Buying first home out of residency

[Stein]

Hey all,

I've been reading this forum for a while, and it has been very helpful so far! I'm planning to start new employment out of residency next summer, and will have an employment letter (not a formal contract) including annual salary in hand when applying for mortgage pre-approval this coming year. I was wondering what I should know about this process, and if I will be able to secure mortgage pre-approval without an attending paystub or legal contract in hand (will only have residency paystubs to show, which aren't going to be enough for the houses we're looking at). How have others gone about this? Doctor loans? Certain financial groups or specific kinds of mortgages? We expect to be able to pay around 15% down. I'm hoping to be able to be closed and moved into the house before starting attending work next summer, likely around spring/early summer, and will have 0 attending paychecks/paystubs at that time.

Thanks in advance! Have a great day.

[childay]

I would strongly encourage you to rent for a while instead!

[Stein]

Do you think renting for a while would allow us to get a better rate for the mortgage? A complicating factor is that all moving expenses to this new city are being covered by my employer, so moving again would be paid for by our family (not to mention painful with kids).

[DMFA]

Stein wrote:

Do you think renting for a while would allow us to get a better rate for the mortgage? A complicating factor is that all moving expenses to this new city are being covered by my employer, so moving again would be paid for by our family (not to mention painful with kids).

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The issue is more that first jobs out of training tend not to last very long for various reasons, and people end up moving, meaning another round of transaction fees (realtor, title, closing costs, etc) and either the possibility of a difficult, protracted sale or becoming an unintentional/unwilling landlord.

This is especially true if you're moving to a new city where you've never lived.  Make sure you like where you're living and what you're doing before committing to paying the costs associated with a mortgage.  Don't let HGTV wrangle you into a huge financial commitment.

...when the time does come for you to purchase a home, if you don't have 20% down or would have to spend cash reserves which would be better kept for emergencies, non-conforming loans like "physician loans" are generally very helpful with favorable terms similar to usual "conforming" or conventional loans.  No debt is better than some debt, but of all the debts to have, mortgage debt is the least bad given its tax deductibility and also essentially serves as a hedge against inflation as your house (likely) slowly gains value over the years and shares liability with the bank.

[childay]

Your mortgage rate is determined largely from your credit score.  How is yours?  Downpayment and loan size also factor in.

 

The concern is that you buy a house and then your job doesn't work out (frequent occurence with new attendings).  Renting would prevent you from having to sell the house if you have to move again in 6 months, which would be very costly even assuming you can sell the house easily.  Also having 15% downpayment leads me to believe you can't afford the house anyway.

[adventure]

Moving again is painful. But at least if only across town you can take your time, and do much if it yourself.

Having a solid clean credit history and high score (have you checked those lately?!) will be key to a good rate.

Others here can discuss how/why buying during the first 2 years of attending-hood isn't wise, and how renting can be a better deal unless you are sure you aren't moving, etc. We bought during the first 2 years so I can't really throw stones. We were pretty certain and it's worked out so far. (my career helped too).

Ask around, we asked 15+ places the same question (and rate/term/etc). Some (typically Frannie/Freddie conforming mortgages said no (standard or jumbo sized, regardless of downpayment %). We had luck at some local banks/credit unions, some "doctor loan" places, and some banks who offer non-conforming loans. These are often billed as doctor/dentist/professional loans, etc. They are more willing with a letter and/or contract. Depends on the place.

If it just doesn't work, find a place to rent and save a ton. It'd likely allow you to save enough to pay for the movers, and to better find the neighborhood(s) you'd prefer. Also sometimes renting can give you a more flexible timeline for when you to buy/close/move out.

[Hatton]

Many posters have commented on previous threads about not buying a house when coming out of residency.  You may not like the job or the job may not like you.  Maybe you find you like a different practice or hospital across town better.  The first job is very fluid.  You have greater flexibility to move on if you are not committed to a house.  I would wait wait 1-2 years before buying.  You can better assess the town and neighborhoods and you know if you are on a partnership track.  It is also nice to have a down payment.

[poose]

Regarding the letter from your future employer: for my physician mortgage the letter had to state annual compensation, start date, and that I had currently met all pre-employment contingencies.  The bank allowed closing on the house up to 60 days prior to the job start date.

Be careful not to tie yourself to a house that would make you stay at a job you no longer want (if it's not what you expect).

[StarTrekDoc]

We stayed in the area for my first job and we moved out after the first year.

That said, we were certain of the second job with the VA moving across the country and spec'd out the right school, right house, right location and BOUGHT right away.

So the situation of buying straight out is fluid and only you know your situation on the certainty or not --- the word of caution is that a house can be a significant anchor and you may not want that if you're not certain on all the situations above.

As for mortgage:  do you have an established bank relationship?  Also employer may have a connection too - those are two I'd start with for best, preferred rates and ease of approval;   Letter is usually sufficient; contract is what they want during the closing and paystub in 60 days

 

Other options is renting short term 30-60days and keeping furniture in storage and move into new home.  A lot of companies will do this and agree for that under the move.

[Stein]

Thanks so much, this is very helpful. Watching lots of people buying houses right out of residency puts some pressure, but it's reassuring to see people here taking a more cautious approach - that's probably going to end up making more sense in the long run. Good point about feeling anchored, I haven't owned a home yet but I can imagine feeling "stuck", which is not a good place to be if in an unpleasant work situation.

[Zaphod]

Dont do it. You'll have far more freedom and make a way better decision. Read other threads on houses, etc here. House are an expensive anchor with lots of annoyance and costs. Get your career and house in order, know exactly what you want and do it later. Dont rush, just pain down that road.

[mamaham]

Stein wrote:

A complicating factor is that all moving expenses to this new city are being covered by my employer, so moving again would be paid for by our family

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you may ask for more details about moving expense coverage.  for our move - paid by new employer - the budget was $X and then if you did not use all of the money, you could use it for a second move to a permanent house within approx a year of employment.  this was not widely broadcast.  i found out about it when i started asking more questions.  they also covered storage for a temporary move - so say if you want to do a short-term rental (3/6/9 months) to learn the area and make sure you like the job - they would pay for storage and then pay again to move you to your permanent house.

even if they dont cover the second move - an in-town move is much cheaper than a long distance move...  buying the right house in the right area is worth the money, in my opinion.
agreed that moving is hard with small children/family, but moving into the wrong house is worse in the long run.

lastly, you dont mention debt (student loans etc).  many on here advocate paying those off before you purchase a home - pay down loans (at least high interest loans), then save emergency fund, then save 20% down payment....  I can completely understand the "house bug" - we definitely have it but are diligently paying down loans and getting that 20% first....

 

 

[Arkad]

I agree with renting first. It allows you to make sure the job is right for you without the risk of selling and also let's you make sure you learn about the areas and neighborhoods you will like most.

[blowhard]

Agree with all the above. Also please note that local moves are a magnitude of order cheaper than long-distance moves. We moved a 4 BR house locally for less than $1,000. Same move cross country 10 years ago cost us $12,000.

 

 

[q-school]

We always bought a house everywhere we moved. That was like five houses in first ten years we were married.

My wife is like that. She likes to own and make the house hers. She would not favor in town moves, as the burden with kids is fairly significant.

Some houses we made a lot of money on and sold in one day. Other houses took months to sell and i he to write a check at the end to balance the scales.

Just depends on priorities. If you are going to buy, for your first house, I would just say don't get crazy. Not everything is strictly about $ and cents. You can still do an in town move later to your forever house if the job works for you.

However you still need to build up emergency funds , learn to practice. Busy years ahead.

I'm really impressed that someone was able to move 4 bedroom house for 1000. That is impressive. I think our in town move was couple thousand. 50% less is huge.
Just another data point.