down payment or loans

[RadsMD]

My husband and I are both in practice, not our first jobs, and we're looking to buy our first home. We're looking at homes around 1.3-1.5x our gross income. We've been saving for a down payment for awhile, and we have more than enough to put down 20% for a jumbo loan. But I also realized that we have more than enough to pay off a good chunk of our loans (we have about 230k left at an average of 3.8%). I'm starting to think we'd be better off putting that money towards the loans and only putting down 5-10% on the house and getting a physicians mortgage. Does that seem like a reasonable idea? Whatever we don't pay of the loans now would be paid off within the next 5 years (probably about 40k, which I refinanced through SoFi last year at 3.5%).

[abds]

It depends on your lender; let the interest rate decide for you. If you can get the same rate for a 15 or 30 year mortgage with a 5-10% down physician loan as you would with a typical 20% down, then sure, pay off some student loans and go the physician mortgage loan. If you can get a better rate with a typical 20% down loan, then do that and pay off your loans as you can.

Just how I would approach it.

[DMFA]

You're trading debt for debt either way.  Remember that your mortgage debt has deductions your student debt doesn't.

If by "good chunk" you mean half, then assuming you've got $115,000 sitting around, you're looking at a $575,000 house (makes sense since jumbos start at $417,000), then your income is about $380,000, putting you in the 33% bracket?  Meaning if you're getting (for the sake of example) a 3.6% rate, then your "real" rate is 2.4%, since mortgage interest is tax-deductible.

So you'd basically be trading 3.8% short-term debt for 2.4% long-term debt if you decided to use some of what was slated to be a down payment for your loans instead.

You're maxing your tax-advantaged retirement accounts, right?  Just making sure there aren't better uses for the lump sums.

[Zaphod]

Agree with DMFA. Its a better debt to have, but make sure its the optimal choice.

[SwanSong]

Also check out the rates for physician loans.  I have found a few companies where the interest rate on a 10% doctor loan is lower than the rates for conventional loans, and the rates for a jumbo doctor loan are lower, still.

[Craigy]

We used student loans as a down payment, so there's that.   

[txdoc]

Personally I would pay off the student loans first and see if you can get 100% financing through a physician loan program.  Student loans are inherently more risky (not to say that you aren't a good investment), but there are more protections with mortgage debt that you don't get with student loans.  Certainly part of that depends on making a good decision on home purchase and not overpaying in your market.  Beyond that, it's just a math question with the rates.

[Dicast]

We were in the almost exact position about a year ago.  We chose to spend the money on a down payment of 20%.  We flirted with the idea of a 0% or 5% doctor's loan but decided we didn't want to be underwater in the house at any point.  Now we have a 15 year mortgage of $370k remaining at 2.875% and just under 200k of student loans with 60k at 3.5% (3 years left) and 135K at 2.4% variable (4.5 years left).  While I'd like to sit here and say that the loan payoff would have been wiser, I have to admit that driving 15-20 minutes to work instead of 45 minutes has made a huge difference in my life.  When I get out from this night shift I won't be nearly as worried about crashing on the way home...

We didn't use all of our house downpayment fund either, but unfortunately a few life things happened and the remainder was not funneled to loan payoff.  We're still on track to pay off early and I don't lose any sleep over the decision we made.  If you don't mind where you are living and your landlord isn't jacking up your rent like ours was, then I could see paying off the student loans before buying the house as a solid option.

[Zaphod]

txdoc wrote:

Personally I would pay off the student loans first and see if you can get 100% financing through a physician loan program.  Student loans are inherently more risky (not to say that you aren’t a good investment), but there are more protections with mortgage debt that you don’t get with student loans.  Certainly part of that depends on making a good decision on home purchase and not overpaying in your market.  Beyond that, it’s just a math question with the rates.

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I like the idea, but I wouldnt pay anything off before securing the mortgage, it never hurts to have a nice cushion in your savings account and makes the bank feel secure. Even if you dont plant to use it for a down payment. After things have closed then do what seems best, it will make everyone less twitchy.

[justinroth1]

We offer an amazing Doctor Loan Program. We can do 100% up to $750,000 with no PMI and the rates are very competitive. We also offer higher debt ratios due to student loan debt.

Justin Roth

Synovus Mortgage / Synovus Bank