How do lenders factor in student loan when I put 20% down?

[nyknicks8]

I'm thinking about buying a house - I'm tired of renting all my life.

Single - salary about $260K
Cash - $110K, and about $30K in nonliquid accounts

Fed student loan balance $450K on PAYE will pay around $2K/month once the payment plan catches up to my salary.
No other debt. Credit score 780+
Since I'm single without kids, my average expenditures per month is about $3-4K/month excluding rent (includes student loan payment)

So a decent house is around $500-600K in my area. I will be able to put 20% down. Would I even be approved for a conventional loan? If not, if I put 20% down on a physician loan, would my interest rate be higher?

[Zaphod]

This is a condo or real house? Whats the drive to have a house being single and such? I can see a condo or something less maintenance required than a house.

Trying to build an asset base or have something when status changes?

I think someone would give you a loan, it should be easy really since your DTI ratio is fine.

[DMFA]

You should be fine as far as your intended question, but since you're posting...based on the info you've provided, though I assume much, I think there are more important things for you to do with your money - and for your money to do for you - at this point in time.

[DMFA]

1. Refinance your federal loans. If you're actually on the hook for paying them (I.e. not PSLF), allowing that absurd interest rate to accrue is allowing yourself to be robbed. SoFi has 5-year variable at 2.11% with auto-pay at the moment - less than a third of what your federal rate probably is.

2. Maximize your retirement. On an income of 260k, you should be putting $54-65k per year into 401(k)/403(b), IRA, HSA, and the rest in taxable.

3. How do you know you won't "get tired of" being a homeowner? Don't drink HGTV's kool-aid. Especially if you don't have anything pinning you down - a spouse, kids, the best job you'll ever get - you should give second (third?) thought to committing to buying a home.

4. Except for an emergency fund of 3-6 months' expenses, money shouldn't be sitting still. Another exception is if you will need it in < 5 years and absolutely can't risk any of it (which, granted, might apply to you).

 

I know this is unsolicited advice from a financial amateur, but I think it's a reasonable assumption that any fiduciary professional would at least advise you to consider the above concepts before pulling any triggers. We're friends here.

[nyknicks8]

Zaphod wrote:

This is a condo or real house? Whats the drive to have a house being single and such? I can see a condo or something less maintenance required than a house.

Trying to build an asset base or have something when status changes?

I think someone would give you a loan, it should be easy really since your DTI ratio is fine.

Click to expand...

It's a house. Being single my overall marginal bracket is 43% (including state tax). With mortgage deduction, having a mortgage is a few hundred dollars more than renting (obviously I have to put a big down payment). I'm not committed yet just weighing options. It's more of contributing to an asset rather than throwing away money at rent.

Comdos here are relatively expensive $200-300K and IMO won't go any higher.

[nyknicks8]

DMFA wrote:

You should be fine as far as your intended question, but since you’re posting…based on the info you’ve provided, though I assume much, I think there are more important things for you to do with your money – and for your money to do for you – at this point in time.

Click to expand...

I understand about saving for retirement and other investments, but the group I work for has a good retirement package where I wouldn't have to save much and still have a very comfortable retired quality of life.

Also I've done the math on the loans and 20 yr forgiveness is the best plan even with the tax bomb.

 

I do plan on staying with this group as I'm very satisfied with the workload and people even though I have been working for only a year. So I don't mind the commitment. Cost of living in the area is relatively better than other parts of the state.

 

[Zaphod]

nyknicks8 wrote:

DMFA wrote:

You should be fine as far as your intended question, but since you’re posting…based on the info you’ve provided, though I assume much, I think there are more important things for you to do with your money – and for your money to do for you – at this point in time.

Click to expand…

I understand about saving for retirement and other investments, but the group I work for has a good retirement package where I wouldn’t have to save much and still have a very comfortable retired quality of life.

Also I’ve done the math on the loans and 20 yr forgiveness is the best plan even with the tax bomb.

 

I do plan on staying with this group as I’m very satisfied with the workload and people even though I have been working for only a year. So I don’t mind the commitment. Cost of living in the area is relatively better than other parts of the state.

 

Click to expand...

All that assumes your group doesnt go bankrupt or blow up or some other such unforeseen factor. Thats great that its a good program but I'd at least put away a little just in case. May be a low probability event but the effect on your life would be outsized.

[nyknicks8]

Zaphod wrote:

nyknicks8 wrote:

DMFA wrote:

You should be fine as far as your intended question, but since you’re posting…based on the info you’ve provided, though I assume much, I think there are more important things for you to do with your money – and for your money to do for you – at this point in time.

Click to expand…

I understand about saving for retirement and other investments, but the group I work for has a good retirement package where I wouldn’t have to save much and still have a very comfortable retired quality of life.

Also I’ve done the math on the loans and 20 yr forgiveness is the best plan even with the tax bomb.

 

I do plan on staying with this group as I’m very satisfied with the workload and people even though I have been working for only a year. So I don’t mind the commitment. Cost of living in the area is relatively better than other parts of the state.

 

Click to expand…

All that assumes your group doesnt go bankrupt or blow up or some other such unforeseen factor. Thats great that its a good program but I’d at least put away a little just in case. May be a low probability event but the effect on your life would be outsized.

Click to expand...

Oh yeah, I am keeping that in mind, and will save some. Though the likelihood of the group going bankrupt happening is very low. If it did, it would have a significant impact in the healthcare of the western US in general.

[Zaphod]

nyknicks8 wrote:

Zaphod wrote:

nyknicks8 wrote:

DMFA wrote:

You should be fine as far as your intended question, but since you’re posting…based on the info you’ve provided, though I assume much, I think there are more important things for you to do with your money – and for your money to do for you – at this point in time.

Click to expand…

I understand about saving for retirement and other investments, but the group I work for has a good retirement package where I wouldn’t have to save much and still have a very comfortable retired quality of life.

Also I’ve done the math on the loans and 20 yr forgiveness is the best plan even with the tax bomb.

 

I do plan on staying with this group as I’m very satisfied with the workload and people even though I have been working for only a year. So I don’t mind the commitment. Cost of living in the area is relatively better than other parts of the state.

 

Click to expand…

All that assumes your group doesnt go bankrupt or blow up or some other such unforeseen factor. Thats great that its a good program but I’d at least put away a little just in case. May be a low probability event but the effect on your life would be outsized.

Click to expand…

Oh yeah, I am keeping that in mind, and will save some. Though the likelihood of the group going bankrupt happening is very low. If it did, it would have a significant impact in the healthcare of the western US in general.

Click to expand...

Sounds like your "group" is kinda big, lol.

[adventure]

To answer the question in the thread title, many lenders factor in your actualy monthly loan payments into your DTI ratio. To avoid a bunch of hassle and math if you have varying payments, etc etc, lenders will often simply take 1% of your student loan debt, and consider that as the "payment" for the DTI each month.

Loan payments are factored in, unless you pay 100% for the house. I'd advise you shop around and determine what makes the most sense for a mortgage. Some (non conforming "doctor" loans) will actually give you a fantastic rate, with less than 20% down. Either way, shop around, call folks and find out what rate they can give you - they should be able to tell you this before you have your credit pulled.

[adventure]

nyknicks8 wrote:

Also I’ve done the math on the loans and 20 yr forgiveness is the best plan even with the tax bomb

Click to expand...

Also consider what the math doesn't factor in... Mental energy to have such debt, energy to pay/maintain/monitor loan payments, etc. And... having that debt can limit future opportunities. For example, debt can limit your ability to invest in other opportunities... Perhaps a second house, or company, or working significantly less (or for less income). As noted throughout this site, there is great freedom to eliminate debt, even if the "math" doesn't count those things.

 

I like having a house, but it isn't for everyone. You can likely afford to try it and if it doesn't work it won't break your financial wellbeing. But to DFMA's point, make sure it's what you want. Also, I have a physician buddy who bought a house, and happily has roommates who pay his mortgage for him. Think creatively too. Also, maybe you can have the roommate mow the lawn.

[nyknicks8]

adventure wrote:

nyknicks8 wrote:

Also I’ve done the math on the loans and 20 yr forgiveness is the best plan even with the tax bomb 

Click to expand…

Also consider what the math doesn’t factor in… Mental energy to have such debt, energy to pay/maintain/monitor loan payments, etc. And… having that debt can limit future opportunities. For example, debt can limit your ability to invest in other opportunities… Perhaps a second house, or company, or working significantly less (or for less income). As noted throughout this site, there is great freedom to eliminate debt, even if the “math” doesn’t count those things.

 

I like having a house, but it isn’t for everyone. You can likely afford to try it and if it doesn’t work it won’t break your financial wellbeing. But to DFMA’s point, make sure it’s what you want. Also, I have a physician buddy who bought a house, and happily has roommates who pay his mortgage for him. Think creatively too. Also, maybe you can have the roommate mow the lawn.

Click to expand...

I do agree that having a house can be a burden in terms of maintenance, additional debt, etc. So far I don't stress out too much about my debt (even though I have $400K in student loans) - probably because under PAYE the monthly payment is limited by my income. Given as of now, I dont have any other financial obligations such as family or kids, having an additional mortgage debt shouldn't impact me mentally. Even so, with a $500K mortgage, my monthly payment compared to renting (with the interest deduction) is only $750 more. Obviously I lose $100K in cash reserve for the down payment.

 

I still have not made up my mind and probably will take the next few months to think about it. I have 6 months remaining on my rental lease anyway. Thanks everyone for the well thought out responses.