’ll seek out small house for rent. To clarify, my girlfriend and I have been together for 6 years, really just not married because we don’t want to until we are out of school. Not that that means that school won’t ever come between us.

As far as the financing itself; do you guys have any recommendations for where the loans should come from? I have regions account but haven’t looked into Sallie Mae yet. Is federal the way to go?


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Yes you should definitely do federal loans. Once you’re an attending you can decide if it’s worth it to refinance to private loans to pay off quicker. However in school and residency federal loans are the way to go as they give you the most safety as far as the ability to stop paying or defer payments if you run in to financial hardship, get sick, disabled, etc.

I’m not trying to be mean, but have you contacted your school’s financial aid office? Their job is to help you with these decisions.

 

[Espressso]

Yes you should definitely do federal loans. Once you’re an attending you can decide if it’s worth it to refinance to private loans to pay off quicker. However in school and residency federal loans are the way to go as they give you the most safety as far as the ability to stop paying or defer payments if you run in to financial hardship, get sick, disabled, etc.

I’m not trying to be mean, but have you contacted your school’s financial aid office? Their job is to help you with these decisions.

I assume OP just got accepted and thus, financial aid office hasn't reached out yet. So he should definitely chill for a bit.

OP like others have said... buying a house now is silly and so is private loans. You school will give you info on the max loans you can take out and then you go from there. It's easy.

 

[Obnoxious Dad]

The current interest rate climate is another reason to not buy a house now. When interest rates are low home prices go up because the monthly debt service payments decline. When interest rates increase housing prices tend to decline and it becomes a buyers' market. Because of Federal Reserve policy, interest rates are now at historic lows and home prices are high. If the Fed starts raising interest rates to stem inflation home prices, will decline. Under that scenario, a medical student who bought a home now and needs to move for residency will take a nondeductible tax loss on the sale of a personal residence and have a bunch of other costs like sales commissions and title insurance. Don't buy a house.

 

[sab3156]

This is a question to go over with a financial advisor, not SDN.

 

[IntheClouds4ever]

Non-traditional student, here. I had bought a house before medical school (before I knew I wanted to go) and closing on the sale next week in preparation to move for residency. DO NOT buy a home if you aren’t going to be in it for more than 5 years. You will lose your ass.. luckily we have been in it for that long and in the right price range that houses get contracts within a few days.

Realtor commission- 6%
Closing costs- 6% (buyers will use these for negotiations so be prepared to pay some)
Inspections- there is no such thing as a perfect inspection. There WILL be repair bills
Home Warranty- $500 that is common for buyers to ask for.

Its a headache you don’t want to deal with in medical school. Thankfully, we did a bunch of updates and repairs that are allowing us to walk away with ~$6K. If you factor in the money and time spent on updates, it breaks even and we really didn’t gain anything. Just rent a decent place and use your schools financial aid department for loans. Most schools give reasonable living expenses and is doable as long as your diligent with expenses and spending.

 

[deleted896822]

Yes you should definitely do federal loans. Once you’re an attending you can decide if it’s worth it to refinance to private loans to pay off quicker. However in school and residency federal loans are the way to go as they give you the most safety as far as the ability to stop paying or defer payments if you run in to financial hardship, get sick, disabled, etc.

I’m not trying to be mean, but have you contacted your school’s financial aid office? Their job is to help you with these decisions.

Was just recently accepted; we were told we’d hear from financial aid at the start of the new year


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[BorntobeDO?]

The current interest rate climate is another reason to not buy a house now. When interest rates are low home prices go up because the monthly debt service payments decline. When interest rates increase housing prices tend to decline and it becomes a buyers' market. Because of Federal Reserve policy, interest rates are now at historic lows and home prices are high. If the Fed starts raising interest rates to stem inflation home prices, will decline. Under that scenario, a medical student who bought a home now and needs to move for residency will take a nondeductible tax loss on the sale of a personal residence and have a bunch of other costs like sales commissions and title insurance. Don't buy a house.

I wouldn't worry about the fed increasing the interest rates. Those days are gone. In this post-Keynesian world the rates only go down. I think when our next recession comes they might go negative like other countries have. We live on voodoo economics and Austrian School of Economics have been permantly shuttered and replaced by the benevolent leader Mugabes Zimbaewae school of economics, i.e. the carribbean of the economic theory.

 

[Obnoxious Dad]

I wouldn't worry about the fed increasing the interest rates. Those days are gone. In this post-Keynesian world the rates only go down. I think when our next recession comes they might go negative like other countries have. We live on voodoo economics and Austrian School of Economics have been permantly shuttered and replaced by the benevolent leader Mugabes Zimbaewae school of economics, i.e. the carribbean of the economic theory.

That's what Lyndon Johnson, Dick Nixon and Arthur Burns said. Along came double digit inflation and Paul Volcker. At some point or another interest rates will rise. Count on it.

 

[AMEHigh]

Was just recently accepted; we were told we’d hear from financial aid at the start of the new year


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Ahh ok got it. My school financial aid had a great website that laid everything out for us.

 

[BorntobeDO?]

That's what Lyndon Johnson, Dick Nixon and Arthur Burns said. Along came double digit inflation and Paul Volcker. At some point or another interest rates will rise. Count on it.

Seriously? You talking bout the early 80's? Did we go back on the gold standard and drop it again, cause if not, this isn't comparable (we didnt, and we never will). This is why its important to know your history.
The 80s are long gone and our debt has skyrocketed since. And thanks to magic of Adjusted CPI double digit inflation will never officially happen again, even if it already did 10 years ago.

I would not count on that. I would be very excited if it occurred, but I have watched what we did the last 10 years. We don't cut debt and raise rates to get out of recessions anymore. We stimulate and cut rates as much as possible. If now during a bull market with super low unemployment we couldn't raise rates to even 4% how in the world will we be able to do it in a world with super inflation with high unemployment.

There are good reasons to avoid buying a house. Low interest rates isn't one of them. If you are really so sure the rates will rise then going to medical school where the cost has increased much faster than housing is an especially dumb idea. How do you pay off your loans in a high interest environment where wages fall and the value of the dollar increases?

I have indulged this zombie apocalypse long enough. Got work to do.

 

[Obnoxious Dad]

I would not count on that. I would be very excited if it occurred, but I have watched what we did the last 10 years. We don't cut debt and raise rates to get out of recessions anymore. We stimulate and cut rates as much as possible. If now during a bull market with super low unemployment we couldn't raise rates to even 4% how in the world will we be able to do it in a world with super inflation with high unemployment.

That is precisely what happened in the 1970s. The Fed led by Paul Volcker dumped bonds on the market to sop up cash and drove up interest rates. In 1979 and 1980 the misery index (rate of inflation + unemployment rate) approximated 20%. This is how Volcker broke the back of inflation.

We went off the gold standard in 1971. That was 7 years before Volcker took over from the impotent Arthur Burns.

 

[Dr. Rafiki]

Ehh, I bought a house summer before OMS-1 and by the time I sold it the neighborhood and market gained so much that I made ~60k on the sell. Also, it was cheaper than rent. Like significantly cheaper. The general rule of thumb is that buying is smarter than renting, even if you're only gonna stick it out for 4 years or less. But med students don't know this, because med students (and doctors) are notoriously dumb with finances and business. A mortgage is just about the only "smart" debt you will acquire outside of medical school loans. As long as you can qualify for a decent interest rate and can afford it given the living stipend of your student loans then do it. More times than not your mortgage will be cheaper than rent for the same sized dwelling and I'm assuming you're gonna have to pay rent from those loan stipends so why not take the cheaper route.

 

[Obnoxious Dad]

Ehh, I bought a house summer before OMS-1 and by the time I sold it the neighborhood and market gained so much that I made ~60k on the sell. Also, it was cheaper than rent. Like significantly cheaper. The general rule of thumb is that buying is smarter than renting, even if you're only gonna stick it out for 4 years or less. But med students don't know this, because med students (and doctors) are notoriously dumb with finances and business. A mortgage is just about the only "smart" debt you will acquire outside of medical school loans. As long as you can qualify for a decent interest rate and can afford it given the living stipend of your student loans then do it. More times than not your mortgage will be cheaper than rent for the same sized dwelling and I'm assuming you're gonna have to pay rent from those loan stipends so why not take the cheaper route.

I'm curious about your experience. When did you buy this house and when did you sell it?

 

[NITRAS]

Buying isn’t cheaper than rent. You have to include the down payment, upkeep, transaction costs,
Add to it the risk owning a house your upside down in and renting it out from across the country while in residency.

Buying a house with a girlfriend adds the risk of owning property with someone you don’t have a contract with, and can’t dissolve it easily.

You could make some money owning. You could more likely end up in a mess.

It’s not worth the risk to me.

 

[Angus Avagadro]

Ehh, I bought a house summer before OMS-1 and by the time I sold it the neighborhood and market gained so much that I made ~60k on the sell. Also, it was cheaper than rent. Like significantly cheaper. The general rule of thumb is that buying is smarter than renting, even if you're only gonna stick it out for 4 years or less. But med students don't know this, because med students (and doctors) are notoriously dumb with finances and business. A mortgage is just about the only "smart" debt you will acquire outside of medical school loans. As long as you can qualify for a decent interest rate and can afford it given the living stipend of your student loans then do it. More times than not your mortgage will be cheaper than rent for the same sized dwelling and I'm assuming you're gonna have to pay rent from those loan stipends so why not take the cheaper route.

Congratulations, you bought during a rising market. Never hurts to be a little lucky.OP, the general rule of thumb in normal markets that appreciate about 2% a year is that you need to stay in your house for 5 years to recover your closing costs, title search, legal docs,property taxes etc. When you sell you pay 4 to 6% realtor fee if you cant sell on your own.
Not sure how you can obtain a mortgage with no job as a student.
As far as smart debt, it's probably an oxymoron. Debt is tyranny. Even the mortgage deduction on your taxes is not a great idea. It helps, but if you give the govt $2 in taxes and they give you $1 back, how long until you can retire? Right, better to have your house paid off and put$2 in the bank. It really depends on the economy. If Trump is re elected and the home is in decent shape in a decent neighborhood, maybe not a bad idea
If you break even, you basically lived rent free for 4 years. Trouble is having the cash or qualifying for a mortgage. Also anything goeswrong, furnace, appliance,hot water heater, etc, YOU have to buy it., Good luck and best wishes

 

[libertyyne]

I bought a house, refurbed it before moving in with my family.
I bought the house while I was working and still qualified to purchase the house.
I had a substantial downpayment 20% of the house.
The payments come out 30% cheaper than renting.

That being said here are some expenses
taxes
replace HVAC and ducting that failed 8K
Replace dishwasher
Paint the place
Yard equipment
closing costs

Buying a house for a short term will likely be a wash.

Local and national real estate markets can be fickle

Costs of repairing your house when stuff breaks can be unknown, I had the ability to pay for the 8k hvac replacement, but if you dont, you would have lived in the freezing cold for 3 years.

Owning a house while being poor is also a time-suck. You have to repair stuff yourself, mow the lawn every week, clean the gutters, etc.

I went into this knowing that I would be OK with loosing 40% of the value of the house to break even with renting once the sale time comes along.I have lost 20% in repairs and maintenance. There is always a possibility of loosing a higher% of the value of your house if you are in a ****ty market.

in this cash strapped phase of my life, renting would have actually been beneficial.I could have paid for 2 years of rent with my down payment alone and then survived the rest. Plus I would have been mobile and been able to move if I didnt like the area I bought a house in . This doesnt even include an ROI of inflation adjusted returns if I sell the house.

So the question comes up, are you equipped skill wise to not only make a prudent purchase, but also to run the numbers as to what you are willing to loose in the value of the house sale time to come up even compared to local rents. If you are asking a medical student forum, i sincerely doubt it.

 

[Dr. Rafiki]

Outside of NYC, LA and DC (I've lived in all 3,) buying is unequivocally cheaper than rent. Including the cost to own. You qualify for mortgage by applying for one before medical school starts, assuming you have an income.

A mortgage is smart debt and if you think otherwise you really don't know much about finances. Yes of course paying it off is ideal but if your rate is low enough then it likely won't make a dent in your long term retirement plans.

Advising someone to rent from a financial perspective is a great sign that the advisor needs serious financial education. I rented in various big cities and small towns for the better part of 15 years. I've owned 4 houses, also in a mix of big cities and smaller towns. In my decades of experience and research I have found very few instances where renting puts you out ahead instead of buying. Including while in medical school.

I will agree the girlfriend aspect is a bit different, but my suggestion is to go in solo and don't include her in any official or financial capacity, then if things don't work out it won't affect your financial investment.

 

[Dr. Rafiki]

I'm curious about your experience. When did you buy this house and when did you sell it?

Both within the last 5 years

 

[libertyyne]

Outside of NYC, LA and DC (I've lived in all 3,) buying is unequivocally cheaper than rent. Including the cost to own. You qualify for mortgage by applying for one before medical school starts, assuming you have an income.

A mortgage is smart debt and if you think otherwise you really don't know much about finances. Yes of course paying it off is ideal but if your rate is low enough then it likely won't make a dent in your long term retirement plans.

Advising someone to rent from a financial perspective is a great sign that the advisor needs serious financial education. I rented in various big cities and small towns for the better part of 15 years. I've owned 4 houses, also in a mix of big cities and smaller towns. In my decades of experience and research I have found very few instances where renting puts you out ahead instead of buying. Including while in medical school.

I will agree the girlfriend aspect is a bit different, but my suggestion is to go in solo and don't include her in any official or financial capacity, then if things don't work out it won't affect your financial investment.

thats great that the market was great that you were able to buy and sell houses. Congrats, Congrats that you didnt have catastrophic house maintenance. Or a market collapse, or being upside down in a mortgage. Most people educated on finances will actually say owning a house for 5 years is the break even point. But you can go ahead and pontificate about buying a house is a great investment without talking about the the risks,

 

[Neopolymath]

Both within the last 5 years

White Coat Investor would disagree with your opinions in this thread. They just don't make sense given the situation medical students are in versus an average Joe.

 

[NontradICUdoc]

Live like a doctor while you are a student and you will live like a student when you are a doctor

 

[hallowmann]

You need to factor in everything. I wouldn't buy a house unless it truly is way cheaper than renting after factoring in all potential losses. In most markets the break even point is 4-5 yrs. Sure you could get lucky and make $50k because you bought at the right time in the right place and sold at the right time in the right place, but you could also lose it all. To give you an idea, my brother bought a house in 2006, in 2016 it finally got back to the value it was when he bought it. If he had sold it after 2-4 yrs he would have gotten half of what he paid for it.

Plus, you are way too unstable as a med student. What happens if you fail out or change your mind in 1st year? What if you have to move for rotations? You hate the area, etc. You'll definitely lose money if anything like that happens, or worse, you'll let it limit what you do in some way.

 

[AMEHigh]

Outside of NYC, LA and DC (I've lived in all 3,) buying is unequivocally cheaper than rent. Including the cost to own. You qualify for mortgage by applying for one before medical school starts, assuming you have an income.

A mortgage is smart debt and if you think otherwise you really don't know much about finances. Yes of course paying it off is ideal but if your rate is low enough then it likely won't make a dent in your long term retirement plans.

Advising someone to rent from a financial perspective is a great sign that the advisor needs serious financial education. I rented in various big cities and small towns for the better part of 15 years. I've owned 4 houses, also in a mix of big cities and smaller towns. In my decades of experience and research I have found very few instances where renting puts you out ahead instead of buying. Including while in medical school.

I will agree the girlfriend aspect is a bit different, but my suggestion is to go in solo and don't include her in any official or financial capacity, then if things don't work out it won't affect your financial investment.

That is not true at all.
There are so many variables that go in to being a medical student that a smart person would take those in to account.
I grew up in a military family, my parents certainly didn't buy each and every time we moved because it didn't make financial sense.
The thought process that buying is ALWAYS the best thing to do is false.
Most medical students don't have the savings that is ideal for buying a house. So if your hot water heater breaks and you don't have the money, you're going to have to use your student loans to pay for it. If someone has enough money for a down payment and ideal savings to be a home owner I think they should definitely pay their tuition and not take on debt with a 7%+ interest rate.
It might've worked out well for you to own a house for 4 years, but that is the exception not the rule.

 

[deleted896822]

So to further clarify, if I were to buy, it would be on me. It wouldn’t necessarily be a purchase by both me and my girlfriend.
I am leaning on renting at this point I think; this post was more geared towards the financial part of this and if there was any advice on specific ways to limit debt or make it easier to pay off in the long run.
Alabama has some rural practice incentives but I think they are not towards EM which is my goal. Certainly I will chase as many scholarships and grants as I can but I think what they will make up for will be fairly limited.
Also, as I said above, I have not met with our financial advisors as we were told we would hear from them in a few months at the time of the interview. I just wanted some info to start thinking about, especially from those that have already lived through it and may have some things they wish they would or wouldn’t have done with their finances.



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[libertyyne]

So to further clarify, if I were to buy, it would be on me. It wouldn’t necessarily be a purchase by both me and my girlfriend.
I am leaning on renting at this point I think; this post was more geared towards the financial part of this and if there was any advice on specific ways to limit debt or make it easier to pay off in the long run.
Alabama has some rural practice incentives but I think they are not towards EM which is my goal. Certainly I will chase as many scholarships and grants as I can but I think what they will make up for will be fairly limited.
Also, as I said above, I have not met with our financial advisors as we were told we would hear from them in a few months at the time of the interview. I just wanted some info to start thinking about, especially from those that have already lived through it and may have some things they wish they would or wouldn’t have done with their finances.



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the goal should always be to minimize debt while living comfortable, get roommates, drive reliable beaters that are paid off, cook / meal prep, dont hit the bars too often or eat out as much, keep your spending in check and only take out the amount of loans you absolutely need.

 

[68wdogdad]

My wife and I bought a house during undergrad (nontrad) and although I love having the space, the extra time devoted to the general upkeep of the house (mowing, shoveling, etc) gets a little tedious.