Starting medical school in summer. What to do with my house?

[ChodeNode]

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Hello,

I start medical school next summer and I'm trying to evaluate my options with respect to my house. The basic, government subsidized student loans won't cover my full tuition and cost of living. This requires I get a Grad Plus loan, which requires a credit check. At present, I have excellent credit.

The school that accepted me is in another city, and if my first school choice takes me off wait-list, it will be a dozen states away, which means my ability to respond in person is dramatically diminished. I owe about $174k on it, which is just about the price it would sell for, which obviously does not cover commissions. Since my loan type is FHA, I can refinance right now (currently at 5%) whenever I want. A short-sell is not an option because the credit hit would disqualify me for the Grad Plus loan. My current payment is $1334, ($343 principal, $728 interest, $263 taxes/insurance).

So I see my choices as:

1) Pull money from 401k. Pay down principle. Sell house.
2) Pull money from 401k. Pay down principle. Refinance to get much lower payment. Rent house out. Have student loans cover any deficit/repairs/tenant-gaps/whatever when it comes up.
3) Refinance house. Rent it at price higher than #2 and possibly making it hard to find tenant. Have student loans cover any deficit/repairs/tenant-gaps/whatever when it comes up.
4) Refinance house. Rent it at a loss. Have student loans cover any deficit/repairs/tenant-gaps/whatever when it comes up.
5) Short sell house. Hope I can find a family member willing to cosign my Grad Plus loan - unlikely since the only family members I have with money and decent credit are retired and have no real income.

I have an emergency fund of about $4500 and about $100k combined in my wife's and my 401k. I don't really have any other assets I can use to make up the gaps.

Can anybody think of any other options and/or provide feedback on which option they feel is best? Selling would give me the most peace of mind but really seems the most financially damaging to me. Everything else carries risk, but it still seems I have the possibility of pulling from 401k in dire emergencies anyway, and the possibility of borrowing from older relatives. I'm really out of my depth on this decision.

Thanks for any help.

 

[dpmd]

How much do you think you can get in rent and do you think the housing prices will be better soon in your area? If you think you can cover most of the expenses over the next year or so and then be in a better situation for a sale that might be a doable option. Problem will of course be dealing with tenants while you rent it out. Having a manager run the rental will make it harder to break even but would take a lot of the headache out. Also needing to be factored in is how cheaply you can live at school (because if you are already taking out a ton for that it won't be good).

 

[ChodeNode]

How much do you think you can get in rent and do you think the housing prices will be better soon in your area? If you think you can cover most of the expenses over the next year or so and then be in a better situation for a sale that might be a doable option. Problem will of course be dealing with tenants while you rent it out. Having a manager run the rental will make it harder to break even but would take a lot of the headache out. Also needing to be factored in is how cheaply you can live at school (because if you are already taking out a ton for that it won't be good).

All the homes in my area are rather similar because they're all PUD homes. Housing prices are slowly coming up, but not so swiftly that my position will change substantially in a year, likely not even in a couple years. The range in my area for rentals seems to be $1000-1200. Even if I paid down principal by $25k (assuming I pulled from 401k), my payment would still be slightly over $1000.

My wife and I can live cheaply over the next few years, and we intend to. But more and more, I'm starting to worry that trying to rent this house will create too much risk in destabilizing my situation in med school.

 

[dpmd]

Will your wife be working? If she can help cover the loss it won't be as bad, but unless she will make enough to cover the house payment in case you don't get a renter you are right that it could lead to a really bad situation. One other thought is could you get a zero percent interest rate credit card now and use that for your living expenses for a while so you can save up enough to pay closing costs, then when it comes time to pay the card off you can take out extra loans or tap your 401k if you don't have enough money to pay it off. I wouldn't advise pulling out of your 401k just to pay down the loan to try to break even with a rental.

 

[ChodeNode]

Will your wife be working? If she can help cover the loss it won't be as bad, but unless she will make enough to cover the house payment in case you don't get a renter you are right that it could lead to a really bad situation. One other thought is could you get a zero percent interest rate credit card now and use that for your living expenses for a while so you can save up enough to pay closing costs, then when it comes time to pay the card off you can take out extra loans or tap your 401k if you don't have enough money to pay it off. I wouldn't advise pulling out of your 401k just to pay down the loan to try to break even with a rental.

My wife will definitely try to find work. She's an insurance underwriter though, so depending on the town/city, the work she gets may not contribute much to our bottom line. If we go to Kirksville, MO, it's doubtful she will be able to continue that kinda work. Our thought process was we would likely pull cost of living loans in addition to her income, at least the first year, to see how things go. A buddy of mine just broke down some numbers for me and his assessment is the level of risk is too high to try to continue renting.

 

[st2205]

My wife will definitely try to find work. She's an insurance underwriter though, so depending on the town/city, the work she gets may not contribute much to our bottom line. If we go to Kirksville, MO, it's doubtful she will be able to continue that kinda work. Our thought process was we would likely pull cost of living loans in addition to her income, at least the first year, to see how things go. A buddy of mine just broke down some numbers for me and his assessment is the level of risk is too high to try to continue renting.

Cost of living, particularly housing, is very cheap in Kirksville. You also won't be using much gas, unless you're frequenting Columbia often.