Buying a house during medical school

[suomi24]

My wife and I are thinking about purchasing a house during medical school rather than renting. We are having our first child soon and looking into multiple bedroom rental options in the area, but things are pretty pricey. Our reasoning is that ideally we would like to stay in the area long term (residency and beyond) if possible and this allows us to not dump a huge amount of money into rent (~60k over 4 years). If we are able to stay here for residency, we could continue to live in the same place and build equity (there are two residency programs in the area for the specialty I am interested in).

Here are my current considerations:

Pros:
- monthly mortgage payments would be less expensive for more space than an apartment
- build 30k in equity instead of paying 60k in rent
- bigger more comfortable living space that would be ours
- wife can pay mortgage with her salary

Cons:
- responsible for any repairs/unexpected damage
- closing costs
- have to sell or rent if we need to move for residency
- will have mortgage payment in addition to medical school debt


At this point we’re not sure if the extra costs and hassle associated with home ownership will be worth it during medical school.

I’m interested to know, have any of you bought a house during medical school and been happy about the decision? Any advice for this situation?

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[Rachapkis]

Some things to think about on the "con" side of owning a home. The transaction costs of selling a home can be substantial (approx. 6% of home's value), especially if you only intend to stay in the home for a few years. Moreover, interest plus, taxes and insurance can add up. Make sure that you are including all expenses associated with owning to make sure that you are truly better off. In my experience, people generally underestimate the maintenance and other costs of home ownership. Also, if you finance using a mortgage with a teaser rate or variable rate mortgage, make you can cover your nut if rates go up. Finally, owning an asset that is highly leveraged can be wonderful if prices rise, but can be devastating if prices decline (e.g., put down $60,000 on a $300,000 home that declines in value by 10% in the first year of ownership). Of course, owning a home can be satisfying and an economically sound move, but you should go in with your eyes wide open.

 

[KnightDoc]

My wife and I are thinking about purchasing a house during medical school rather than renting. We are having our first child soon and looking into multiple bedroom rental options in the area, but things are pretty pricey. Our reasoning is that ideally we would like to stay in the area long term (residency and beyond) if possible and this allows us to not dump a huge amount of money into rent (~60k over 4 years). If we are able to stay here for residency, we could continue to live in the same place and build equity (there are two residency programs in the area for the specialty I am interested in).

Here are my current considerations:

Pros:
- monthly mortgage payments would be less expensive for more space than an apartment
- build 30k in equity instead of paying 60k in rent
- bigger more comfortable living space that would be ours
- wife can pay mortgage with her salary

Cons:
- responsible for any repairs/unexpected damage
- closing costs
- have to sell or rent if we need to move for residency
- will have mortgage payment in addition to medical school debt


At this point we’re not sure if the extra costs and hassle associated with home ownership will be worth it during medical school.

I’m interested to know, have any of you bought a house during medical school and been happy about the decision? Any advice for this situation?

My advice would be not to do it. Paying rent sucks, but it gives you flexibility you need at this stage of life, because, unlike the rest of your life, where you have significant control over where to plant roots, you just don't have the same amount of control over where you are going to match.

If you have to move, it will be way more expensive and way more hassle to have to sell a house versus leaving at the end of a lease, or even breaking a lease. Also, building equity is great, unless house prices fall, in which case you will lose money on top of everything else. Also, I'm not sure how you are doing your calculations, but, assuming housing prices remain stable, I don't see how you'd build equity that quickly, since pretty much all of your payments in the early years of a mortgage go to interest (which is like rent!). Just consider rent the price of having flexibility when you really do need it.

 

[suomi24]

My advice would be not to do it. Paying rent sucks, but it gives you flexibility you need at this stage of life, because, unlike the rest of your life, where you have significant control over where to plant roots, you just don't have the same amount of control over where you are going to match.

If you have to move, it will be way more expensive and way more hassle to have to sell a house versus leaving at the end of a lease, or even breaking a lease. Also, building equity is great, unless house prices fall, in which case you will lose money on top of everything else. Also, I'm not sure how you are doing your calculations, but, assuming housing prices remain stable, I don't see how you'd build equity that quickly, since pretty much all of your payments in the early years of a mortgage go to interest (which is like rent!). Just consider rent the price of having flexibility when you really do need it.

This is the feeling I get the more I look into this. It seems like there are going to be costs I am not anticipating, even though I’ve tried to research the topic thoroughly.

I used an online equity calculator based on interest rates I’ve been quoted by certain lenders. Probably not the most accurate measure.

 

[Angus Avagadro]

The rule of thumb is that you need 5 years of homeownership with an average of 2% home price appreciation to recover all of your costs when selling . Bottom line, you need to be in the house for 5 years with average home appreciation to break even when you sell.
Consider a rent/option to buy. Most sellers wont agree unless it's a buyers market. It's a seller's market right now. Good luck and best wishes!

 

[TSHJB302]

I am looking into purchasing a multi-unit place. For under 350k, you can get a three flat in my city. If you live in one of the units, you can get an FHA and pay as little as 3% of a down payment and you can claim the rental income from the other two units as additional income for approval purposes. Rent in neighboring comparable units is enough for me to not only live mortgage free, but make a profit. If I leave for residency, I can just rent out the unit that I'm living in and keep it as an asset. To me, that is the only way that purchasing a home makes sense while you're in medical school.

 

[LizzyM]

Do keep in mind that you'll absolutely have to have insurance on your home in the event that someone is injured on the property and you'll owe property taxes both of which in a rental are incorporated into the rent.
Figure at least 2% of the purchase price for annual maintenance: repairs to plumbing/electric/etc, paint, appliance repair or replacement, landscape. If you are in a condo rather than a traditional ownership, there is a monthly condo fee. You can also be hit with assessments for extraordinary repairs if there is an insufficient reserve fund for something like a new roof.

 

[KnightDoc]

I am looking into purchasing a multi-unit place. For under 350k, you can get a three flat in my city. If you live in one of the units, you can get an FHA and pay as little as 3% of a down payment and you can claim the rental income from the other two units as additional income for approval purposes. Rent in neighboring comparable units is enough for me to not only live mortgage free, but make a profit. If I leave for residency, I can just rent out the unit that I'm living in and keep it as an asset. To me, that is the only way that purchasing a home makes sense while you're in medical school.

Even then, would it really make sense to have all the responsibilities of being a landlord while you are off being a resident in another state?

 

[TSHJB302]

Even then, would it really make sense to have all the responsibilities of being a landlord while you are off being a resident in another state?

I think this is where I need to acknowledge my privilege in that my fiancee does real estate as his career and is more than willing to handle all the property manager responsibilities. But if you didn't have that, getting a property manager can be done for I think 10% of the annual income of the property, which should be covered by the rental income. I would also put the entirety of extra rental income into a savings account until there is at least 5% of the total property value saved and use that for any repairs necessary.