Taking Out a Mortgage vs Renting During School

[BC_89]

After discussion with my spouse, we have came across some forms of financial blessings and would love to hear some input. As a small background, I'm a disabled veteran that was recently granted a 100% disability rating that is considered tax exempt compensation along with health insurance with no monthly premiums (but co-pays-&-deductible based on appointments with specialty care providers). I'd like to give a small background of my steady stream of income while in an expedited 3-year Pharmacy Program starting this August: (If it matters I'm 30 and wife is 33).

Monthly Stream of Income (tax exempt):

1) VA compensation: $3,437.10 (adjusted for inflation every year)
2) GI Bill Housing Allowance (tax exempt): $2,262
3) Annual Book Stipend (2 lump sum deposits tax exempt - divided over 12 months): $83.33

Potential Monthly Income based on scheduling and availability:

1) Plasma Service Center in the zip code region: $400 - $800

Taking into account my steady stream of income as a student, we will not have to take out student loans thanks to the GI Bill Entitlement coupled with the tax exemptions. With that, the average 3 bed + 2 bath apartment (Spouse along with a 5 and 3 year old) is anywhere from $1650 - $2200 a month (basically our Housing Allowance). I've budgeted to contribute $400 monthly into our Ally Savings Account as an emergency fund as well as $50 - $100 to our Roth Mutual Fund in a Vanguard S&P 500. Due to past emergencies, we went from $35k of our emergency savings to about $6k by the time we leave for schooling (used for travel expenses and first month rent + deposit) so roughly only $3k in the fund when school starts (but no need to pull out any loans mind you). We have budgeted an extra $400 a month for miscellaneous / emergencies.

Any debt or bills will be taken care of during school, leaving us with excellent credit (myself 760, wife 800) with an auto loan and personal loan from spouse that will be paid off by graduation. With that, I've considered getting a mortgage that would easily put us at $450 to $1000 a month based on price of house and what yearly fix we want (15 vs 30 years). With this, I would like to pocket the monthly cost difference of a potential mortgage that would have gone to our rent (we have budgeted our excel to be able to rent at $2100 per month comfortably in the Northwest Region) and store it as an emergency fund by graduation which could easily put us around $30k - $40k on the low end of things (taking into account life emergencies).

Is the risk of a mortgage worth the potential reward? That is, rent to students or simply sell with what was put in the emergency fund to make payments until a potential home sale is complete? Our VA home loan (if needed) allows us to put no down payment (and waives the PMI cost altogether). Am I making this too complicated or could this be a potential plan? Any other pros and cons others may have? I have never utilized a mortgage before always have rented. Thanks in advance for any help.

TLDR; Have spouse and two kids. Have steady stream of tax exempt income of $5782.43 during pharmacy school with potential plasma money of $500 - $800 monthly. No student loans to take out and rent average in the Northwest is $1650 - $2200 per month. With roughly $3k in emergency funds by the start of school and possibly using a VA loan for no down payment and no PMI costs, is it worth taking out a mortgage at a rate of $450 - $1000 month and pocket the difference in a savings account or stick with renting 'til the end of school? What would you do?

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[TMP-SMX]

Thank you for your sacrifice. The usual advice for someone going to med school is you should rent as you never know where you are going to end up. I'd still agree probably for pharmacy school as you don't want to have to do all the upkeep especially with a disability. Is there a way you could rent a house or townhome so you get to feel like you have more privacy than an apartment? I've lived in an apartment, condo, and home rental for the first 5 years of my marriage with 2/3 of my kids at those times.

 

[BC_89]

Is there a way you could rent a house or townhome so you get to feel like you have more privacy than an apartment?

This is definitely a possibility. Condos seemed to be a luxury in the northwest since they actually cost a bit more than most apartments and townhomes! Truth be told, the closer to the program I get with some of my service-connected appointments at the VA, I should probably give myself a "chill-pill" and keep it simple with 12 month leases. In the meantime, wifey and myself have a list of townhomes along with a list of apartments should I choose not to take on the risk factor of a mortgage while being a fulltime student (especially as a nontraditional student at that). Although, with a steady stream of income during school, it still intrigues me if I could find a means to pocket that extra difference with a bit more cushion near the end of school (alas... this risk vs reward).

 

[dpmd]

This is definitely a possibility. Condos seemed to be a luxury in the northwest since they actually cost a bit more than most apartments and townhomes! Truth be told, the closer to the program I get with some of my service-connected appointments at the VA, I should probably give myself a "chill-pill" and keep it simple with 12 month leases. In the meantime, wifey and myself have a list of townhomes along with a list of apartments should I choose not to take on the risk factor of a mortgage while being a fulltime student (especially as a nontraditional student at that). Although, with a steady stream of income during school, it still intrigues me if I could find a means to pocket that extra difference with a bit more cushion near the end of school (alas... this risk vs reward).

But you don't necessarily pocket the difference as there are other costs that come with buying (even with va loans eliminating pmi because there is still the funding fee, not to mention the fact the interest rate is likely higher than it would be otherwise) that you have to take into account. Even if you finance the closing costs they still exist and should be factored in (as should selling costs or if you plan to keep and rent then the possibility of unwanted months). I suggest you use a rent versus buy calculator to assess things (though I haven't come across one that is specific to using va loans, maybe one exists).

 

[rxkrafted]

If I were in your position, I would rent while in school and save up as much as possible. Look for the most affordable renting on the lower scale of your budget. My recommendation is based on the likelihood of where you may find a job after you graduate. I would think of the scenario where you end up getting a job far away from school, maybe even another state, and saving up a good amount of money for a down payment to avoid PMI. Its just more cushion for you rather than you invest your time in buying a home and dumping money into it and finding out that you may not live there in the next 5-10 years.

 

[908377]

Renting is always the answer. It's annoying, obviously, because you would rather feel like you have ownership over something that's yours, but the truth is that there are an array of hidden expenses in owning and it will suffocate you with more loans that you need to pay off. Renting is the way to go until you have a job that you plan to stay with out of school