Pay mortgage with student loans???

Discussion in 'Medical Students - MD' started by CNein001, Jul 9, 2012.

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  1. CNein001


    May 1, 2012
    I have to make a decision soon. I can rent a condo near my school for 1,200 per month plus utilities. I also have the option of purchasing the condo, and the mortgage payment would only be 750 dollars per month.

    I have enough saved up to cover the down payment if I decide to purchase. The condo is in very god shape, and I would of course get an inspection before purchasing. It is also in a pretty nice area to rent out int he event that I match into a far-away residency down the road. I just have a few questions if anyone is knowledgeable.

    1) Is this legal?

    2) Is anything about this glaringly stupid that I am not considering yet?

    3) Does this make sense? I figure I would be taking the loan out to pay rent, and with interest rates on 30 yr fixeds so low, I might as well use the rent money as an investment and get something tangible out of the money I spend. Also, it would be cheaper.

    4) Any last thoughts or comments? Thanks a lot for your time.
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  3. JacobMcCandles

    JacobMcCandles 5+ Year Member

    Jan 22, 2012
    1.) I'm not sure but probably not.

    2.) Yes. You are neglecting how expensive (and time consuming) it is to own a home vs. renting. Also, if you end up doing residency away from where you're currently at, being a landlord during residency will most likely prove to be a bad idea and costly.

    3.) It looks cheaper at first glance but you'd have to own the home for probably ~5 years before you started to break even and that's assuming you don't come upon any major repairs. There's a pretty good NY Times rent vs. own calculator that could be useful to you.

    4.) Don't use loan money to pay for another loan.
    4a.) You'd probably also need a cosigner as I doubt too many mortgage companies would be jumping at the opportunity to offer somebody a loan without a source of income (besides loans).
  4. ucladoc2b

    ucladoc2b 7+ Year Member

    Nov 24, 2008
    1) Using funding from student loans to make a mortgage payment? Of course

    2) Few issues--

    a. Getting a mortgage. Succinctly put, with no income, it's not easy. You might have a tough time getting a bank to loan you money.
    b. You have other costs: taxes, HOA dues, insurance, maintenance that were covered in your rent. As an owner, you are responsible for all of it.These can be sizeable.
    c. What sort of down payment are you going to put? If it's less than 20%, most of those rates would not be possible (maybe with FHA support).

    3) Most of your payments for the first several years of your loans will go to pay interest (and not towards principal), which is the cost of "renting money." Plus, if you are in med school, you don't have an income and won't recieve any tax benefits. Hence, the only gain you will have will be appreciation and maybe some small amount of equity (honestly, your home is a pretty poor investment).

    Med student have done this in the past. For some it works out well. Just be careful.
  5. BigRedDeal

    BigRedDeal 7+ Year Member

    Aug 27, 2009
    Many students in my class own/bought their home, as do I; but most of them are also married. I dont know why that is. I own a single family home, my dad cosigned for me. I also rent out my extra rooms. It is legal to pay mortgage, why wouldnt it be? Its a living expense.

    My questions to you are, do you have the down payment?

    What are HOA fees? Insurance? Property tax?

    With the house prices down so low, its not a bad time to buy with the intent to keep long term.
  6. operaman

    operaman 7+ Year Member

    Jun 7, 2010
    No legal issues regarding using loan money to pay mortgage. This might be a good move for you, but obviously needs a little more due diligence before signing.

    Since the rent represents a greater than 50% increase in payment over the mortgage, I would want to figure out what the catch is. My suspicion is that there are additional fees like others have noted. The mortgage will still be less than rent, just not as much less as it seems right now. If there really is no catch and you can get the loan, buying would be a smart choice IMO. It would save you $20k in rent payments over the 4 years of med school alone, but you would be assuming a little additional risk. A lot depends on your market, location, etc. Condos are often harder to sell than single family homes. If you are in a great location for your school, you can probably keep renting it to med students after you leave.
  7. ucladoc2b

    ucladoc2b 7+ Year Member

    Nov 24, 2008
    You are right about the additional fees. However, the mortgage cost is determined by the amout borrowed and the interest rate (mostly). Rents are priced by market demand (and a few other factors). So if the OP buys a houst for $200k and puts 40 down, his payment will be different than if he were to put $150K down.

    If owning costs less than renting, then I would go for it (really, paying mortgage interest, HOA dues, taxes vs. rent is just about the same). Just don't go into the purchase expecting huge returns on your down payment.
  8. Impromptu

    Impromptu ASA Member 7+ Year Member

    Feb 19, 2009
    Don't live above your head. Too many people want the nice apartment/house/condo like they grew up in. Why not rent a cheaper place with a couple of roommates? Over 4 years of medical school you are looking at $43,200 in savings, if you pay $300/month versus $1200/month, not to mention the interest savings and peace of mind paying off your loans sooner. Grad students make much better roommates than undergrads. There will be plenty of time later in life to spend more money, and you will have more of it to spend.
  9. AvidAvatar

    AvidAvatar 5+ Year Member

    Aug 16, 2007
    In the sky.
    Don't even bother looking into this. You will not get a good mortgage - or ANY mortgage - if you do not have an income.
  10. Gut Shot

    Gut Shot 10+ Year Member

    Sep 7, 2003
    1. People tend to grossly underestimate the costs of home ownership.The apparent $450 gap between renting and buying will evaporate pretty quickly. And since you'll be living off loans the interest deduction will have no short term benefit to you.

    2. Do you really want to be both a resident and a long-distance landlord in four years? The answer is no.

    3. It sounds like this purchase would blow your savings. Never a wise idea. Say you buy it and the hot water heater dies. You're screwed.

    4. Getting a mortgage as a medical student isn't going to be easy. Why not just keep your savings, relax, find a couple of roommates, and enjoy your continued lack of responsibility?
  11. Deekle

    Deekle 5+ Year Member

    Dec 23, 2011
    Washington, IL
    There are a lot of additional costs to owning a home.

    1. If you put down less than 20% as a down payment, you have to pay PMI (private mortgage insurance)
    2. Homeowner's insurance (different than pmi) is expensive.
    3. If you live in a state that collects property tax, you've got that to deal with as well.
    4. Upkeep costs, especially of you rent to college kids, can easily make you miserable. You wouldn't believe how much it costs to pay someone to patch drywall or fix a pipe. If you're in med school you're not going to want to do these things yourself.

    If you're married with kids, it can make a lot of sense to buy a nice home. I wouldn't put myself through the hassle as a single person just to save a couple hundred a month.
  12. ucladoc2b

    ucladoc2b 7+ Year Member

    Nov 24, 2008
    I had a similar situation when I was in undergrad (note this is during the early days of the real estate boom).

    Rents around my college were around $2400/month for a 2 br (a decent 2br. There were some dumpy, small, places that went for $1800/month). Condo prices, for a few reasons, hadn't really caught up to that point yet (I think I paid 270K for a pretty nice 2BR). Hence, it made sense for me to buy becuase there was such a significant discrepeancy between the PURCHASE PRICE of the property (not the mortgage cost) and the local rents. I also rented out the other bedroom (for 1100/month), so the deal turned out ok. For a single person, in college (or medical school), buying a condo really is not worth it for the most part (IMO). Leases for property, for the most part, are pretty convinient. At the end of a few months (or at most a year), you can walk away, few questions asked. Not so easy with an owned property.

    Really, with a mortgage, you are still paying rent--you are renting capital instead of the condo/house/apartment.

    If you are interested, Robert Shiller goes into some interesting arguements about the economic pros and cons of homeownership. His Irrational Exuberance (the new edition)is pretty good.
  13. ucladoc2b

    ucladoc2b 7+ Year Member

    Nov 24, 2008
    That's a big difference in rent...and likely a huge change in lifestyle/living situation. Might not be worth it. There needs to be a happy medium somewhere.
  14. SpecterGT260

    SpecterGT260 Catdoucheus 2+ Year Member

    Feb 1, 2012
    your student loans incorporate cost of living. how is paying rent any diffferent than paying mortgage?
  15. 45408

    45408 aw buddy 7+ Year Member

    Jun 13, 2004
    Seriously? The fact that the rent isn't a monthly payment toward a six figure liability.

    I honestly don't think you could get any loan/mortgage if your only "income" were from student loans. You could falsify your application (a crime) or have a co-signer, which is a valid option for some people. However, at that point, your co-signer's income becomes your income for the purpose of the loan.

    Most importantly, like Gut Shot said, most people grossly underestimate the cost of owning a home. I posted this in a thread a few months ago, and it's pretty relevant now:

    The break-even point for me to buy a home versus renting happened at 5 years, and that was only with the $8000 credit. Without it, it probably would have taken 7-8 years, and that's assuming that home values remain stable and don't decline further. Four years of med school? Not going to recoup your losses in the majority of situations.
  16. SpecterGT260

    SpecterGT260 Catdoucheus 2+ Year Member

    Feb 1, 2012
    sorry, i knew I should have quoted....

    My comment was in regards to the person who said it is probably not legal.
    in that regard, how is it any different than paying rent? It is not. Also I am paying a mortgage on a condo :thumbup:
  17. blub1212

    blub1212 5+ Year Member

    Oct 8, 2011
    I would recommend renting for several reasons (coming from someone who owns a house):

    1. Owning is almost always going to be more expensive. Things like property taxes and homeowners insurance (not to mention being responsible for anything that goes wrong) add up really fast.

    2. The housing market is still going down (in my area and I think it most places also). My wife and I have owned our house for 3 years, and it has done down in value every year since we bought it. We are not upside-down on our mortgage (never will be, because we bought a bank repo house and have been remodeling it), but I know several friends who are.

    3. Even if your housing market is stable, you might still end up selling it at a loss (after you add in things like your property taxes and the closing costs of selling it), unless you are able to do residency in the same location and will be able to live there for a long time.
  18. LossForWords

    LossForWords PGY-1 5+ Year Member

    Jul 29, 2008
    I bought a house first year of med school with my wife, so here's my approach to it:

    It's probably so that their spouse can be the one getting the loan. Having no income does not make for a good interest rate on a loan. The mortgage on my house is in my wife's name (who has a job with positive income), but the title is in both of our names so I have some ownership of it when I start making a paycheck as well.

    We looked at condos as well, and often the hidden cost is the "condo community fee." This is a monthly fee to cover grounds keeping and other communal costs. Suppose your neighbor's water pipe leaks into your condo. It doesn't bother him, so he won't fix it, but it's ruining your living room. Condo fees are the things that pay for this kind of stuff. We saw one place that had $250 a month for the fee, so make sure you know all the hidden costs of ownership.

    Again, a spouse with a job or parent willing to co-sign is essential here.

    As far as the legality of using a loan to pay off a mortgage, it's not a problem as far as the monthly payments are concerned. The down payment is a different case though. You have to sign something saying that the money you're putting down is not something that must be repaid to anyone. Now many, many people get an interest-free loan from their parents they use for the down payment and un-officially pay it back later, but that's technically illegal. It's also off the books so no one finds out about it. Sallie Mae, on the other hand, is a bit more on-the-books so make sure any down payment funds are on the up and up.

    In the end, it was worth it for my wife and me. If we'd waited any longer into med school it wouldn't be worth it, but getting 4 years (at least) out of a house was enough. If I match here for residency it's good to know we can just keep living here and building equity. My "half" of the the mortgage is also less than most of my classmate's rent, so I chalk that up as a win. Just always have an emergency fund because A/Cs only break when it's 104 degrees outside and heaters only break when it's -7 degrees out.
  19. Asp

    Asp 5+ Year Member

    Oct 16, 2007
    Katy Perry's basement
    I wouldn't take a mortgage even if I had a doctor's income.

    There's no guarantee that your house will appreciate in value. In fact, it may even fall in value -- and you'd lose money.

    You should just rent until you can buy outright. Or just never buy. Renting gives you freedom to leave and gives you cash liquidity. Happiness is about freedom and liquidity. Renting = more happiness.
  20. 45408

    45408 aw buddy 7+ Year Member

    Jun 13, 2004
    The lender on the student loan doesn't care, but I guarantee you that the mortgage lender cares. If that's your only source of income, and you don't have very large tracts of land as assets, then you almost certainly wouldn't qualify for a mortgage.

    This is also critical:
  21. SpecterGT260

    SpecterGT260 Catdoucheus 2+ Year Member

    Feb 1, 2012
    You're arguing a point that wasn't made.. I said simply this: it is not illegal :shrug:
    Last edited: Jul 10, 2012
  22. SpecterGT260

    SpecterGT260 Catdoucheus 2+ Year Member

    Feb 1, 2012
    Also... in case you missed it. Zoidberg.. err.... specter! Homeowner! You don't need to cite the ins and outs to me ;)
  23. ucladoc2b

    ucladoc2b 7+ Year Member

    Nov 24, 2008
    From a financial perspective, I'll disagree with you.

    All assets can go up in value. All assets can go down in value. There is volatility in everything. Financially, your aim is to have your money exceed the rate of inflation. If this doesn't happen, even though your balance is the same, its purchasing power has declined significantly, and you have lost money. Hence, the need to put your money somwhere besides a shoebox (or a low yield savings account).

    However, putting so much personal net worth into a single asset, a personal residence, is not a good financial move for a number of reasons. The return on a personal residence is so low (and in many ways costs a ton of money). In addition, by making such a huge purchase, you'll likely compromise your personal cash liquidity this way.

    Also, when you go to sell, you'll still need a place to live. So unless you plan to a)significantly downsize, b) move to a way cheaper area, c) go back to being a renter, you'll have to buy another house, which will cost about the same amount as the house you just sold if your needs are still the same. Hence, economically, you did not improve your situation at all.

    Even people with a considerable amout of money will still have a mortgage.
    Last edited: Jul 10, 2012
  24. ucladoc2b

    ucladoc2b 7+ Year Member

    Nov 24, 2008
    Gotta love HOA dues. And, for a condo, $250 isn't bad. If the building is large/facncy with a ton of staff (or has significant debt of its own), you'll end up paying a ton more.
  25. Asp

    Asp 5+ Year Member

    Oct 16, 2007
    Katy Perry's basement
    Don't disagree with you.. what are the theoretical underpinnings of homes going up in real value over time anyway? If home prices are determined by supply/demand, even with fixed supply, demand isn't going up much..

    As you can see there were good economic reasons for home values to go up in 1995-2005. We are past the peak for home ownership. It may trend upward again. It may not - probably not, because the white market is pretty much saturated. You try to recruit more homeowners and you're going into the subprime segment of the population - everyone knows the story there. Definition of a risky investment.
  26. ucladoc2b

    ucladoc2b 7+ Year Member

    Nov 24, 2008
    You are and demand dictate the prices of real estate. However, there are so many factors that influence that ratio (interest rates, economic growth of an area, employment, inflation, and so on) that draing a conclusion at this point is difficult. Real estate will come back eventually, albeit on a regional level. But who knows exactly when.

    As long as the population is expanding, there will be demand for housing, which will drive prices (some areas more than others). The rate of homeownership is not the measure at which I would look to make that judgement. I would look more at GDP, per capita GDP, population growth, employment on a regioal basis as your more accurate predictors of future home price appreciation (if these don't increase, the US is in pretty big trouble).
  27. Dartmouth2005

    Dartmouth2005 5+ Year Member

    Nov 7, 2009
    Cleveland, Ohio
    I would do this after I leave. I have seen some listings being offered by former med students to incoming students at my school.

    Consider taking on a roommate to ensure that you can cover the loan payments.
    Last edited: Jul 11, 2012
  28. GOMERE


    Jul 13, 2012
    Actually I went to Med school in a nice area, so about 20% of my classmates "bought" a condo or a home. "Bought" because their parents put the money down, and now they're paying rent. Most of them have friends or classmates rooming with them paying a reduced fee as well. So it makes good sense if you have that kind of relationship and that kind of parents.
  29. siliso

    siliso 7+ Year Member

    Oct 18, 2008
    Don't buy a house. The difference between rent and mortgage will quickly be eaten by repairs, property taxes, condo fees. Selling a condo can be very difficult, even more so than selling a house. You know you're going to want/need to be mobile in the next several years. Being a landlord also really sucks.
  30. jbro


    Jan 27, 2014
    sorry for bumping this from years ago. I'm about to start med school. I bought a condo at the beginning of undergrad and will be selling it for a profit soon. With that in mind, I was hoping to buy again when I start med school, (I like the idea of owning and as an experienced home owner I feel like I know what I'm getting into).

    With that being said, I recognize it's probably hard to get a mortgage without any income. However, I currently am employed and will be up until starting med school. Do you think it is feasible to put down a large down payment and get a mortgage now (while I'm still employed/ before starting school)??

    I would really like to own, especially since I plan on being in the same city for med school and residency, so I'd be there for at least 7 years...

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