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I have bought two homes, one as a medical student and one as a brand new attending. I rented in residency. I considered but didn't get a physician loan on either one of them.
I know many, many docs who have used physician loans. I think for the most part it is a bad idea. Here is why:
Physician loans are mostly marketed to graduating medical students and graduating residents. Most graduating medical students shouldn't be buying a house. There are some exceptions, and generally they involve a working spouse, but for the most part, new interns shouldn't own for several reasons:
A) They are too busy to keep up with home maintenance
B) They are not very financially sophisticated (sorry, it's true)
C) They assume that most financial professionals have similar ethics to physicians
D) They will only be in residency for 3-5 years (break-even time period averages 4-5 years, meaning half the time you'll lose money owning for 4 years)
E) They have no down payment
F) They have no additional money to furnish and repair a home
G) They don't buy a home for someone on a resident salary because "hey, I'll be an attending in just 3 years", but when they become an attending they say "I don't want to live in that piece of trash now that I'm making the big bucks." It is rare for an attending to stay in the same home he owned as a resident, but it is common for a resident to be house-poor.
H) They don't realize that interest paid to the bank is exactly the same as rent paid to the landlord
I) They don't realize that unless you have a huge mortgage or A LOT of charitable contributions, that they don't really get a tax break for owning a home.
J) They don't realize that you hardly build any equity in the first 5 years on a 30 year mortgage.
K) They don't realize home prices go down as well as up.
L) They don't realize they would be just as happy renting as buying. From someone who has done both, most landlords don't mind if you want some different paint in your rental or want to fix it up a bit. They'll often pay for materials if you'll do the labor. They are also on the hook when the HVAC or appliances die.
M) They don't realize they can often rent a much bigger place than they can afford to buy (market specific).
N) They don't realize just how much real estate transaction costs are: Realtor fees of 6%, taxes, fees, commissions, marketing costs, loan fees, cost of having the place sit empty for a few months while you try to sell it etc. This can easily be above 10%, especially if you have to lower your price for a quick sale to get to your job in another state.
O) They don't realize that loan interest rates are MUCH higher when you don't put 20% down. You will pay this as PMI, a higher rate on a second mortgage, a higher rate on a single mortgage, or higher fees, but be assured, you WILL PAY IT. No one is going to do you any kind of a favor because "you're a doctor and we know you'll pay us back."
New attendings are usually a bit more financially sophisticated, but much of the above still applies. In addition, you often still don't have a significant down payment saved up, you don't know exactly how much you'll be bringing home each month, and you don't know whether or not you'll really want this job long term. Many docs leave their first job within 5 years. In addition, many docs are moving to a new town and don't know the neighborhoods very well. If they rent for 6-12 months before buying, they'll get to know exactly where they want to live, don't feel pressure to buy right away (and so get a better deal on the mortgage and the home), and can save up a real downpayment. In short, by deferring gratification a bit more, you end up with a nicer place for less money than you would have otherwise.
Buying as a medical student worked out poorly for me. Although we sold the house for more than we bought it for, we paid more each month than we could have rented a similar place for, and the transaction costs were way more than the place appreciated in 4 years.
Buying as a new attending has worked out very well for me because I had learned a few things. I bought an undervalued property in an undervalued area, put 20% down, bought a place that was MUCH less expensive than I could afford, and donate enough to charity that ALL of the interest is tax deductible. Despite the housing downturn it is working out well for me. But MOST of my colleagues are in a different boat. They bought nicer places that have depreciated significantly and they cannot sell them for anywhere near what they paid for them. Most of them put little to nothing down and some even took equity out in the last year or two of the bubble.
Use caution when deciding to buy a house. For most new interns and new attendings rental should be the default option unless there is a very compelling reason to buy.
I know many, many docs who have used physician loans. I think for the most part it is a bad idea. Here is why:
Physician loans are mostly marketed to graduating medical students and graduating residents. Most graduating medical students shouldn't be buying a house. There are some exceptions, and generally they involve a working spouse, but for the most part, new interns shouldn't own for several reasons:
A) They are too busy to keep up with home maintenance
B) They are not very financially sophisticated (sorry, it's true)
C) They assume that most financial professionals have similar ethics to physicians
D) They will only be in residency for 3-5 years (break-even time period averages 4-5 years, meaning half the time you'll lose money owning for 4 years)
E) They have no down payment
F) They have no additional money to furnish and repair a home
G) They don't buy a home for someone on a resident salary because "hey, I'll be an attending in just 3 years", but when they become an attending they say "I don't want to live in that piece of trash now that I'm making the big bucks." It is rare for an attending to stay in the same home he owned as a resident, but it is common for a resident to be house-poor.
H) They don't realize that interest paid to the bank is exactly the same as rent paid to the landlord
I) They don't realize that unless you have a huge mortgage or A LOT of charitable contributions, that they don't really get a tax break for owning a home.
J) They don't realize that you hardly build any equity in the first 5 years on a 30 year mortgage.
K) They don't realize home prices go down as well as up.
L) They don't realize they would be just as happy renting as buying. From someone who has done both, most landlords don't mind if you want some different paint in your rental or want to fix it up a bit. They'll often pay for materials if you'll do the labor. They are also on the hook when the HVAC or appliances die.
M) They don't realize they can often rent a much bigger place than they can afford to buy (market specific).
N) They don't realize just how much real estate transaction costs are: Realtor fees of 6%, taxes, fees, commissions, marketing costs, loan fees, cost of having the place sit empty for a few months while you try to sell it etc. This can easily be above 10%, especially if you have to lower your price for a quick sale to get to your job in another state.
O) They don't realize that loan interest rates are MUCH higher when you don't put 20% down. You will pay this as PMI, a higher rate on a second mortgage, a higher rate on a single mortgage, or higher fees, but be assured, you WILL PAY IT. No one is going to do you any kind of a favor because "you're a doctor and we know you'll pay us back."
New attendings are usually a bit more financially sophisticated, but much of the above still applies. In addition, you often still don't have a significant down payment saved up, you don't know exactly how much you'll be bringing home each month, and you don't know whether or not you'll really want this job long term. Many docs leave their first job within 5 years. In addition, many docs are moving to a new town and don't know the neighborhoods very well. If they rent for 6-12 months before buying, they'll get to know exactly where they want to live, don't feel pressure to buy right away (and so get a better deal on the mortgage and the home), and can save up a real downpayment. In short, by deferring gratification a bit more, you end up with a nicer place for less money than you would have otherwise.
Buying as a medical student worked out poorly for me. Although we sold the house for more than we bought it for, we paid more each month than we could have rented a similar place for, and the transaction costs were way more than the place appreciated in 4 years.
Buying as a new attending has worked out very well for me because I had learned a few things. I bought an undervalued property in an undervalued area, put 20% down, bought a place that was MUCH less expensive than I could afford, and donate enough to charity that ALL of the interest is tax deductible. Despite the housing downturn it is working out well for me. But MOST of my colleagues are in a different boat. They bought nicer places that have depreciated significantly and they cannot sell them for anywhere near what they paid for them. Most of them put little to nothing down and some even took equity out in the last year or two of the bubble.
Use caution when deciding to buy a house. For most new interns and new attendings rental should be the default option unless there is a very compelling reason to buy.
