Too much house too soon???

[Noob to WCI]

Long time lurker to WCI site.

I'm FINALLY about to finish fellowship and have recently signed a contract for a full time position to start in July.  I'm looking to the WCI to tell me if I'm getting too much house too soon.

My spouse is also a physician.  Our combined income will be around 600-650k in year 1.  The only debt we have are my student loans (180k). I plan on aggressively paying off this loan in about 2 years (Thanks to WCI for telling me about SOFI and cutting my interest rate by 50%!). Our assets are cash savings, 403b, and stocks (around $150k).

We are looking at houses around 500k-700k. We have 2 small kids and are undecided if we will be having more.  The cost of living where we will be working is about average but is having a very hot housing market.  I know this home price is still less than 2x our income, which seems to be the quoted range for WCI readers.  But it still make me nervous to take the jump from renting to owning a home at this price range.  Thoughts from the WCI forum?

[Shamwow]

Planning and asking is the first very important step! Congrats on being almost done with training!

I'm going to start by paraphrasing a stat I learned from the WCI - 50% of physicians change jobs in the first 2 years out of residency/fellowship...  Even if they are sure its the right job for them (most are)..

I would be curious to see how that stat changes in 2 physician couples..

 

The house price is not unreasonable for your salary, BUT - with an expensive house often comes expensive things you need to do to/for it - furniture, HVAC repairs, nice BMW to match the others on your street...

WCI recommends (smartly) to live like a resident for a few years after residency.  Buying a big doctor home does not fit with that.  The first year out of training is likely to be the most important in shaping your financial future!!!    You don't have to follow every step WCI preaches exactly, just realize the consequences can be very big if you don't!

Any good reason to not keep renting?

[wideopenspaces]

Are y'all moving for the new jobs? Will you both be starting new jobs in July?

[Noob to WCI]

Thanks for quick responses.

Huge fan of BMW. But have sworn them off until at least after student loans are paid off, and then only buy a used one with cash.

We will be moving to a new area from my current fellowship and are very familiar with the neighborhoods and region.  My spouse is from this area and family still lives there.  We feel like we know what homes area available and the layout of the school districts. So its not like we are landing in a totally new place.

Also, my spouse has been working in an academic position either full or part-time for past 3 years and plans to continue to stay in that position for the time being. I will be the only person starting a new position.

[CM]

Shamwow wrote:

I’m going to start by paraphrasing a stat I learned from the WCI – 50% of physicians change jobs in the first 2 years out of residency/fellowship…  Even if they are sure its the right job for them (most are)..

Click to expand...

This is key. I would rent for a couple of years.

[wideopenspaces]

So you're moving but your spouse will keep her job? Were you doing long distance? Anyway I would recommend renting a year or two to see how the job is going to pan out. And to allow time to get a down payment while paying down loans and funding retirement accounts. Agree that price range seems ok but if your spouse goes part time again, how will that impact your income? When we bought our house after residency we made sure to buy something that would still be reasonable after I had our second kid as I planned to significantly cut back my time for a couple years. You don't want your house dictating more important life choices.

[Dicast]

The fact that you are asking the question is probably the most telling. I'd say it isn't too much house but probably too soon. Many of us rush to houses and maybe it is because we see home ownership as the next phase of life. Job changes and new ideas are harder to implement once you drop money on a house.

As for too much, that is very subjective. At your expected salary I don't think it would be a problem. If you can go less expensive you'll accumulate your net worth much more rapidly.

For perspective, my wife is a little over 1 year out from fellowship. I've been out for 5 years. We rented a house for her 2 years of fellowship so that we had lots of options. Decided to stay put, bought a house for about 490k (4000 sq ft) with a combined salary of 550-600k. We have lots of excess money to put towards wealth building. When we were looking at houses I really liked one that was 630k (5500 sq ft) and even though I wish I had the 5 car garage I'm absolutely sure we've saved a ton of money going smaller. I'd also comment that a 4000 sq ft house is crazy when trying to keep tabs on a 2 to 3 year old. At times I wish we would have bought even smaller so I could keep up with her better.

We're pretty happy so far but occasionally have ideas of moving back to be closer to family. Owning a house really slows those thoughts down.

[Hatton]

RENT.

[Lithium]

I bought a house 1 year into my first job and wish I hadn't.  They are a huge time suck and potential money pit.

keep in mind that if the proposed tax legislation passes, you'd have to live in the house for 5 years in order to avoid capital gains taxes.  Not trivial in a high value home in a hot market.  This is of course in addition to the 15% you pay in realtor/transaction costs (5% when you buy, 10% when you sell).

[DMFA]

If you have to ask...

You're asking two questions here.  Too much house?  No. Even for your level of debt, given your high income, that's a reasonable amount of mortgage, assuming you're managing the remainder of your money correctly.  A decent rule-of-thumb for house price is 2-3x your gross income; this would be 1x.

Too soon, though, is a good point.  The going recommendation here is to rent for a couple years before buying to ensure you like your job and the area.  This is based on many first jobs out of training only lasting a couple years.  With that much income, you could *probably* get away with throwing money away if you end up not liking your jobs or the metro area and leaving within a couple years.  This will likely result in you having lost money on transaction fees, realtor fees, etc ("closing costs") twice in a short period while not having paid very much toward the loan principal.

BMW?  Seriously?  Pass on the Bavarian Money Waster.  Go Audi or Benz ;-)

[hightower]

650k a year combined you have nothing to worry about purchasing a home in that price range. Ideally I would recommend you pay off your student loans first and save up a full 20% down payment. But if you’re moving to your wife’s home town and dont want to rent there it wouldn’t necessarily be bad to go ahead and buy. Just realize you will be significantly increasing your debt load and it will take you longer to pay off your student loans. Might make you feel a bit behind.

If you buy a house now, then at least discipline yourself not to buy that BMW until you've paid off everything but the mortgage.  Set a goal for yourself...no BMW until all debt gone and $X amount in retirement accounts, etc...

[LizOB]

Is it too much house? No

Should you buy a house right off the bat with your first job out of training? Generally no. What if you hate the job? Are there other jobs in the area? Do you have a non-compete that would make your commute horrible if you change jobs but want to stay in the house?

Rent, then after a year or two if you want to stay start looking. Also nice not to be on a time crunch while house-hunting if you're already in the area

[MPMD]

hatton1 wrote:

RENT.

Click to expand...

exactly.

you aren't throwing money away. you are paying an insurance policy that allows you to relocate without being stuck.

[StarTrekDoc]

Not too much house by far.   Too soon -- probably.

Why?   Kids.  2 professionals.  Lots of moving parts and you really don't want to have the house being the anchor.

Your family income is plenty to have and fund loan, down, 529 and everything else in between.

The unknown is the neighborhood and school district.   Find your footing over the first year or two; then dive into that house.  In probability -- 2years into income, your house range maybe a bit higher.

 

 

[Anesthesia84]

It's unclear to me if your wife has already been working at a job where you are moving? I think in 2 physician couples can be a little bit different because most likely one or both will need to make compromises on the job they take. My husband and I are both MDs and realized in residency/ fellowship that it is incredibly unlikely that we would both find a dream job in the same place.

I took a job where I commuted about an hour from his fellowship for a few years and realized it met most of the important criteria I had in finding a job I'd like to stay at. So, in his last year of fellowship, he interviewed, found a job in the same area that I've been in, and we bought a house. For us, knowing that my job was stable an something I was happy with was a big reason. Plus, I'd worked pretty closely with a lot of people in his department and know the hospital and system well so could make a pretty educated guess that the job would be a good fit for him. And it made it easier to know where to buy/ school districts/ etc.

As for mortgage compared to income, it sounds reasonable. We decided to be on the "safe" side and our mortgage is about half of our combined income (350k for 450k house vs income of 650k+) because as a 2 physician couple we felt it might be more likely that someone would have major changes in job structure or something that might "encourage" one of us to take a prolonged time off. Neither of us want to be stuck in a position we hate. We want to have the possibility that someone can stay home indefinitely if needed and minimizing expenses is an important way we are doing that. We also wanted to have the option that one of us could stay home more with the kids if/ when needed.

Good luck!