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Wrong to put 40%+ down on home?

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  • Wrong to put 40%+ down on home?

    We're looking to purchase a home while I just started fellowship in a fairly-ish HCOL area. Yes, I know what some folks will say about buying a house during training, but we would be losing a ton on money on renting in our area - we have done the math. We have a good amount of savings from a previous sale of a home and thus have the ability to put down more downpayment. Since I am still in training, our combined income is around ~140k in the time being so we are concerned about taking out a larger mortgage and our monthly payments are higher because we have HOA fees. Our income will increase greatly after 3 years after completion of fellowship and could also increase if my wife decides to transition back to full-time work (currently she is part-time because of obligations with children). Cost of home is ~$700k so we were considering putting 40-50% down, which still leaves us with a pretty healthy emergency fund. Given how low interest rates are now, would anyone entertain putting down less? If so, where would you advise investing the remainder of the cash if it may need to be used less than 5 years from now to achieve better return than mortgage rates?

  • #2
    Might want to keep enough set aside to fund Roths for each of you pre-attending hood and to be able to fill out 401k/b’s if they are offered. Also, cost of upkeep, prop taxes, ins w/b more costly with a house in that price range, but you say you’ve done the math and I am taking you at your word that you have included these costs.

    Honestly, in your situation and with your projected future, the amount you put down on a home during fellowship is extremely inconsequential over the long term. Since you can afford to do so and that is what you’d like to do, I give you my blessing (with the above thoughts in mind), which is worth less than the cost of a cup of coffee.

    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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    • #3
      Originally posted by jfoxcpacfp View Post
      Might want to keep enough set aside to fund Roths for each of you pre-attending hood and to be able to fill out 401k/b’s if they are offered. Also, cost of upkeep, prop taxes, ins w/b more costly with a house in that price range, but you say you’ve done the math and I am taking you at your word that you have included these costs.

      Honestly, in your situation and with your projected future, the amount you put down on a home during fellowship is extremely inconsequential over the long term. Since you can afford to do so and that is what you’d like to do, I give you my blessing (with the above thoughts in mind), which is worth less than the cost of a cup of coffee.
      Thanks for the thoughts! We have factored in the costs of upkeep and some projects that will be needed to have it move-in ready and have also budgeted yearly Roth contributions as well as education costs for our children on top of property taxes. We should be able to achieve this with a 40-50% downpayment but were just curious if one would try to set aside more cash at cost of a larger downpayment and if so, where would that cash go.

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      • #4
        “, but we would be losing a ton on money on renting in our area - we have done the math.”

        How did you do the math on the sales price and costs when you complete residency?
        How did you do the math on unexpected major repairs?
        As long as to have those unknowns figured out and under contract then the math works.
        Three years is short term for owning a house during fellowship.
        Invest in the house, invest HYSA, invest in the market. They all have risk, you can win or lose in any one. The house has the largest friction costs for entry and exit. Good luck on the job, the location of your job has risks too.

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        • #5
          There is no one right answer, only suggestions from a group of forum participants. Given what you’ve already been able to achieve, I have no problem recommending your own judgment. I doubt you’re going to learn about anything you aren’t already aware of.
          Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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          • #6
            Originally posted by sesamebean123 View Post
            We're looking to purchase a home while I just started fellowship in a fairly-ish HCOL area. Yes, I know what some folks will say about buying a house during training, but we would be losing a ton on money on renting in our area - we have done the math. We have a good amount of savings from a previous sale of a home and thus have the ability to put down more downpayment. Since I am still in training, our combined income is around ~140k in the time being so we are concerned about taking out a larger mortgage and our monthly payments are higher because we have HOA fees. Our income will increase greatly after 3 years after completion of fellowship and could also increase if my wife decides to transition back to full-time work (currently she is part-time because of obligations with children). Cost of home is ~$700k so we were considering putting 40-50% down, which still leaves us with a pretty healthy emergency fund. Given how low interest rates are now, would anyone entertain putting down less? If so, where would you advise investing the remainder of the cash if it may need to be used less than 5 years from now to achieve better return than mortgage rates?
            - for context OP has 400K cash, 600K other assets, 100K efund, and 140K income.
            ---for the record, all of this is a bad plan but this is what i would do---
            - in a perfect world you would put down <10%. i dont think youll qualify otherwise so lets call it a std 20% 30yr mortgage. but who knows.
            - so 700K house, 140K down = 560K mortgage. assume 3% thats 2400/mo not including taxes, insurance, HOA (barf).
            - this leaves you still >250K of your excess cash. plenty to survive on for 3 years on top of salary yes?
            - take home is what, 10K/mo? maybe 9K? so you still have a buffer it seems.
            - and by not burning through your entire cash reserve, if months come up short, issues occur, or you change your mind, then you can deploy the excess cash.


            ----so yes. your plan is wrong---

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            • #7
              Originally posted by Peds View Post

              - for context OP has 400K cash, 600K other assets, 100K efund, and 140K income.
              ---for the record, all of this is a bad plan but this is what i would do---
              - in a perfect world you would put down <10%. i dont think youll qualify otherwise so lets call it a std 20% 30yr mortgage. but who knows.
              - so 700K house, 140K down = 560K mortgage. assume 3% thats 2400/mo not including taxes, insurance, HOA (barf).
              - this leaves you still >250K of your excess cash. plenty to survive on for 3 years on top of salary yes?
              - take home is what, 10K/mo? maybe 9K? so you still have a buffer it seems.
              - and by not burning through your entire cash reserve, if months come up short, issues occur, or you change your mind, then you can deploy the excess cash.


              ----so yes. your plan is wrong---
              Can you elaborate on how my original proposal was a bad plan?

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              • #8
                ...............

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                • #9
                  The biggest problem with the plan assuming in 3 years or so when you finish your training that you will want or will be able to stay in the same location, and that the price of the house wont be less than you paid for it. Yes, sometimes real estate markets go down. All it takes is an economic downturn on the wrong side of Covid.

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                  • #10
                    Originally posted by Tim View Post
                    “, but we would be losing a ton on money on renting in our area - we have done the math.”

                    How did you do the math on the sales price and costs when you complete residency?
                    How did you do the math on unexpected major repairs?
                    As long as to have those unknowns figured out and under contract then the math works.
                    Three years is short term for owning a house during fellowship.
                    Invest in the house, invest HYSA, invest in the market. They all have risk, you can win or lose in any one. The house has the largest friction costs for entry and exit. Good luck on the job, the location of your job has risks too.
                    Rent.

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                    • #11
                      How are you losing money by renting? You get shelter and a fixed monthly housing cost (basically guaranteed shelter insurance). Don't go down the 'renting is throwing money away' mindset. Will you possibly pay a small premium for that in the end? Maybe. This is just another 'my situation is different' post.

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                      • #12
                        I'm not sure if Peds figured this, but 560 would be in jumbo range for some areas (maybe not yours). You might have to put down more, which you are willing to do.

                        I think renting is always the best option until you definitely stay in an area for >5 years. But, as long as you understand the risks (read- potential for loss), then do as you wish.

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                        • #13
                          OP - while doing the math is one thing, reality of house ownership <5 years is just plain hard - even in setting of known land appreciation. closing costs really eat into it and transition costs on carrying when the least wanted in transition to attending career.

                          Also money in the house vs money in the market of similar (REIT) vs index broad market can be argued better short term spent in the same equation.

                          If you were mid-career, 50% down on mortgage would carry a different conversation.

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                          • #14
                            also, HOA fees can and will go up. I think that makes it even worse as opposed to just buying your own house (which I also disagree with during training). Just to play devil's advocate, what are rents going for in the area for a similar sized/location/etc dwelling?

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                            • #15
                              OP update. "We put in an offer. Thanks everyone."

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