OWNING A HOME during medical school

[LadyWolverine]

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I will be matriculating in August, and I am considering buying a home near the school. However, I'm having problems getting answers to some of my questions from the lenders that I have spoken to. If you have any experience in this matter, would you please share your advice?

1) How much of your student budget do you use to finance your mortgage? Do you find that your monthly payments are manageable? If you add up all of your home-related costs for the month (mortgage, taxes, insurance, other fees), how much does it usually run? (For reference, I am looking at 150K-200K range. I would be attending my state school, for which they have a budget of around 45,000 max for federal loans.)

2) If I were to buy a 2-bedroom property and rent the other room to another person, would that be considered income? Would that affect my ability to receive financial aid? I could, potentially, buy more house if I were to find a roommate, but I do not want to jeopardize my financial aid package.

3) I have a parent who is interested in becoming an equity partner. However, once again, I am not certain whether or not this will have any affect on my financial aid status.

Does anyone have any related experience or knowledge that they are willing to share? It seems that neither the lenders nor the financial aid office has any idea how my ability to receive financial aid will be affected by introducing other people into the homebuying equation.

Please PM me if you have any advice. I would appreciate it.

-LW

 

[George_Clooney]

I will be matriculating in August, and I am considering buying a home near the school. However, I'm having problems getting answers to some of my questions from the lenders that I have spoken to. If you have any experience in this matter, would you please share your advice?

1) How much of your student budget do you use to finance your mortgage? Do you find that your monthly payments are manageable? If you add up all of your home-related costs for the month (mortgage, taxes, insurance, other fees), how much does it usually run? (For reference, I am looking at 150K-200K range. I would be attending my state school, for which they have a budget of around 45,000 max for federal loans.)

2) If I were to buy a 2-bedroom property and rent the other room to another person, would that be considered income? Would that affect my ability to receive financial aid? I could, potentially, buy more house if I were to find a roommate, but I do not want to jeopardize my financial aid package.

3) I have a parent who is interested in becoming an equity partner. However, once again, I am not certain whether or not this will have any affect on my financial aid status.

Does anyone have any related experience or knowledge that they are willing to share? It seems that neither the lenders nor the financial aid office has any idea how my ability to receive financial aid will be affected by introducing other people into the homebuying equation.

Please PM me if you have any advice. I would appreciate it.

-LW

I don't know the specifics of your situation, but when I bought my home, they needed proof of income for 2 years (not a problem for me since I am a non-trad). so, if you have worked for the last couple of years, you sould be fine. My loan is in the same range that you are thinking and it is managable and would continue to be as a student (I got an awesome interest rate payment on 3 bed house = ~$750 +taxes). For me, roommate income would not have mattered in my loan application, but in reality it does help a lot. However, if you have family that would cosign/go 50-50 with you, then you are set!! I think they consider the most stable income of the two of you, so assuming that the person you have in mind is responible then it wont matter that you are a student.
I am not sure if this is helpful to you... it is late, I am tired and i am not sure if this makes any sense.... but I think you will be fine!!

 

[BobBarker]

If your parent buys the home, they can deduct the interest from their income taxes. You being a med student, will have no income to tax/deduct from. It's a pretty important consideration.

 

[SailCrazy]

In order for the rent that you collect to be a factor in the size of the mortgage for which you qualify, the rent ganerally has to be already established and documented. If that isn't the case, you can use it in our own budgetary considerations, but your bank/mortage company likely will not include it as a factor affecting your ability to make your monthly payment.

I'm not sure if you'd have to claim the rental income, but you (and/or your parent) would have to declare the net value of the property as an asset on your FAFSA.

 

[hunter1077]

If your parent buys the home, they can deduct the interest from their income taxes. You being a med student, will have no income to tax/deduct from. It's a pretty important consideration.

I dont think that you can deduct interest on a second home from your income taxes.

 

[aamartin81]

I dont think that you can deduct interest on a second home from your income taxes.

Has to be your pirmary residence.

 

[medhacker]

I am in the process of purchasing myself - the only thing holding me back is the crazy closing costs!! 😡

other than that I foresee being able to carry all the monthly expenses with my FA.

 

[glp]

Has to be your pirmary residence.

i pretty sure that is not true. to my knowledge second home interest can qualify for income deduction. third homes and beyond do not. if the second home is also rented during the year, the primary borrower must live there a minimum of 14 days or 10% of the days rented (whichever is greater) to qualify for the deduction.

http://www.turbotax.com/articles/FAQonDeductingMortgageInterest.html

 

[Camel]

If you use a home equity loan, you can deduct the interest payment on that from taxes. That's always another option, assuming your parents have enough equity in their home to pull some money out.

 

[BobBarker]

My parents will deduct the interest on their 2nd/my primary home using a home equity loan. I'm pretty sure that you could have done the same with a traditional mortgage but they chose to go the home equity route. They both have their CPA.

 

[SoCuteMD]

bumping for the people who can't find the "search" button

 

[etf]

if you're parents take out a home equity loan, then they are paying interest on the loan for their primary residence (although they are giving you the money), so it is deductible. If they "co-sign" on a mortgage for you, I'm reasonably sure that it's not considered a primary residence, so they can't deduct it. Also, income is income, even if it is rental income and all of it goes to paying down your mortgage.

also, if you have excellent credit (like 730ish) you might try to go for a "stated income loan." the interest is killer, but then again, it is deductible for you, and it still beats paying rent...

 

[hobs]

you (and/or your parent) would have to declare the net value of the property as an asset on your FAFSA.

I don't think this is true. If the property is an investment which is part of a business venture, then you have to declare it as part of your net worth.

A couple of things to consider for the finances aspect:
(1) down payment: generally is 20% of total price. How are you going to come up with it and avoid paying mortgage insurance (which wastes >$20 a month)
(2) taxes: don't forget to figure this into your monthly payment
(3) home insurance: ditto as for taxes
(4) emergency repairs: need a source of funds for this kind of thing
(5) maintenance and updates: you may want to be able to do things like plant flowers, paint rooms, and do some other stuff like that. Even if you're very handy, you need to be able to pay for supplies.
(6) utilities: sewer and water are an extra $40 or so a month. Also, it's more expensive to heat a 3 bedroom home than it is to heat a 1 BR apartment.

These are just some other expenses to think about. I chose to own a home and it's been satisfying to know that I've made a good investment. But there are some unseen financial and psychological aspects (like leaving home is a bigger deal now because if something happens, I'm responsible) that make it a little challenging. Good luck!

 

[mshheaddoc]

Wow, lots of misinformation ...

#1 - primary residence for you 2nd for your parents, yes its deductible for them
#2 - Claiming assets on Fasfa - if you notice (i believe) you don't put down land/dwelling information nor do I know anyone who has. We didn't on our home - here is the link ... http://studentaid.ed.gov/students/publications/completing_fafsa/2006_2007/ques3-4.html

#3 - Mortgage help - I did mortgages for 2 years and was in lending 2 year prior (commerical/personal). If you have any questions about the application process I can "steer" you in the right direction what you "need" to find. We ran into a few problems as my husband was the med student and I was working (but I was on my last month). Having your parents co-sign will most likely be your only opportunity unless you have stellar credit (score over 700)

To address your concerns:

1) How much of your student budget do you use to finance your mortgage? Do you find that your monthly payments are manageable? If you add up all of your home-related costs for the month (mortgage, taxes, insurance, other fees), how much does it usually run? (For reference, I am looking at 150K-200K range. I would be attending my state school, for which they have a budget of around 45,000 max for federal loans.)

Well we are in the midwest so its relatively cheaper to have housing. BUT 40% of total monthly income from his loans at a state school go to the mortgage/taxes/insurance. But here it was cheaper for us to buy our 1500 sq ft then it was for us rent something comparable. You can calculate your mortgage payements by using bankrate.com. Go to the mortgage section and there is TON of GREAT information there. Explaining what types of mortgages are out there (PLEASE DON'T GET INTEREST ONLY IN THIS MARKET! ESP if you aren't putting much on a down payment! /rant) and you can see what type of rates are out there.

2) If I were to buy a 2-bedroom property and rent the other room to another person, would that be considered income? Would that affect my ability to receive financial aid? I could, potentially, buy more house if I were to find a roommate, but I do not want to jeopardize my financial aid package.

Hmmmm .... well, I know a few people that do it "off the books" You could claim it as other income but honestly when you do the figures most likely it wouldn't cover your whole mortgage payment and you can't rent out your primary residence as true rental income but please do some searches on CPA sites or ask a CPA. There are a few on here and if they don't reply, I'll ask them to look in here for you.

3) I have a parent who is interested in becoming an equity partner. However, once again, I am not certain whether or not this will have any affect on my financial aid status.

To my knowledge, no. It didn't affect my husband with his parents. You don't claim your primary residence in assets so you don't have to worry about this. Most of you aid in med school is based off of you and your parents income. But parents not so much.

and if you have any other questions, feel free to ask.

 

[mshheaddoc]

A couple of things to consider for the finances aspect:
(1) down payment: generally is 20% of total price. How are you going to come up with it and avoid paying mortgage insurance (which wastes >$20 a month)

Just wanted to let you know this isnt always the truth. Many lenders now just give you a little bit of a higher rate and no PMI. And the difference in rate and PMI honestly is worth it (i've crunched the numbers). Especially if you aren't going to be staying in the house more than 5 years b/c you won't really dent your mortgage in the first place to get off of PMI.

 

[BobBarker]

You could do an 80/20 mortgage to avoid PMI, but that may be too much in monthly payments. 80% primary mortgage, 20% second mortgage at usually a slightly higher rate

 

[LadyWolverine]

I ended up playing a little hardball with a few lenders. I got the loan (30-yr fixed) and rate I wanted. My credit score is over 700, so no PMI. Month-to-month (in terms of PITI...not factoring in utilities/maintenance/etc, but more on that later), for the property that I am purchasing, it will actually cost me LESS to own than it would to rent. I can't believe it.

This process is incredible. I've never made so many calls/signed so many forms in my life. But I found my home, the contract was accepted, I've got a mortgage and insurance, and the closing date is set for 5/11.

Thanks for all of your comments! Now, I'm looking at warranties to cover home maintenance costs. Anyone have any experience with American Home Sheild (AHS) or HMS? I really like both of their policies, but AHS looks more comprehensive. One program offers a deductible of $50; the other is $100. I'm tempted to go with the $50 deductible...it's only another $15/year compared to the other plan.

I'm not sure yet what my utilities will look like for a 2br townhome. Time will tell.

 

[mshheaddoc]

Warranties are the worst thing ever. We have had to fight with them because its VERY particular on what it WILL and won't cover. Make sure you check it out CAREFULLY. I'm not sure which one we use, I will have to check that out.

 

[vtucci]

I bought a condo for 147,900 but I am a non-trad and had great credit (depending on which agency 777-817) and prior work experience. I also put 20% down. I pay 1100/month for a 2/2, my mortgage is 700 but you need to include HOA and taxes. Most schools give you 500-550 for rent each month that you can apply to your mortgage. I would recommend a roommate. Because my closing was late (in Sept), I do not have a roommate and could only swing it this year because I had money saved.

I would say if your parents want to help- have them put 20% in your bank account- it needs to be there for at least 30 days or the mortgage companies will ask where it came from. With 20%, you reduce the PMI problem- which can cost you a lot of money. Have it be your residence. If it is your primary residence, it does not have to be declared on the FAFSA but if it is your parents' second place, that does have to be listed.

You need to shop around for a mortgage. There are 80-20 deals if you are not putting any $$$ down. Mine was about 6.1% with a no-doc mortgage (i.e., I do not have a job right now). Most people have a higher rate because they do not have either the downpayment, employment history or credit rating.

Selling it after four years. Depending on the market, it may be difficult to flip it in four years so keep that in mind that you might need to carry your mortgage at least in part if you do not match at your university hospital. You will probably be able to rent it to incoming med students but the market may not support a rent to cover your mortgage.

Make sure you go with homeowners insurance and that can be a real pain in the butt depending on state-- FL is a huge issue- so add that to your calculations.

 

[dsherida]

I did the 80/20 route to avoid PMI (Private Mortgage insurance). I also put nothing down. As I am finding out, there are always little things that need to be bought (furniture, lawn mower, etc.) so saving some money was a blessing for us instead of putting it down on the house. My house was $180,000, but my fiancee is a nurse and is the one bringing home the bacon! We are planning on selling it in four years when I move on for residency and so one of our loans is an interest only because we are planning on making our return when we sell the house. There are so many options out there, so sit down with a mortgage banker and outline your situation, goals, and med school budget in the housing business and they will be able to find something for you.