Physician mortgage question

[chopchop]

I'm a graduating resident and developing my financial strategy both long and short term. I have a stupid (480k) amount of student debt. I have currently budgeted out projections for next year and will be able to afford to pay off 85-90k of loans yearly. No cc debt. Rent in the area my wife and I are moving to is looking like 2-2.5k monthly in a tight market.

My question is: If I do a physician mortgage in year 2 with a minimal downpayment can I refinance later into a 15 yr fixed with a more favorable rate? Wife is pregnant with our first so she wont be working for at least 6 months after I start the job. Could save up the 60k needed for a down payment but would have to dramatically decrease my loan payoffs to do so. Thoughts? Buying home in year 2 seems to make more sense than paying the same amount in rent as mortgage.

[Codfish]

Welcome to WCI and congrats on the baby and finishing up residency. General consensus around here will be to delay purchase of the house for at least 2 years. You haven’t given us enough info to make a thorough recommendation, but based on what you’ve provided there is no way you should buy right now. Have you signed a job contract yet? You need to consider the financial risk you are facing:

1. new grad/ new job- will you hate your job and move areas/ jobs in the first 2 years? Something like 50% of grads do. Nothing like buying a home to anchor you in a job you hate.

2. Babies are expensive. Do you know if anyone with a special needs child? You could be facing insane medical bills and the potential for your partner to never return to paid work outside the home. At least wait until mom and baby return home from the hospital healthy.

3. Way higher than average medical school debt. Half a million dollars. Say that out loud a few times and let it sink in.

4. COVID. A lot of physicians took pay cuts in 2020. Surgeons were locked out of operating for months. Hospitals are shutting down elective cases requiring inpatient stays all across the country.

I could go on me on but I’ll let others chime in. Live like a resident for 2-5 years...

[chopchop]

For further details if this helps:
Contract signed: 260k/year base plus production incentives (may not hit these in year 1 so did not factor that into projections)
40k (~55k counting employer match) invested pretax in an 80/20 asset allocation with solid index founds
Monthly expenses are mostly unchanged from residency other than a bit more for life/disability insurance ~5k/mo (60k/year)
Plan is to pay 7k monthly towards student loans= 84K per year
I used a income and state tax estimator that says my take home pay should be somewhere in the neighborhood of 160k, so with current savings I would have about 15k for emergency fund to start and maybe 4 or 5k for misc expenses (child) and some fun stuff hopefully

Having played with a mortgage calculator and having a pretty decent (although not quite yet 20% gross but this will increase shortly and when wife starts working again part time) going towards retirement investments, is it really so bad to want to direct 2-2.5k for rent into home equity with a physician loan? I could save up 5% down on a 300-350k place pretty easily which would get us into a nice place for our purposes.

This assumes I like the job and area and, if not, that's a whole different scenario. Monthly expense wise we are still living like residents. Appreciate thoughts.

[Peds]

I'm a graduating resident and developing my financial strategy both long and short term. I have a stupid (480k) amount of student debt. I have currently budgeted out projections for next year and will be able to afford to pay off 85-90k of loans yearly. No cc debt. Rent in the area my wife and I are moving to is looking like 2-2.5k monthly in a tight market.

My question is: If I do a physician mortgage in year 2 with a minimal downpayment can I refinance later into a 15 yr fixed with a more favorable rate? Wife is pregnant with our first so she wont be working for at least 6 months after I start the job. Could save up the 60k needed for a down payment but would have to dramatically decrease my loan payoffs to do so. Thoughts? Buying home in year 2 seems to make more sense than paying the same amount in rent as mortgage.

2 different questions.

yes a physician mortgage can be refinanced in the future.

what is the loan plan? PSLF? refinance? rates?

[chopchop]

Loan plan is to refinance on graduation to lowest rate possible after the 0% moratorium ends and pay 7k monthly/84k yearly thereafter.

So real question is: given my circumstances, is it stupid to consider a physician loan in 2nd year (3rd?) of attending life if cost of mortgage will be about the same as renting?

[highdoseamox]

The calculation is not just mortgage versus rent. It’s mortgage + costs of home ownership versus rent. We bought our first home 1yr ago after 6 years of attending renting. Within 10 months we had paid thousands in repairs (gas leak, furnace repair, AC repair, and an oven that completely died and had to be replaced). Plus now that we own it we want it to look nice! New wall art, flowers for the garden, new blinds, replaced the banister that wobbled like crazy, etc etc. we love our home and neighborhood but we spend much more on the home than just the mortgage.

[Peds]

So real question is: given my circumstances, is it stupid to consider a physician loan in 2nd year (3rd?) of attending life if cost of mortgage will be about the same as renting?

income 275K (260+15 match): solid efund, 20% to retirement (~55K), mortgage <2x income (550K), loan plan (largest obstacle it seems), buy when stable (job + family).

cost of renting is not factored anywhere there.

[tylerjw12]

Paying rent is not 'throwing money away' as many seem to think it is. You may find it difficult to throw 84k to loans off 260k of gross income PLUS a home ownership expenses PLUS efund / retirement / family expenses / lifestyle creep. Your loans are a huge deal. Rent for a year and get your feet under you. Even if you wait a year, it won't hurt that much and could prevent you from a lot of financial pain.

This advice coming from someone who bought a home in residency and right after residency grad, so not exactly anti-own.

[Dusn]

In addition I think the cost of buying a home has far outpaced the cost of renting this year in most part of the country. It’s extremely difficult to buy a home right now. In my area you have to decide in hours and overbid or the home is gone.

[chopchop]

Appreciate the insights. I definitely was not even considering a house in year 1. I will reassess after first year and maybe consider in year 2 or 3. It remains to be seen what our household income and cash flow will look like if and when my wife rejoins the workforce part time.

[Tim]

"Buying home in year 2 seems to make more sense than paying the same amount in rent as mortgage."

Ignore this.
You have life insurance, a kid and a new job! Settle in.