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  • First Time Home Buyer

    My wife an I are both physicians with combined income of ~$400K. We are both 1 year out from fellowship training and happy with our jobs at the location where we are living. We are looking to buy a home which will be our permanent residence for years to come. My wife came across her dream home (which I also really like), which will end up being about $600K. We have been looking into mortgage loans, and can comfortably put down 10%. The best we have found for our scenario right now is a 15/1 ARM at 3.5% with a 5/2/5 cap structure on a 30 year term without penalties for early repayment or refinancing. I figure that this is a good interest rate for the first 15 years, then we can refinance to a much lower rate after that term. Does this sound reasonable, or are we getting in over our heads?


  • #2

    How much student debt?   or other debt?  and at what rates?


    The debt/income of 1.35 seems reasonable. You could likely finish with mortgage payoff within 15 years.

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    • #3



      My wife an I are both physicians with combined income of ~$400K. We are both 1 year out from fellowship training and happy with our jobs at the location where we are living. We are looking to buy a home which will be our permanent residence for years to come. My wife came across her dream home (which I also really like), which will end up being about $600K. We have been looking into mortgage loans, and can comfortably put down 10%. The best we have found for our scenario right now is a 15/1 ARM at 3.5% with a 5/2/5 cap structure on a 30 year term without penalties for early repayment or refinancing. I figure that this is a good interest rate for the first 15 years, then we can refinance to a much lower rate after that term. Does this sound reasonable, or are we getting in over our heads?


      Click to expand...



      600K house on a 400K income sounds pretty easy to me.  I personally would not sweat this at all.  

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      • #4

        Without knowing anything else about your financial situation, a $500k mortgage on a $400k salary is fine in my opinion.  If you have massive student debt ($300k+), you might consider waiting to buy a house.  You can probably get a 30 year fixed for 4%, so I would probably do that over a 15 year arm.

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        • #5

          I agree that this mortgage is well within your means.  However, I would opt for a standard fixed-rate loan.  That's because interest rates are still near all-time lows, and they will likely be higher in the future.  With the cap structure you describe, your interest rate could go up by 5 percentage points down the road.  Why give yourself a stomach ache worrying every time interest rates move?  You can easily afford a standard, 15-year fixed rate mortgage, so that's the route I would go.  Your payments would be $45,000-$50,000 per year (plus a big tax benefit).

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          • #6

            Combined student debt of ~$620K which we just refinanced with that rate ranging between 4.4-5.3%. The monthly payments are manageable, and would room for the addition of this mortgage while still leaving a good portion of our income available for other costs/investments.

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            • #7

              We have been quoted anywhere between 5.3 to 5.6% on 15-30 year fixed rate loans with putting 10% down. With the 15/1 ARM at 3.5% and the conventional mortgages in the 5% range, does that factor in, or would you still recommend the fixed rate loans even though the interest rate is higher?

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              • #8

                "Combined student debt of ~$620K which ..."


                Well that's a big hole.   ($600k-10%) + $620 = $1160k.    


                debt / income = 2.9 .   NO.  NO.  just NO.    That is crushing, crippling debt that you are not ready for.  Live like a resident until that debt is gone. 

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                • #9



                  Combined student debt of ~$620K which we just refinanced with that rate ranging between 4.4-5.3%. The monthly payments are manageable, and would room for the addition of this mortgage while still leaving a good portion of our income available for other costs/investments.


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                  whoooooooooooooa.


                  no no no no you should not be looking at a dream home.


                  bro you need to be in a 2br apartment for a few years. you need to live like residents, probably a little less high on the hog than that, until those loans are gone.


                  5% of $620,000 is like $30,000 a year you are paying in interest just to tread water. 

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                  • #10

                    You should be able to find 15-year fixed-rate mortgages in the 3% range.  See Bankrate for some examples:


                    http://www.bankrate.com/mortgage-rates/?type=newmortgage&propertyvalue=600000&loan=540000&perc=10&prods=2&fico=740&points=Zero&zipcode=02465&cs=1


                     


                    But, I agree with jz that you should take a step back and evaluate your overall debt and household cash flow.  I would factor in your future expected income and expenses as well as other assets and liabilities that you may not have mentioned.  What you want to do is a comprehensive cash flow.  In general, I agree that this is probably too much debt, but it would be good to quantify this.


                    Good luck.

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                    • #11

                      Thanks for the input, everyone. Very much appreciated.

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                      • #12
                        Wowzers.. these student loan debt numbers these days are crazy..

                        I'm usually more liberal than others on this site with home purchases but in this case I echo the others in putting the dream home aside for 2-4. Years until u can really tackle the student loan debt

                        The non chalant throwing out the debt numbers and how it's "manageable" also sends some red flags.. reminds me of how my buddies justify truck and boat purchases because the can "afford" the monthly payments..

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                        • #13

                          When you 1)get your student debt pared down to $200k, and 2) know with certainty that you will live in a home for 5 years, then you will be ready to take on a home mortgage. 

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                          • #14



                            We have been quoted anywhere between 5.3 to 5.6% on 15-30 year fixed rate loans with putting 10% down. With the 15/1 ARM at 3.5% and the conventional mortgages in the 5% range, does that factor in, or would you still recommend the fixed rate loans even though the interest rate is higher?


                            Click to expand...



                            Why are you being quoted 5.3 to 5.6% on the home loan?  You ought to qualify for 3-point-something percent.


                            I agree with JZ; knock the student loan debt down to $200K or less, then look at buying the house.

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                            • #15


                              We have been quoted anywhere between 5.3 to 5.6% on 15-30 year fixed rate loans with putting 10% down.
                              Click to expand...



                              That seems really really really high, unless there are other mitigating factors (Credit scores?!). We were just quoted 3.375 (on a jumbo!) for a 30 yr fixes. Less for 15yr. PM me if you need suggestions. 

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