Getting a big student loan and buying some property

[shan564]

Most of the banks giving out medical school loans are saying that they'll cover the cost of education plus living expenses... but nobody really defines what "living expenses" really means. I'm planning on going to a relatively expensive city, so a decent apartment would cost me upwards of $1000 a month. Does anybody know of a good med school loan scheme that will allow me to borrow an extra $100k to buy a small apartment?

I'm already borrowing $150-200k anyway, so I figured that I might as well just get a little bit extra and own some property... the market is so cheap right now that I'm bound to at least get my investment back. The only problem is that I'd like to avoid having a job during med school, so I can't really get a mortgage. Student loans, on the other hand, are not a problem... I know that I'll have the money to pay it off when I'm a doctor, so I don't mind borrowing seemingly endless amounts of money.

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[yadayadadude]

I don't think this will work. COA is set by individual schools and federal student loans (Stafford, Perkins, GradPlus) are only available up to the COA. In other words, you're wrong that no one's defining what "living expenses" means ... schools are defining it, based on local cost of living for a single student with no dependents. If you could come up with a downpayment and buy a place with a mortgage that's similar to rents in the area, you could probably cover the mortgage payment with your student loan dollars. But there's no way to get Uncle Sam to loan you $100K in a lump sum to buy a condo. Unless I wasn't understanding what you're asking?

 

[shan564]

I'm not expecting Uncle Sam to loan it to me... I was thinking I'd get a private loan. Is that still impossible?

 

[TMP-SMX]

I'm not expecting Uncle Sam to loan it to me... I was thinking I'd get a private loan. Is that still impossible?

You are limited to what your school budgets as your cost of attendance whether it is a stafford, grad plus, or even private loan. The only way to increase it is to ask your FA office to increase your CoA. There are some above CoA private loans out there, but they are few and far between.

 

[yadayadadude]

I don't really think I understand what you're asking. Do you want to borrow $100K in a lump sum as a private student loan? That's impossible. Or do you want to get a mortgage in the traditional way (which is going to require great credit and a large downpayment in the current climate), then borrow a bit extra with student loans to make the mortgage payment (instead of renting)? That *might* be possible. But check out the thread on "above the COA" private loans on this forum ... people are having trouble doing this currently.

 

[shan564]

Hm... I was considering either of the options that yadayadayadadude mentioned. But if I were to get a mortgage and then pay it off with my student loans, I'd have to get a student loan where there is no interest until after graduation (otherwise, I'm paying 12-13% interest on the property value)... I'm under the impression that the $8500 Stafford loan is the only such option.

So, in other words, my only choice is to try to find an "above the COA" private loan... correct?

 

[yadayadadude]

But keep in mind that private loans -- even if you were able to get one, and that's a big if right now -- carry higher interest rates than Staffords and the interest starts accumulating immediately. You are correct that the only loans that don't accumulate interest during school/residency are subsidized Staffords (limited to $8500/year) and Perkins loans (limited to $6000/year -- but very few medical students get these).

ETA: bottom line, if there were some great way to buy a home as a medical student using student loans to your advantage ... don't you think we'd all be doing it?

 

[dragonfly99]

yayadude is right
You would be borrowing money at a higher rate than your house/apartment that you bought would appreciate (very likely). That's IF it appreciates at all in the next few years...we might keep having a recession so it might not gain any value at all.
I would not buy right now as a med student...only caveat would be if you have the down payment and closing costs (i.e. gift from family or you already have 10k or more savings you are willing to put into that) or if you have a working spouse + kids perhaps. Then it might make sense to buy, particularly if you are thinking strongly of staying in the same city for residency.

It's just not a good idea to borrow 100% of the money to buy a home or apartment...that's one of the things that got us in to our current mortgage crisis. People who didn't have down payments and didn't have the income to support buying a home went and bought homes anyway, and unscrupulous mortgage brokers sold them on the idea of getting these loans. Now it's a few years later and many of these folks are losing their shirts...and their homes.

 

[shan564]

Yeah, the reason why I was even thinking about it is because I'll have about 20-25k in savings going into med school, so I wanted to do something with it.

 

[Habeed]

Shan : I don't think 20-25k is enough money. No, you cannot receive your "living expense" check as a lump sum. It gets doled out to you a few thousand at a time, semester by semester or quarter by quarter during med school.

Property is cheaper right now, but there are solid economic reasons why it is not as cheap as it is going to get. Meaning, it is reasonable to predict that real estate prices will either continue to fall, or stay relatively flat for 10 years or more. Even if the recession ends, there's a lot of reasons to think that most real estate today is priced above its true economic value.

I would save your 20-25k in case of unexpected expenses, and to make your lifestyle during med school a little nicer.

 

[dragonfly99]

Oh...well depending on your circumstances right now (i.e. if you are working full time and have a salary) someone might give you a loan to buy a small house or condo (with a down payment which you could use some of your 20k for). Then you could pay your house or condo payments with your "living expenses" student loan money, perhaps. But I'm talking about a SMALL house or 1BR condo...and that's if you live in a cheap part of the country where you can get this for 120k or something. I agree with the above post, though...not sure it's a good time to be buying any real estate. I'd personally only do it if you are married w/ a working spouse, plus are strongly thinking of staying in the same city to do residency.

 

[dragonfly99]

You could just use your 20k for some living expenses during medical school...that way you won't have to borrow your living expenses the first year, and you'll have less of a student loan burden later. I think if you did the math r.e. borrowing more money to get a house, plus what little home equity you're likely to have in 4 years if you move and sell the house, plus the interest you could likely save by NOT borrowing 20k of living expenses the first 1-1.5 years of your medical education, it would be much less of a gamble financially to just use your savings to pay for med school. A few years ago, buying a house and then reselling 4 years ago you might have made a little money, or at least not lost money, but currently I'm not sure that's the case. You have to pay "closing costs" of several thousand dollars, plus then when you sell your house in 4 years or something, the real estate agent gets a commission of say 6% or so...so your house would have to go up in value quite a bit in order for you to make any money on the deal...

 

[TMP-SMX]

Some people who just want to get rid of a property will pay the closing costs. But either way I don't think this is a good idea right now. Put it into a safe liquid investment or use it instead of loans. (Especially if you go over the stafford limit in loans.) You should avoid 8.5% grad plus loans if at all possible and certainly private loans.