To buy or rent a home AFTER dental school??

[TMilner]

For the recent dental school graduates or anyone who has bought a house immediately after graduating from dental school, I would like some opinions on whether or not it would be a good idea to buy a house immediately after graduating. I am currently in my 4th year and will be graduating next summer, I hope.

How much house could I afford given my first year salary is around 125k (optimistic estimate)?

Would you suggest renting for a year or so?

I am open to all suggestions, thanks!

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[spearmint]

Would you have enough cash in your bank for a 20% down payment by the time you graduate? My brother bought a house recently and it takes a lot of initial capital on your end to secure a loan. Banks are being more tight with lending policies now, as you may have heard.

If I had that much cash, I would find a cheap place to rent and just pay down my student loans first (unless you found an unbelievable deal on a house).

 

[yappy]

IMHO it's not wise to be so financially commited that early in your career. Even without a student loan it would be wise to see where you enjoy practicing, where the best opportunity is, raise enough money for safety net type of thing.

GL - enjoy graduation.

 

[youknowthedrill]

I sold real estate for 10+ years before deciding to pursue dentistry. Unless you are moving to a town/city where you currently live or have lived before, don't buy a house yet. You should rent for about a year and get to know the area. Also, the first job may not work out and you may decide to relocate. If you own a house, you'll feel tied down and may feel financial pressure to stay in a not so desirable job (I truly wish you the best with your new job).

How much house can you afford? It completely depends on the debt load that you are carrying. You can call a mortgage broker or ask the mortgage department of your bank to run the numbers and pre-qualify you for a mortgage.

 

[TMilner]

Thank you all for your replies. I guess I should have given a little more background about myself. I will be moving back to the city where I grew up and working as an associate at my fathers practice in the city. I am fortunate to be able to walk into this right away. I will be getting married next July and we know we want to stay in the area for a long long while. As far as student loans go, I am only in debt to my father which is nice. And lastly, I will have enough for around 10-15% down payment on a home.

 

[pawkinlot]

Thank you all for your replies. I guess I should have given a little more background about myself. I will be moving back to the city where I grew up and working as an associate at my fathers practice in the city. I am fortunate to be able to walk into this right away. I will be getting married next July and we know we want to stay in the area for a long long while. As far as student loans go, I am only in debt to my father which is nice. And lastly, I will have enough for around 10-15% down payment on a home.

Not a bad position to be in!

 

[KittySquared]

Thank you all for your replies. I guess I should have given a little more background about myself. I will be moving back to the city where I grew up and working as an associate at my fathers practice in the city. I am fortunate to be able to walk into this right away. I will be getting married next July and we know we want to stay in the area for a long long while. As far as student loans go, I am only in debt to my father which is nice. And lastly, I will have enough for around 10-15% down payment on a home.

That's nice. Yeah buying a small house wouldn't be a bad idea. You can always resell if you need to move. I have no choice but to

 

[youknowthedrill]

Since you know the area and your new boss so well, you're safe to go ahead and buy a house. Just don't get Doctoritis and go crazy! You and your fiance need to start having some financial discussions. Just because a bank says you qualify for a $500,000 mortgage doesn't mean you should buy that much house. If you two are willing to live a reasonable lifestyle now, you'll be set in the future. Congrats, you're on the home stretch.

 

[yappy]

This might sounds nuts - and feel free to blow me off - but I say live cheap with your wife for a few years and bank money like crazy. Wait till you own a practice in 3-5 yrs; get that up and running then buy. That is what I would do if I were you; but you're not me. So do what ever you would like. Just make sure to calculate the real cost of borring money on a 30 year loan.

 

[NAVY DDS 2010]

My suggestion - interview a few financial advisors and hire one of them. At that time, you will disclose all finacial information - assests and debts - with the financial advisor. He/she can then give you suggestions on what you can afford based on what your financial goals are at that time. Now, be advised, his recommendations are just that - recommendations. You can always alter plans. But, at least it is an educated recommendation based on all the facts unlike you will get from people here on SDN.

One big factor of how much of a house you can afford depends on location. 1. Some places have property taxes and insurance rates that are much higher than each other. If I lived in my hometown, because of the differences in property taxes and insurance rates, I could get a house mortage nearly 50% more than I have because I pay high property taxes and insurance rates. 2. Some places have home owners association and possibly other community charges like inside gated commmunities. I pay about $600 in HOA fees yearly and $1200 per year in community fees since I live in a gated community off a golf course. These costs are on top of your mortgage which need to be considered. 3. Also, size of the house and type of heating/cooling needs to be considered. The larger a house is and the more empty space you have, the more it costs to heat and cool. Plus, the type of energy source can play a huge factor as well.

@ Yappy, right now, mortgage interest rates are extremely low. It would be almost silly for the OP not to buy a house if he can afford it. With the lower interest rate, more money per month is placed toward the principal. If you wait until later, interest rates will most likely go up which is paid to the principal. Plus, just because you take out a 30yr loan doesn't mean you actually have to pay it off in 30 yrs. My wife and I paid off a house (not the one we live in) a little over two years ago. It obviously didn't take 30 yrs. By taking out a 30 yr loan, you do pay for interest you can only partially get back (you get some on income taxes). But, one thing it allows you to do is to have a set amount you have to pay and it allows you the option to place more down when you can. Realistically, you could pay the loan off in 5 years if you can financially afford to do it. Having the 30 yr loans just allows you to get the house earlier and pay off as you can. Plus, renting, that is just wasted money placed into another person's pocket. At least when you own a house, even if it is a little more than you would rent a place for, you are applying some of your mortgage toward actually owning your own house not someone elses.

 

[yappy]

I appriciate that you spoke directly to what I said. I think you have some good points/wisdom about buying a home. I'm always trying to learn more so thanks.

I guess my feeling is to play it conservitive and NEVER EVER let the market dictate if you should buy a home or not. Because of that I think the OP should look past the low interest rates and home values and evaluate the whole situation.

@ Yappy, right now, mortgage interest rates are extremely low. It would be almost silly for the OP not to buy a house if he can afford it. With the lower interest rate, more money per month is placed toward the principal. If you wait until later, interest rates will most likely go up which is paid to the principal. Plus, just because you take out a 30yr loan doesn't mean you actually have to pay it off in 30 yrs. My wife and I paid off a house (not the one we live in) a little over two years ago. It obviously didn't take 30 yrs. By taking out a 30 yr loan, you do pay for interest you can only partially get back (you get some on income taxes). But, one thing it allows you to do is to have a set amount you have to pay and it allows you the option to place more down when you can. Realistically, you could pay the loan off in 5 years if you can financially afford to do it. Having the 30 yr loans just allows you to get the house earlier and pay off as you can. Plus, renting, that is just wasted money placed into another person's pocket. At least when you own a house, even if it is a little more than you would rent a place for, you are applying some of your mortgage toward actually owning your own house not someone elses.

 

[slm266]

I guess my feeling is to play it conservitive and NEVER EVER let the market dictate if you should buy a home or not. Because of that I think the OP should look past the low interest rates and home values and evaluate the whole situation.

This seems to go against any financial advice I've ever received. Sure, the purchase should be modest, but how can one wisely "ignore the market"?


I do think it'd be wise to rent short term, but 4 yrs @ $1200/mo = $56k in rent down the drain.

 

[HupHolland]

RENT!

For most people, buying is not the financially wise decision. Those that believe renting is the same as "throwing money down the drain" obviously don't understand all the costs / opportunity costs associated with purchasing a home.

Watch this for a better idea.

Hup

 

[NAVY DDS 2010]

I appriciate that you spoke directly to what I said. I think you have some good points/wisdom about buying a home. I'm always trying to learn more so thanks.

I guess my feeling is to play it conservitive and NEVER EVER let the market dictate if you should buy a home or not. Because of that I think the OP should look past the low interest rates and home values and evaluate the whole situation.

In no way am I suggesting the OP jump into this without evaluating the whole situation. If you look at it, I am the only person to recommmend meeting with a financial advisor to go over his entire finances to evaluate what he can afford.
Yes, I did state the rates are extremely low right now and later will most likely go up. So, I can see how you can see how I placed an emphasis on that, but that is not the only factor in this. The OP wants to purchase a home. The OP will have a job where he will be able to afford a house (how big should depend on what he and his financial advisor determine is an affordable amount to cover cost of mortgage, insurance, etc.). Now, If the OP finds out that he cannot afford at this point the type/size/location of a house that he wants, then at this time I feel renting would be in his best interest until his skills increase to a point where he is able to bring in a larger salary. But, if he can find a house that fits into his budget where he is very satisfied and meets his long term needs, then there is no reason to wait and no better time to buy - low interest rates and it is a buyers market.

By curiosity Yappy, have you ever owned a home? Are you married? Have you ever been in the situation where you could afford to rent or own? I am married. I own one house outright and have one other that I live in now. I've also rented. I know what it is like to give your money away to another home owner. It is satisfying knowing that even though you have this leash called a mortgage, in the end every check you give to the bank benefits you in the end.

If the OP can afford it now and this is his desire, then there is no reason why he should wait for a few years. If ytou read his posts, he will be in a stable position working for his father. He will have a steady income. He won't have to worry about running the business. His biggest worries regarding his career will most likely be getting his dental skills up to speed for a seasoned general dentist. I don't see any risks he would be taking by purchasing a house now. If you want to bring conservative into this, I think that buying now would be more conservative than waiting until later. Now, you know the prices are lower than they have been in recent years. The mortgage rates are at very low levels. For someone with a dependable income who is purchansing a home within their means, then now is the best time to buy because you know this is probably as good as it is going to get. If you wait, you run the risk interest rates will skyrocket and housing prices will go up again. Waiting leaves a lot of uncertainty in the market.

Overall, everyone now knows how I feel. I am basing my opinions on my personal experience of being a homeowner. I have not regretted it one bit, but then again I have always purchased my homes wihtin a budget I knew my wife and I could afford.

 

[mr24]

👍👍👍👍

In no way am I suggesting the OP jump into this without evaluating the whole situation. If you look at it, I am the only person to recommmend meeting with a financial advisor to go over his entire finances to evaluate what he can afford.
Yes, I did state the rates are extremely low right now and later will most likely go up. So, I can see how you can see how I placed an emphasis on that, but that is not the only factor in this. The OP wants to purchase a home. The OP will have a job where he will be able to afford a house (how big should depend on what he and his financial advisor determine is an affordable amount to cover cost of mortgage, insurance, etc.). Now, If the OP finds out that he cannot afford at this point the type/size/location of a house that he wants, then at this time I feel renting would be in his best interest until his skills increase to a point where he is able to bring in a larger salary. But, if he can find a house that fits into his budget where he is very satisfied and meets his long term needs, then there is no reason to wait and no better time to buy - low interest rates and it is a buyers market.

By curiosity Yappy, have you ever owned a home? Are you married? Have you ever been in the situation where you could afford to rent or own? I am married. I own one house outright and have one other that I live in now. I've also rented. I know what it is like to give your money away to another home owner. It is satisfying knowing that even though you have this leash called a mortgage, in the end every check you give to the bank benefits you in the end.

If the OP can afford it now and this is his desire, then there is no reason why he should wait for a few years. If ytou read his posts, he will be in a stable position working for his father. He will have a steady income. He won't have to worry about running the business. His biggest worries regarding his career will most likely be getting his dental skills up to speed for a seasoned general dentist. I don't see any risks he would be taking by purchasing a house now. If you want to bring conservative into this, I think that buying now would be more conservative than waiting until later. Now, you know the prices are lower than they have been in recent years. The mortgage rates are at very low levels. For someone with a dependable income who is purchansing a home within their means, then now is the best time to buy because you know this is probably as good as it is going to get. If you wait, you run the risk interest rates will skyrocket and housing prices will go up again. Waiting leaves a lot of uncertainty in the market.

Overall, everyone now knows how I feel. I am basing my opinions on my personal experience of being a homeowner. I have not regretted it one bit, but then again I have always purchased my homes wihtin a budget I knew my wife and I could afford.

 

[yappy]

Touché - let me be clear: Letting the market be the primary factor if you're to buy or not seems foolish. For example - I imagine that there will be a lot defaulting on homes due to the first time home buyer tax credit (8k I think) and low home prices.

Yes, people got a great deal on their home due to the market. However, I imagine there were a lot of people lured into the market that didn't have their personal finances in order or lost a job due to the down economy. I just think the OP should hold off on buying a home at least untill he sees this job pan out with his father. Maybe he wont get enough patients there? Maybe he will have a better opportunity somewhere else? Those were some of the things I was suggesting looking at. BTW: the fed said they would keep loans cheap for two more years.


EDIT: To Navy DDS: I am married. Shortly after getting out of the USAF I almost bought a home right before the housing crash. My wife and I decided instead to save the 20% and for me to cash in my educational opportunities. Best decision we ever made!

This seems to go against any financial advice I've ever received. Sure, the purchase should be modest, but how can one wisely "ignore the market"?


I do think it'd be wise to rent short term, but 4 yrs @ $1200/mo = $56k in rent down the drain.

 

[slm266]

Touché - let me be clear: Letting the market be the primary factor if you're to buy or not seems foolish. For example - I imagine that there will be a lot of defaulting on homes due to the first time home buyer tax credit (8k I think) and low home prices.

Yes, people got a great deal on their home due to the market. However, I imagine there were a lot of people lured into the market that didn't have their personal finances in order or lost a job due to the down economy.

A tax break does not lead to someone defaulting on a loan. It came from irresponsible lending practices, telling borrowers they can afford a 200k house when they can barely afford a 120k house. Borrowing the max amount that you are approved for seems silly to me.

Sure buying a house soley because of low rates DESPITE an unstable job, bad credit, no emergency fund, credit card debt,... would be irresponsible. I don't think anybody was suggesting this.

But for those with a fairly secure future, minimal debt, etc...the market (low interest rates, buyers credit, market saturated with foreclosures that drives down prices,...) can dictate if buying a modest home is the right decision.

 

[NoPresident]

RENT!

For most people, buying is not the financially wise decision. Those that believe renting is the same as "throwing money down the drain" obviously don't understand all the costs / opportunity costs associated with purchasing a home.

Watch this for a better idea.

Hup

👍 This!

Also read this recent paper which states that over the last 30 years (at staggered eight year intervals) renters came out ahead by over 2% compared with buyers. Here is a another summary of their findings.

That said their are certain intangibles to owning your own home: better self-esteem and pride, lower crime, good environment for kids, better educational opportunities and more. But it does seem that for most people buying a home as an investment will likely not turn out to be as lucrative compared with a renting/investing strategy. Two things that might tip the balance in favor of buying that come to mind are:

1.) A (much) greater than expected rise in home prices during the next 5+ years;

2.) Scooping a property for dirt cheap from a foreclosure or in an area that was hit really hard during the real estate collapse.

Certainly this is a risk/reward situation but the smart money seems to point toward renting. Here's another good in-depth summary of renting vs buying.

My $0.02

 

[Daurang]

:

1.) A (much) greater than expected rise in home prices during the next 5+ years;

2.) Scooping a property for dirt cheap from a foreclosure or in an area that was hit really hard during the real estate collapse.

My $0.02

1) There will be no rise in home prices for the next five years because there are still 10 million homes in 'shadow inventory' that the big banks do not account for in their fraudulent mark-to-market scheme. Prices are still falling because real unemployment is really at 16%, the percentage of people in the workforce is the lowest since 1929, the number of people on foodstamp is the highest ever.

2) YES there are GREAT deal out there if you just patiently wait but quickly jump as the banks to release them from the 'shadow inventory.' Last month I bought two newly built foreclosed 4BR/2BATH homes near Atlanta for $30K each. At that price I'm not sure it has much to fall.

 

[gryffindor]

RENT!

For most people, buying is not the financially wise decision. Those that believe renting is the same as "throwing money down the drain" obviously don't understand all the costs / opportunity costs associated with purchasing a home.

Watch this for a better idea.

Hup

It's all about perspective when it comes to renting. I paid $1000/month for my apartment when I was a resident. I probably slightly overpaid given the area I lived in but the complex was great and took care of every complaint in an instant. At the end of 3 years, I handed my keys back to the rental office and drove my car straight out of state with not a single thing to worry about. Never once did I feel like I had "thrown away" $36K for the time I lived there. Several others in my residency owned homes and had to hang on to them for longer than anticipated or even sold at a loss after residency.

Now I pay $3500/month in rent. However, this time around, I do feel like I'm throwing my money away. Buying is definitely on the table after this lease ends.

OP, if you are committed to the area and can afford it, I don't see why you wouldn't consider buying as an option. Renting short term might be a good idea as well, but it's a great feeling to not have to worry about where you will go next when your lease expires.

 

[yappy]

1) There will be no rise in home prices for the next five years because there are still 10 million homes in 'shadow inventory'

+1. The idea of homes appriciating in value much in the recent future is almost laughable. I would not be suprized if they continue to drop in value. Lets hope it continues to till I'm ~5 yrs out of DS 😉

But really - it got so crazy around 2005. I remember new subs being built and people had to do a lotto to get a lot in the new sub. One coworker of mine got really cocky with me once and said "boy, if you dont buy now you will never be able to. I feel really bad for you young guys trying to break into the market."

Man I wish I could see his face now lol.

I bet he had some huge home equity lines of credit against his over valued home

 

[slm266]

+1. The idea of homes appriciating in value much in the recent future is almost laughable. I would not be suprized if they continue to drop in value. Lets hope it continues to till I'm ~5 yrs out of DS 😉

But really - it got so crazy around 2005. I remember new subs being built and people had to do a lotto to get a lot in the new sub. One coworker of mine got really cocky with me once and said "boy, if you dont buy now you will never be able to. I feel really bad for you young guys trying to break into the market."

Man I wish I could see his face now lol.

I bet he had some huge home equity lines of credit against his over valued home

True, but I don't see my $140k ($190 4 yrs ago) house depreciating another $56k (what I'd pay in rent) over 4 yrs (hopefully!!!). We plan to stay in the home until our family outgrows it and to possibly hold on to it as a rental, but even if we sell it in 4 yrs the interest we have paid will be less than the rent my classmates have paid.

 

[yappy]

Neither do I. Sounds like you've thought it all out well. Nothing wrong with a rental.

True, but I don't see my $140k ($190 4 yrs ago) house depreciating another $56k (what I'd pay in rent) over 4 yrs (hopefully!!!). We plan to stay in the home until our family outgrows it and to possibly hold on to it as a rental, but even if we sell it in 4 yrs the interest we have paid will be less than the rent my classmates have paid.

 

[Daurang]

True, but I don't see my $140k ($190 4 yrs ago) house depreciating another $56k (what I'd pay in rent) over 4 yrs (hopefully!!!). We plan to stay in the home until our family outgrows it and to possibly hold on to it as a rental, but even if we sell it in 4 yrs the interest we have paid will be less than the rent my classmates have paid.

The two homes I just bought for $30K was sold for $150K only two years ago, so 'yes' it does and can happen. Go ahead and buy it cause a monthly mortgage of $700 at today's low interest rate is not gonna be a problem for you. Chances are you'll pay it off in a few years anyway.

 

[DrJeff]

It's all about the time frame you're looking at. Realistically right now, it is and has been a buyers market with some phenomenal deals (both the price of the house and mortgage rates right now), and more than likely it's going to be a buyers market for years to come until some financial stability and job growth occurs, the mortgage crisis reaches a real end point, and then the subsequent glut of houses on the market gets bought up and finds a true market value.

Personally right now, I wouldn't really think of buying a property if I had any reali idea of having to/wanting to sell in the next 5 years(and one could likely make a decent arguement that 10 years might be a better timeframe) This housing problem now and all the factors that contributed to it are more than likely going to take that long to work themselves out, and the prospects of having to resell (let alone resell at a profit) over the next 5 years are challenging in most areas.

If you're pretty confident that you'll be in that area and that a property in question will be sufficient enough for your current and probable needs over the next 5 years, then buying could very well be a good option for you.

One other thing to consider from a tax perspective. For the vast majority of d-school grads, before you know it you'll be making too much $$ to be able to claim a deduction on the interest from your school loans, so until the government decides that mortgage interest deductions aren't going to be allowed anymore(and that idea is being floated around), that mortgage interest deduction on your income taxes could very well make a decent change to your taxes.

If you have the cash, and have a longterm holding outlook on that property, this is a really good time to buy a property. If you have a short term holding idea for that property, things have a bit more of a cloudy outlook now

 

[HupHolland]

True, but I don't see my $140k ($190 4 yrs ago) house depreciating another $56k (what I'd pay in rent) over 4 yrs (hopefully!!!). We plan to stay in the home until our family outgrows it and to possibly hold on to it as a rental, but even if we sell it in 4 yrs the interest we have paid will be less than the rent my classmates have paid.

You're missing the point. You also need to factor in property taxes, closing costs, maintenance and the opportunity cost of the down payment (vs. investing).

I'm not saying home ownership doesn't make sense for anyone (I hope to be a homeowner one day), but for most people it does not make sense financially.

Hup

 

[Daurang]

Good article in the WSJ today...

http://online.wsj.com/article/SB100...12532609819142.html?mod=WSJ_hp_LEFTTopStories

 

[slm266]

You're missing the point. You also need to factor in property taxes, closing costs, maintenance and the opportunity cost of the down payment (vs. investing).

I'm not saying home ownership doesn't make sense for anyone (I hope to be a homeowner one day), but for most people it does not make sense financially.

Hup

I'm a D1 and bought a house in Dallas where I'm from and where we plan to stay. We only put 5% down and are paying 4.75% interest on a 30 yr loan. We have about 25k in a 4% annual deposit fund and havent done any investing. Once we get out of school we will pay off the home more aggressively. My mortgage (including taxes, insur, etc...) is 1150 which is what my classmates pay in rent downtown next to the school. My wife works and my loans supplement a little bit.