Max out retirement benefits vs. saving money to purchase a house

[Splenda88]

I am in a little bit of a dilemma.

I just got out of residency and moved to a new town. I signed a 1-yr lease and would not want to renew it and want to purchase a small house (1700-1900 sqft). Willing to spend ~250k. I can get a relatively new home (<5 yrs old) where I am for that price. I also want to put 20% down and do a 15-yr mortgage. However, if I max out retirement benefits (19.5k 401k, 19.5k post tax roth 401k and 7.2k HSA), I dont think I will be able to save 50k by April. Salary is 330k/yr.

Not sure what to prioritize.

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[Chemist0157]

I am in a little bit of a dilemma.

I just got out of residency and moved to a new town. I signed a 1-yr lease and would not want to renew it and want to purchase a small house (1700-1900 sqft). Willing to spend ~250k. I can get a relatively new home (<5 yrs old) where I am for that price. I also want to put 20% down and do a 15-yr mortgage. However, if I max out retirement benefits (19.5k 401k, 19.5k post tax roth 401k and 7.2k HSA), I dont think I will be able to save 50k by April. Salary is 330k/yr.

Not sure what to prioritize.

The alternative would be renting when you don’t want to? Just get the house if that’s what you want. Even better if you will be in that house for a long time. Even better if the stock market crashes in next few years, lol.

 

[abolt18]

I am in a little bit of a dilemma.

I just got out of residency and moved to a new town. I signed a 1-yr lease and would not want to renew it and want to purchase a small house (1700-1900 sqft). Willing to spend ~250k. I can get a relatively new home (yr.

Not sure what to prioritize.

Skip the 20% down and just get a physician loan. All other things will work out fine.

Also, how are you doing 19.5K in a 401k AND 19.5K into a Roth401k? The maximum EMPLOYEE contributions to all 401ks in a year is $19.5K currently. Meaning, if you max out the employee contribution of your employer's 401k, you cannot do any further employee contributions in any other 401k.

If you have a bunch of 1099 income, you could contribute up to 20% of that income as the employer contribution to a solo 401k.

 

[FutureInternist]

Agree with 5% down Doc’s loan cos otherwise you’re just spending $ waiting to get to 20%.

Also agree with the poster regarding 401K and Roth 401k… I don’t think its possible to put max in each since the total of both combined cannot be more than 19.5K.

Did you mean 403b, or NQDC? Cos if not, then fix that ASAP or IRS will come a knockin’

 

[Splenda88]

Agree with 5% down Doc’s loan cos otherwise you’re just spending $ waiting to get to 20%.

Also agree with the poster regarding 401K and Roth 401k… I don’t think its possible to put max in each since the total of both combined cannot be more than 19.5K.

Did you mean 403b, or NQDC? Cos if not, then fix that ASAP or IRS will come a knockin’

It might not be roth 401k. It might be 403b. But I know my job offers another retirement benefit that is post tax contribution. It does not amount to anything TBH since it's post tax. However, I want to do it since it will be taken out directly from my paycheck because you dont spend money you dont get.

I guess if by March/April I dont have that 50k, I might decide to go ahead and do 5-10%. I just did not want to have a 15 yr mortgage with a payment (mortgage + tax + insurance + HOA) more than $1600/month.

 

[abolt18]

It might not be roth 401k. It might be 403b. But I know my job offers another retirement benefit that is post tax contribution. It does not amount to anything TBH since it's post tax. However, I want to do it since it will be taken out directly from my paycheck because you dont spend money you dont get.

I guess if by March/April I dont have that 50k, I might decide to go ahead and do 5-10%. I just did not want to have a 15 yr mortgage with a payment (mortgage + tax + insurance + HOA) more than $1600/month.

If it is a nonprofit or government institution, you likely have a 403b and a 457b available.

Probably should figure these things out. I'd rank them as being highly important.

 

[FutureInternist]

It might not be roth 401k. It might be 403b. But I know my job offers another retirement benefit that is post tax contribution. It does not amount to anything TBH since it's post tax. However, I want to do it since it will be taken out directly from my paycheck because you dont spend money you dont get.

I guess if by March/April I dont have that 50k, I might decide to go ahead and do 5-10%. I just did not want to have a 15 yr mortgage with a payment (mortgage + tax + insurance + HOA) more than $1600/month.

Both 403b and NQDC are pre-tax (specially since you mentioned the $ is coming out of your paycheck).

I got the 5% loan with a 30 year mortgage but pay it as a 15 year.
It gives you some wiggle room since you never know how things pan out.

 

[Splenda88]

If it is a nonprofit or government institution, you likely have a 403b and a 457b available.

Probably should figure these things out. I'd rank them as being highly important.

It's a for profit institution (a hospitalist group). I will definitely figure it out ASAP.

 

[Dusn]

I would rent until you reach partnership or are otherwise sure that you won’t plan to move over the next 5 years.

 

[Splenda88]

Both 403b and NQDC are pre-tax (specially since you mentioned the $ is coming out of your paycheck).

I got the 5% loan with a 30 year mortgage but pay it as a 15 year.
It gives you some wiggle room since you never know how things pan out.

I do get what you are saying. But my gut feeling is very few people pay a 30 -yr mortgage in 15 even if the intention was to pay it in 15.

You are right. If I can't put the 20% dow, I will go ahead and do a 30-yr term.

 

[Splenda88]

I would rent until you reach partnership or are otherwise sure that you won’t plan to move over the next 5 years.

No partnership in the group. It's a medium sized corporation. I plan to move in 4-5 yrs. I plan to pay it off in 5 yrs anyway. That's why I am buying something for <250k.

 

[abolt18]

I do get what are you saying. But my gut feeling is very few people pay a 30 -yr mortgage in 15 even if the intention was to pay it in 15.

You are right. If I can't put the 20% dow, I will go ahead and do a 30-yr term.

You can always start with the 30 and refinance a little while later to the 15 year.

 

[Neopolymath]

Both 403b and NQDC are pre-tax (specially since you mentioned the $ is coming out of your paycheck).

I got the 5% loan with a 30 year mortgage but pay it as a 15 year.
It gives you some wiggle room since you never know how things pan out.

403b can be offered as Roth at many institutions.

Otherwise, I think OP got good advice. Pay yourself first but don't get caught up in the FIRE race. To succeed at FIRE is a personal race and it's not about delaying everything else for no reason or even worse, because someone else on the internet is saving more than you and sacrificing more than you. If you are saving well (and your previous posts here show you are conscientious about finance) but you want to buy a house then buy the house. You made it to attendinghood. Use the physician loan because the rates are great right now and move on. Enjoy your life. There's a fine line between being an informed and financially conscious physician and just pinching pennies for little extra utility. The internet can really exacerbate the second one because the fire fanatics just go so over the top.

 

[TraderDoc]

I am in a little bit of a dilemma.

I just got out of residency and moved to a new town. I signed a 1-yr lease and would not want to renew it and want to purchase a small house (1700-1900 sqft). Willing to spend ~250k. I can get a relatively new home (<5 yrs old) where I am for that price. I also want to put 20% down and do a 15-yr mortgage. However, if I max out retirement benefits (19.5k 401k, 19.5k post tax roth 401k and 7.2k HSA), I dont think I will be able to save 50k by April. Salary is 330k/yr.

Not sure what to prioritize.

Most important aspect to owning a home is timeframe... how long are you planning to live in said property? if this job is a temporary one and you see yourself possibly moving in 3-5 years, then owning doesn't make too much sense here -> RENT.

If you see yourself living in town indefinitely (5-10 years and longer) and want to put down roots, then it makes sense to own property. Home prices are at historical highs and even in a low interest environment, one should buy a home after careful consideration of many factors.

My 2 cents, I would rent right out of residency. Build healthy cash position / investments / pay off high interest student loans for a couple years then re-assess how you current situation is (job satisfaction / do you love the city or town you're living in etc.), macro-environment post pandemic. This will give you better idea of whether being a home owner is right decision or not.

And why not do a 30 year mortgage ... we're likely heading into a likely inflationary period, I don't see much benefit of a 15 yr mortage here. The US dollar today (as devalued as it already has been) is still worth more than the dollar in 5-10 years. Would rather deploy that cash into paying off high interest student loans / maxing out ROTH IRA etc.

FYI: you should always max out ROTH IRA (backdoor for docs) / 401K vs 403B and 457 / HSA etc. if possible.

 

[Monocles]

And why not do a 30 year mortgage ... we're likely heading into a likely inflationary period, I don't see much benefit of a 15 yr mortage here. The US dollar today (as devalued as it already has been) is still worth more than the dollar in 5-10 years. Would rather deploy that cash into paying off high interest student loans / maxing out ROTH IRA etc.

I agree with this! If I understand this correctly, as of now you are likely to get loans of 2.x interest and 3.x APR overall... against an annual inflation of 5% you are literally paying less money on the house with each passing year.

 

[pbuttah]

I am in a little bit of a dilemma.

I just got out of residency and moved to a new town. I signed a 1-yr lease and would not want to renew it and want to purchase a small house (1700-1900 sqft). Willing to spend ~250k. I can get a relatively new home (<5 yrs old) where I am for that price. I also want to put 20% down and do a 15-yr mortgage. However, if I max out retirement benefits (19.5k 401k, 19.5k post tax roth 401k and 7.2k HSA), I dont think I will be able to save 50k by April. Salary is 330k/yr.

Not sure what to prioritize.

If you're planning to move in 4-5 years, renting probably makes more sense than buying. I don't know your specific location but in general real estate is currently a seller's market. You're not going to get a deal and may overpay if you aren't really careful.

If you were thinking that you would be in this place for 5-10 years (preferably even longer), purchasing would look more attractive. I'm assuming your stated income is pre-tax, so your take home is probably somewhere around 180k or so after the investing that you listed. Paying off the house is certainly within reach at that income assuming you don't have any other debt, but if you have student and other loans that you're servicing or if you're not wanting to live like a resident anymore it may be a lot harder than it sounds. You may also not actually be saving a lot of money by paying the thing off.

By way of explanation, if you finance $200k at 2.65% on a 15 year fixed rate loan (certainly within reach in today's rate environment with decent credit), you'd be scheduled to pay a total of $23115 in interest over the first five years on a monthly payment of $1345.75 (excluding taxes and insurance). If you instead pay off the house in that five years you will have paid $13826 in interest. In other words, you will have tied up $2200 per month in extra mortgage payments, decreasing your available cashflow by $26k per year, in order to save two grand a year in interest.

Honestly if you're only planning to be there 4-5 years, I would rent a place that meets your needs as inexpensively as possible and focus on paying down any existing debt while piling up cash for a large downpayment on a house you really like when you finally move to the area you want long-term. If you decide you really love your current area and want to stay, you can buy anytime you're ready. Just don't get house fever. It's really easy to make really bad decisions when you're in a hurry.