how much house can we afford?

[sun697]

Hi fellow non-trads,

My wife and I are looking at the possibility of becoming first-time homeowners before I start med school this Fall. Since she doesn't work outside of the home, our 'income' will mainly come from savings, fin aid, and private loans. Given that, it seems that any tax deduction benefits of owning a home may be fairly small. Does that seem correct based on your experiences? I'm trying to figure out how much of a monthly payment we can really afford...

Thanks in advance for all your advice.

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[Law2Doc]

Hi fellow non-trads,

My wife and I are looking at the possibility of becoming first-time homeowners before I start med school this Fall. Since she doesn't work outside of the home, our 'income' will mainly come from savings, fin aid, and private loans. Given that, it seems that any tax deduction benefits of owning a home may be fairly small. Does that seem correct based on your experiences? I'm trying to figure out how much of a monthly payment we can really afford...

Thanks in advance for all your advice.

To benefit from mortgage interest deductions, you need to have income from which to deduct.

 

[Sol Rosenberg]

Hi fellow non-trads,

My wife and I are looking at the possibility of becoming first-time homeowners before I start med school this Fall. Since she doesn't work outside of the home, our 'income' will mainly come from savings, fin aid, and private loans. Given that, it seems that any tax deduction benefits of owning a home may be fairly small. Does that seem correct based on your experiences? I'm trying to figure out how much of a monthly payment we can really afford...

Thanks in advance for all your advice.

1. I agree with Law2Doc -- It doesn't sound like you will have a taxable income.

2. To answer your question, as a very ROUGH rule-of-thumb, assume total house payment will be approx. 1% of the purchase price, assuming a "small" down payment (5% or less.) So, figure out what monthly payment you can afford and back-calculate the purchase price of the house.

While you might not be able to reap the tax deduction benefits of a house (which TOTALLY depend upon your personal financial situation -- there have been years where it was better for my wife and I to take the standard deduction despite our home ownership) if you live in an area with a good real estate market, real estate is currently an excellent way to invest money (even if we are just talking about your personal home here.) While you are GUARANTEED to get 0% return on your rent payments over the years, you MAY make money from the house you own.

The other consideration is that you will most likely NEED to buy (and close on) the house before you start medical school and have no steady income. Banks, etc, don't like lending to people with no steady income, so you may have a problem getting a mortgage.

Good Luck,

Jota

EDIT: My "total" house payment included property taxes, insurance, etc.

 

[vtucci]

Is your spouse working?

What are your credit ratings? How much will you put down? Don't forget about PMI?

I would say most schools budget about 550/month per student for living. My mortgage, HOA and taxes work out to 1100/month plus utilities, on a 147,900 purchase price and I put 20% down and had an excellent credit score.

 

[wook]

Hi fellow non-trads,

My wife and I are looking at the possibility of becoming first-time homeowners before I start med school this Fall. Since she doesn't work outside of the home, our 'income' will mainly come from savings, fin aid, and private loans. Given that, it seems that any tax deduction benefits of owning a home may be fairly small. Does that seem correct based on your experiences? I'm trying to figure out how much of a monthly payment we can really afford...

Thanks in advance for all your advice.

I would suggest NOT doing it unless your monthly mortgage payment would be fairly close to a rent payment. You will find med school and living expenses take more than you anticipate and budget for; PLUS there are always the unexpected house ownership costs that pop up (e.g. water heater breaks, furnace stops working, stove breaks, etc).

Wook

 

[Sol Rosenberg]

Is your spouse working?

What are your credit ratings? How much will you put down? Don't forget about PMI?

I would say most schools budget about 550/month per student for living. My mortgage, HOA and taxes work out to 1100/month plus utilities, on a 147,900 purchase price and I put 20% down and had an excellent credit score.

Good questions for the OP to ask himself, but I just wanted to point out that PMI is basically no longer an issue -- it's basically an "ignorance tax."

Home financing has gotten so creative these days that there are LOTS of loans that don't involve PMI. As an example, my latest home is financed by an 80/15/5 loan -- meaning 85% from a first mortgage, 15% from a second mortgage, and 5% from a down payment. Although the second mortgage has higher interest and shorter terms than the first, you come out WAY ahead of the 95/5 case (which would involve PMI.) You DO need to have good credit, though, so those are all questions you need to answer.

EDIT: The coming out "way ahead" includes the tax break because the interest on the second mortgage is tax-deductable, whereas PMI is not. If you are not able to take a mortgage interest deduction (read first posts in this thread) you'll have to calculate whether this route is actually better (I suspect that it still is.)

 

[Sol Rosenberg]

I would suggest NOT doing it unless your monthly mortgage payment would be fairly close to a rent payment. You will find med school and living expenses take more than you anticipate and budget for; PLUS there are always the unexpected house ownership costs that pop up (e.g. water heater breaks, furnace stops working, stove breaks, etc).

Wook

Another of my rules of thumb is to budget 15% of your MORTGAGE (i.e. not including any property taxes paid to escrow, etc) for repairs/upkeep. This works VERY well (it's maybe a little on the conservative side) for my rental properties (where I am doing the bare minimum of upkeep, which is probably similar to what a poor medical student would do) but not so well for my primary residence (where I am often doing lots of "unnecessary" improvements, etc)

P.S. I'm obviously biased towards home ownership, and a huge advocate of it. If anyone has ANY questions, please feel free to PM me (or just ask here...)

 

[chrisjohn]

Ahh, around here houses rent for nearly what a mortgage for the house would cost. Something to think about.

If possible I suggest your wife looks into finding a job. Going to be nearly impossible to get a loan if you have no income. Banks don't see loan money as income, even though for students it is.

My wife and I bought our first home when I decided which school I was going to attend, I highly recommend it.

 

[wook]

Another of my rules of thumb is to budget 15% of your MORTGAGE (i.e. not including any property taxes paid to escrow, etc) for repairs/upkeep. This works VERY well (it's maybe a little on the conservative side) for my rental properties (where I am doing the bare minimum of upkeep, which is probably similar to what a poor medical student would do) but not so well for my primary residence (where I am often doing lots of "unnecessary" improvements, etc)

P.S. I'm obviously biased towards home ownership, and a huge advocate of it. If anyone has ANY questions, please feel free to PM me (or just ask here...)

I like your idea of budgeting 15%!

Wook

 

[sun697]

Thanks Law2Doc, jota, wook, et al for the very helpful insights. The 80/15/5 setups are a great idea. Though I think we'll have enough to put >= 20% down, I'll have to investigate which type of financing really works best for our situation (little or no income when school starts, probable move after four years, etc.). Fortunately, our credit ratings are good.

We could only buy if the monthly payment was somewhat close to rent (this is what I'm trying to figure out now). My wife currently stays home because childcare is so expensive, but maybe in a year or so she'll be able to telecommute or work outside of the home. Then we'll have real income to be able to deduct from.

Jota, I plan on keeping my job as long as possible before school starts. But we may not be able to get everything in order in time to *close* on a place before I have to resign. Is it necessary have steady income even when you close, or is it sufficient to show income during the loan app process?

 

[chrisjohn]

Jota, I plan on keeping my job as long as possible before school starts. But we may not be able to get everything in order in time to *close* on a place before I have to resign. Is it necessary have steady income even when you close, or is it sufficient to show income during the loan app process?

I'm working until the Friday before orientation. Sucks to be us.

I'm a veteran so was able to get a zero down low interest VA loan, which made all the difference. We could have scrapped up 10%, but it would have lowered the monthly payments so little it wasn’t worth burning liquid capital.

I'd get on it immediately. The bank will extend the loan based on your CURRENT financial situation, so I would think you'd be okay as long as you've been employed for a few years.

 

[FDoRoML]

Hey, we're going through this right now. Fortunately, we're not 1st-timers, so it's a little less scary. We're dual-income with great credit scores, so that also helps. We did an 80/20 the first time we bought, and it was nice. This time, loans are even more creative so we're actually getting a 100% financing with no PMI (wow!-- no, not a veteran or anything!). The good thing about this is we're probably going to get a slight fixer-upper and will be able to take out a HEL for improvements depending on the appraisal value (we get it cheaper than appraisal, we pay down on it for a while, it goes up in value over time). We got offered two things-- 80/20 at 6.5%/7.5% or this 100% at 7.1%-- so there are a lot of good deals out there. I recommend finding an actual mortgage company b/c they seem to have more options than the banks that do mortgages.

Things to consider:

1. Yes, they check your credit, bank statements, and *proof of income* for the approval process, but they also re-check both before settlement. So, you need to be in the same situation when you settle on a house. Keep in mind that approval-to-settlement times can be as much as 60 days (sometimes more), so they all do this to make sure their investment is safe with you (a lot can change in 2 months)!

2. If your credit is good and you can work out a deal with no PMI, you still need money to cover property taxes, homeowner's insurance, and miscellaneous home ownership expenses (stuff breaks). Just because you think you can afford $1000/month mortgage payments or rent payments does not mean the two are equal (mortgage+taxes+insurance, etc, vs just rent).

3. Leave room in the budget for utilities+. If you've been living in an apt, expect them to go up from what you're used to. Many locations require you not only to handle phone/electric/cable, but also water/sewer/trash and sometimes HOA fees if you live in a condo or townhome.

4. If you have the luxury of going to school near where you live, you should get on it ASAP. Otherwise, asking for a mortgage to relocate 100 miles away doesn't make sense unless you can show proof of an income in the new town-- like a job transfer. So, if you're going to move far for school, you probably won't be able to get a mortgage until you settle in there and your wife is working. Banks WILL loan to med students... they like physicians because of the low default rate.

Any questions about the process, just PM me.

Good luck,
FD

 

[mshheaddoc]

If you have excellent credit (700+), and can put at least 5% down there are lenders where you can do a no doc loan. Rate is a little higher rate but you can do it.

I suggest you get on the preapproval for the mortgage, get the the house and buy it.

Additionally, there are other ways about getting loans but they are very shady (lieing on your application etc). I wouldn't suggest it if someone mentions it to you. (And they will).

I used to work for a national mortgage company and used to work in the area that did "creative fiancing" for those with no income or for those with horrid credit. So if you have any specifics you need to ask, feel free. Oh and I wasn't in "sales" I was the underwriter actually figuring out how to make the loan

But why are you waiting to buy the house?

 

[mshheaddoc]

Oh and figuring out what you can afford, since you have a rough estimate of living expenses in financial aid, base your housing off of that. Check out on apartment.com or something of that nature what rents are like. If you are in a city, it will be more expensive obviously to find a house but check suburbs.

Then check what houses go for in the areas you are interested in.
Bankrate.com has mortgage calculators that you can use to figures out if you can afford it or not as well as tons of good info on buy a house, mortgages, etc. I refer everyone with mortgage questions to that site.

 

[vtucci]

Depending on the state, there are also no doc loans- that means you do not need to have proof of any income-- they usually require a really good credit rating and the interest is usually a little bit higher.