When to buy a home...?

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Have any of you decided to use your student loan to pay for a mortgage instead of rent? Sometimes I feel like this would have been a good deal for me ( I don't have a loan, but I get a stipend), since I am located for 7 years in the same location. But part of me wants to be ready to move at a moments notice. I don't have a family or anything, and right now my only worries are my dog and my studies...I know nothing about home ownership...does it end up taking unnecessary time away from studying? (taxes, repairs, etc?) If it does, is it worth it? (finically or emotionally). I could not afford a SFH where I am located, but maybe a condo...I am just fishing for opinions, so please post!

 

[TooMuchResearch]

Yes. No.

 

[Kahreek]

it is a bit risky if you really want some specialty and thus you might move quite a few times for education.

 

[mvenus929]

I had an MD/PhD friend buy a house because she was going to be in the same town for 8sih years. I had a couple regular MD friends buy a condo and then move away for residency and had difficulty selling their condo. You had to think about what the market on the other side may be, and if you'd be able to afford both rents, if all else failed.

 

[TheShaker]

To the more experienced people, what makes a home more of a time commitment? I've been entertaining the idea of buying at least a condo as well, and giving it to my parents when I move away 8 years later.

 

[colbgw02]

This is a complex question with so many variables that it's really beyond the scope of a message board discussion. So, briefly...

-Owning a home can be a substantial time commitment. When the hot water heater explodes at 1 AM, it's on you. Condo ownership is different, but then there's the hassle of the association and the cost of its dues.

-If there's anything that the recent housing bubble taught us, it's that purchasing a home has to be viewed as a long-term investment. If the market takes off and you want to cash out your equity soon, then great, but you shouldn't be counting on that at the time of purchase. So, in the OP's particular situation, what will your situation be like in seven years? You don't want to put yourself in a situation where you're letting a house affect your residency choice, so are you willing to sell the house at a loss? A minimal gain? If not, are you willing and able to pay for both the mortgage and a place in your new city?

If the answers to these questions are 'no' or if you don't know the answers, then there's a decent chance you'll be better off renting.

 

[PL198]

It's also one of these things where " if you have to ask, you probably aren't ready." Don't really understand why you'd pay rent with loan money. Avg mortgage rate is like almost half what my loan rate is, so you'd just be wasting your money. If you can't get approval, then get a cosigner?

 

[colbgw02]

It's also one of these things where " if you have to ask, you probably aren't ready." Don't really understand why you'd pay rent with loan money. Avg mortgage rate is like almost half what my loan rate is, so you'd just be wasting your money. If you can't get approval, then get a cosigner?

There are a number of reasons.

For one, there is a zero percent chance that rent results in a capital loss, which isn't true of a mortgage.

Another is that, apart from a deposit, rent doesn't bring any major outlays with it. To avoid PMI, most companies will require 20% down, and how many medical students have that kind of cash on hand? And what about closing costs (for both buying and selling)? A new roof, etc.? So, even without a capital loss, it's not clear that the ROI on owning after 7 years will be sufficient to ensure you end up in the black.

Lastly, before we deem renting a waste, it's useful to remember that you're not just paying for the four walls and a roof. You're also paying for flexibility, i.e. the ability to walk away, and that can be very valuable, particularly to someone who knows that his career will require at least one relocation.

 

[PL198]

There are a number of reasons.

For one, there is a zero percent chance that rent results in a capital loss, which isn't true of a mortgage.

Another is that, apart from a deposit, rent doesn't bring any major outlays with it. To avoid PMI, most companies will require 20% down, and how many medical students have that kind of cash on hand? And what about closing costs (for both buying and selling)? A new roof, etc.? So, even without a capital loss, it's not clear that the ROI on owning after 7 years will be sufficient to ensure you end up in the black.

Lastly, before we deem renting a waste, it's useful to remember that you're not just paying for the four walls and a roof. You're also paying for flexibility, i.e. the ability to walk away, and that can be very valuable, particularly to someone who knows that his career will require at least one relocation.

Completely agree with you. I screwed up and meant to say "dont really understand why you'd pay a mortgage with loan money." Definitely agree with you that 20 % down is necessary. All these fools buying houses 0 down is what screwed the whole country over.

 

[DermViser]

There are a number of reasons.

For one, there is a zero percent chance that rent results in a capital loss, which isn't true of a mortgage.

Another is that, apart from a deposit, rent doesn't bring any major outlays with it. To avoid PMI, most companies will require 20% down, and how many medical students have that kind of cash on hand? And what about closing costs (for both buying and selling)? A new roof, etc.? So, even without a capital loss, it's not clear that the ROI on owning after 7 years will be sufficient to ensure you end up in the black.

Lastly, before we deem renting a waste, it's useful to remember that you're not just paying for the four walls and a roof. You're also paying for flexibility, i.e. the ability to walk away, and that can be very valuable, particularly to someone who knows that his career will require at least one relocation.

As someone in medicine you know too much about economics, and I command you to stop. 😛

 

[colbgw02]

Completely agree with you. I screwed up and meant to say "dont really understand why you'd pay a mortgage with loan money." Definitely agree with you that 20 % down is necessary. All these fools buying houses 0 down is what screwed the whole country over.

Ahh, I see. Agreed. That would not be wise.

 

[colbgw02]

As someone in medicine you know too much about economics, and I command you to stop. 😛

I'm a self-taught neophyte. Or, in Interwebz speak: never had one lesson.

 

[DoctwoB]

While everything that's been stated about the negatives of buying a home on this thread are true, it is still likely to be a good financial decision if you have the means for a downpayment, can get a loan at a good rate, and will be in one place for a prolonged period.

In my area you could pay the mortgage for a 3BR house for the same rental rate as a 1BR apartment. You could easily make money if you rent out rooms or have a better lifestyle for a similar price if you don't. Then there is the potential for significant capital gains when you sell. The trade offs have already been described, namely that you lose flexibility, increased time commitment, and increased financial risk . It's a very personal decision. This NYT guide is helpful to see your breakeven point and lets you play with the basic parameters (interest rates, etc.)

http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0

 

[PL198]

While everything that's been stated about the negatives of buying a home on this thread are true, it is still likely to be a good financial decision if you have the means for a downpayment, can get a loan at a good rate, and will be in one place for a prolonged period.

In my area you could pay the mortgage for a 3BR house for the same rental rate as a 1BR apartment. You could easily make money if you rent out rooms or have a better lifestyle for a similar price if you don't. Then there is the potential for significant capital gains when you sell. The trade offs have already been described, namely that you lose flexibility, increased time commitment, and increased financial risk . It's a very personal decision. This NYT guide is helpful to see your breakeven point and lets you play with the basic parameters (interest rates, etc.)

http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0

well you're kinda double dipping from separate sectors to support your point there. Most markets that are more volatile(and thus more potential for capital gains) also are the more in desire ones, which of course cost more and it's less likely someone would be able to produce the 20 % down. I agree it's a good deal if you're in for the long term, but I think most medical professionals who purchase a home using possible capital gains as a major factor will end up hurting themselves more than they help themselves. Definitely sure there are a decent amount of people that could be realistic and make it be in their benefit, but I don't think this is the avg physician. Also those homes in a "less desirable" area like say Ohio are going to be way cheaper and thus affordable, but then like I said you lose a lot of the potential for capital gains. I feel like a situation like you said where the mortgage on a 3BR house is the same as rent on a 1br apartment is probably one of those less volatile markets.

 

[colbgw02]

Yeah, the point is not to poo-poo home ownership. It remains a pillar of long-term economic security for many people in this country. This whole discussion is taking place within the context of medical school, which - in general - carries with it:

1. Little-to-no cash on hand.
2. Little-to-no income, with up to 10 years before this improves to the point of accumulating assets.
3. Substantial student loan debt burden, which - in light of current interest rates - should be prioritized over many other types of debt.
4. Significant time constraints.
5. A career that, in all likelihood, will involve at least one move in the next 5 years, and as many as 3 in the coming decade.

When these circumstances change, so does the calculus. I've posted that NYT link before and it is fantastic. It's by far the most comprehensive and useful that I've every been able to find vis-a-vis rent vs. own. My only criticism is that it tends to place too much focus on inflation for renting in the short-term, which is of course the time period over which most renters are considering.

 

[BestDoctorEver]

When the housing market was really bad, that might have been a good idea. I know a pharmacy student in South FL who bought a condo (2BR, 2BA) for mid 20k in 2011 and paid cash for it. Now the same place is selling in the 80k+... He has had a roommate and basically making $200/month after paying the HOA... If one is gonna do that now, you have to make sure you can easily rent or sell it if you have to relocate...

 

[PL198]

Yeah, the point is not to poo-poo home ownership. It remains a pillar of long-term economic security for many people in this country. This whole discussion is taking place within the context of medical school, which - in general - carries with it:

1. Little-to-no cash on hand.
2. Little-to-no income, with up to 10 years before this improves to the point of accumulating assets.
3. Substantial student loan debt burden, which - in light of current interest rates - should be prioritized over many other types of debt.
4. Significant time constraints.
5. A career that, in all likelihood, will involve at least one move in the next 5 years, and as many as 3 in the coming decade.

When these circumstances change, so does the calculus. I've posted that NYT link before and it is fantastic. It's by far the most comprehensive and useful that I've every been able to find vis-a-vis rent vs. own. My only criticism is that it tends to place too much focus on inflation for renting in the short-term, which is of course the time period over which most renters are considering.

Dude/dudette you speak the truth and are in rads, be my mentor? Also another thing people need to factor in is the whole convenience factor of renting, which obviously is intangible.

When the housing market was really bad, that might have been a good idea. I know a pharmacy student in South FL who bought a condo (2BR, 2BA) for mid 20k in 2011 and paid cash for it. Now the same place is selling in the 80k+... He has had a roommate and basically making $200/month after paying the HOA... If one is gonna do that now, you have to make sure you can easily rent or sell it if you have to relocate...

Yeah that's pretty sweet.I'd point out that easily sell or rent is still pretty difficult for any house relative to other assets, even for the most in desired locations. Houses aren't liquid at all.