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High student loans, PSLF and home ownership

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  • High student loans, PSLF and home ownership

    Hello. I am trying to figure out when is the best time to purchase a home while pursuing the PSLF program. I know that this is a very complicated, individualized decision but I would like to hear you all's thoughts.

    I will be graduating from fellowship this summer. My salary will be guaranteed for 1 year at 230K after which I will be solely RVU based. I did receive a 10K sign on bonus and my relocation is paid for. I am not sure how my income will be impacted by going to RVU based compensation. I did want to wait until that transition before purchasing as well.

    I currently owe ~325K in federal student loans with 3 years of PSFL qualifying payments made.

    My first financial tasks are: save for 3 months expenses, pay off my husbands car 30K, husband's student loans 7K, pay my private student loans ~30K, and plus max out of retirement accounts/529/HSA.

    I have a stepdaughter and plan on having a child sometime in late 2019, God-willing. My husband makes around 70K now but he'll be quitting his job when we move. I am not sure what he'll get paid when he finds another job. We're moving to the south so I predict it'll be substantially less.


    When and how much house should I buy while banking on the PSLF program?

    I do plan on using a physician home loan.

    I do not want to purchase a home until I complete my first financial tasks that I outlined earlier.

    I will wait a minimum of 1 year after my relocation to NC before purchasing a home.

    I know I should not buy a home worth more than 2x my income(~460K), but with my high interest student loans/uncertainty of the PSLF do you think a 350K home is too expensive? The housing market in Charlotte is rapidly growing. The homes that I like are around 300-400K. Is that way too expensive for my financial situation? Rent is about ~1200-1500/month for a 2-3 bedroom home/apartment so renting will not necessarily save me a ton of money.

    I know most say pay down your student loan debt before making a big purchase like a home, but with the PSLF I am essentially watching my loan amount explode over time due to the high interest rate and my low monthly payments.



  • #2
    The loan situation makes this a little difficult to answer because I don't personally like the idea of "essentially watching my loan amount explode over time due to the high interest rate and low monthly payments."  I don't trust that the government is going to come through on this and forgive all of these large student loans for so many millions of people over the next 10 years or so.  But, I also understand that the possibility of them holding up their end of the deal is appealing and I can't blame you for wanting to give it a try.  So, if that's your decision, I'm not going to try to convince you otherwise.  But, regardless of how you decide to handle your student loans you should still follow a few important "rules" when buying a home.

    I agree with the 2X salary rule for the size of one's mortgage.  But, you should save up a full 20% downpayment and get a regular mortgage (not a higher interest physician loan).  I also think you should go for a 15 year mortgage.  If you can afford the 20% downpayment, 15 year loan monthly payments, AND still comfortably max out all of your tax advantaged retirement savings space each year, then you can afford the home.  If any of those 3 things is a problem, then you are probably setting yourself up for being house poor and should wait or go cheaper.

    I fully agree with your plan to pay off your private loan asap.  In your situation, you guys should really not being driving expensive cars bought on credit.  I got lectured on this when I first started posting here too and I now fully agree with it.  If you really want to do the right thing, you should sell your husbands car and buy him something cheap with cash until you guys have the debt situation under control and he's got a new job.

    230k/year and the fact that your husband is losing his income (and there's no guarantee he'll be getting it back immediately) means that money is going to be quite tight for you guys.  After taxes, paying off your 30k loan, saving up an e-fund, making student loan payments, paying for living expenses, saving for a house downpayment, covering your husbands debt while he's not working, and maxing out all your retirement accounts is going to mean you're living paycheck to paycheck for probably the first 1-2 years of work.  I would not plan on signing up for a mortgage for quite some time if I were you.


    • #3
      Since there are a lot of unknown factors with your future income, it's probably best to wait. Find a neighborhood you like and can afford. Then start renting. Try it out before you buy. This is probably the best thing you can do now. As a future homeowner, you'll want to see what amenities you use and places you shop. Also, if you have children schools may be a factor as well in your decision. Usually, good neighborhoods have better public schools. Once you're situated and have a good idea of the area, it'll help in making a solid decision.


      • #4
        It sounds like you are thinking very logically about everything. You will be fine buying a $350,000 home. Where you get into trouble is when you buy a $700k home and are already saddled with debt.

        You may want to consider investing in a taxable brokerage account as well in case PSLF does not work out. That way, you are hoping for the best and planning for the worst. I would even prioritize this over a 529 plan.


        • #5
          If you have a child at the end of 2019 you will likely take an income hit if entirely RVU based.  And have significantly increased costs after the birth.

          I think you need to actually plug the numbers into a calculator first.  You'll be surprised how little you have to spend over the course of the year.  Max retirement accounts (37K minimum I assume), HSA (6700), federal taxes (52K), NC income taxes (13K), FICA (11K), backdoor Roth (11K) and you're left with 168K.  Pay minimum on student loans for first year is probably 4000/yr but rapidly increases to 20K/yr by year 3 even paying minimum.  So let's take an average of 10K for next 3 years so you're at 158K.

          If you live minimally in Charlotte with 1500/mo rent and double that for other living expenses then you're at 36K/yr for living expenses.  So now you're down to 122K. And that's probably a very low estimate of living expenses for 2 people in a MCOL area.  Then you want to pay down 67K of debt which I completely agree with.  You're down to 55K to do with what you please.  This will not cover a 20% down payment on a 350K house in July 2019 (when you are thinking of buying).  So bare minimum you can start looking around Dec 2019 when is when you are planning to have a baby and have a lower revenue stream.

          Your husband may also be without a job when you first arrive.  Further cutting into the projections above.  Plus moving expenses provided by employer are now considered taxable income so that's going to be another hit on your taxes next year that's not even included.

          I would definitely rent, save as much as you can for a down payment but realize that you're likely to need to wait at least 2-3 years before buying.


          • #6
            Also you need to save E-fund as you noticed.  So that's another 10-15K that can't be used for down payment.

            All things considered you really need to plan to rent for several years until your financial situation has stabilized.  You will be far happier for having done it.

            If you are going toward PSLF you don't need to alter your plans for it other than to say that if the program doesn't come to fruition it would be good to have a fund set up which could be applied to it.  If you have significant money tied up in housing and are living paycheck-to-paycheck 4-5 years from now you will not be in a good situation if the program doesn't work out (I am also in PSLF and hoping it pays off).


            • #7
              I agree with PP who mentioned waiting to buy until after you have a baby. It'll give you time to pay off the debts you mentioned, save up an emergency fund ( you'll want at least 6 months if you will be taking maternity leave and are RVU based), see how far your salary goes, give your husband time to find a job, see how much childcare will be, and start retirement accounts. You've got a lot to sort out, I personally would not be rushing to buy a house if I were in your position.