Doctors Loan: should I do it?

[djk3]

My wife and I are looking into taking out a physicians loan on our next home.  I'm a newly graduating resident next month earning $400k yearly and my wife earns $75k.  We just don't know if we should do it.  The mortgage would be for $530k with nothing down.  I have $125k left on my loans fixed at 3.5% and we would be selling our home and conservatively making about $50k profit on it and then using that money for some upgrades to the new home.  Too risky?  We are usually very conservative and this is a little out of our nature, but I don't think it would be too bad.  A friend of mine financed $450k, nothing down, no points, no pmi last month for around 3.4%, so my thought is if we can get something similar, this wouldn't be too bad of a plan for our long term home.  Anyone have any opinions?

 

[Zaphod]

You cant find a place that doesnt need 50k of upgrades, or that havent already been done within the 530-580k range? 10% of the purchase price seems like a lot of work needed in that price range, unless in SF/LA/NYC.

[The White Coat Investor]

djk3 wrote:

My wife and I are looking into taking out a physicians loan on our next home.  I’m a newly graduating resident next month earning $400k yearly and my wife earns $75k.  We just don’t know if we should do it.  The mortgage would be for $530k with nothing down.  I have $125k left on my loans fixed at 3.5% and we would be selling our home and conservatively making about $50k profit on it and then using that money for some upgrades to the new home.  Too risky?  We are usually very conservative and this is a little out of our nature, but I don’t think it would be too bad.  A friend of mine financed $450k, nothing down, no points, no pmi last month for around 3.4%, so my thought is if we can get something similar, this wouldn’t be too bad of a plan for our long term home.  Anyone have any opinions?

 

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I think you can afford that if that is what you want. But it's kind of growing into your new income all at once. If it were me I'd probably do more of a half step than a full step for a few years. I guess I'd value the future financial independence more than the big house right now, but that doesn't mean what you value is wrong.

[Hatton]

I think people finishing residency feel pressure to buy a house. I would wait to make sure you like your new job before buying a house

[Bartl007]

I agree with waiting at least 6 months and renting first.

We are in a similar situation to you and are moving back home to join a private practice straight out of training. Despite being familiar with the area, we've chosen to rent for a year for a few reasons.

1. Make sure the job works out and is everything thing we thought when we signed the contract. What if you hate your colleagues way of practicing medicine or personality? What if they hate you and have no intention of renewing your contract?

2. What will our monthly income look like with production bonuses in place? If your position is a hospital employed position with guaranteed income for the life of your career that's great. Most employed positions eventually switch over to an "eat what you kill" model after a few years. Are you going to be busy enough to sustain that level of income after the period of your initial employment offer? If the patient base is available, will you want to stay that busy to keep that level of income.

3. If there is a buy in/partner tract opportunity in ~2 years, you have a much better negotiating stance if you're not tied down to a mortgage.

4. We'll have plenty of time to not be rushed into buying something and will have a better chance of getting exactly what we want with fewer compromises. There are only so many houses on the market at any given point in time.

All that being said I think your purchase price for the home is completely reasonable and if you are 100% confident that you'll be in this position for the long term, pull the trigger and be happy with the new house.

If you're income grows from your starting salary to 600k in a few years and your wife is pushing to get the bigger/nicer house across the street for 800k, will you have lived in your current house for long enough to not lose your shirt with transaction costs?

[EnjoyIt]

hatton1 wrote:

I think people finishing residency feel pressure to buy a house. I would wait to make sure you like your new job before buying a house

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This is the best advice you can get.  I have met so many people who bought a house as soon as they landed their job and then within 6 months to 2 years decided they wanted to move.  Remember that additional move will cost you the closing costs on your house, any immediate cosmetic repairs to make it sellable plus 6% real estate agent commission.  You will be out about $40K. at your tax bracket you will need to make it up with about $70k-$80k worth of income.

Renting and then waiting a year or two gives you so much more.

1) It allows you to learn the neighborhood better and understand what you want.

2) It gives you the flexibility to move and change jobs once you learn what you actually want from your work

3) You get to save some money in [s]taxes[/s] interest by having a lower rate.

 

Mathematically, you can easily afford this house, still pay down your debt, and save a ton for retirement.  If you are just so ************************ confident that you will live in this house for a long time, then go for it.  Otherwise it will be in your best interest to wait a year or two and make a more educated decision.

 

EDIT: corrected above from taxes to intertest

[Josh0731]

From personal experience I would advocate you consider not to committing your finances too heavily to this first job after residency right away by buying an expensive home, especially one that needs work.  Its just so common for there to be problems with one's first job out of residency.  There's just so much you don't know.  Unless your are taking a job where you were a resident, you are at a huge information disadvantage compared to the people offering you the job.  Wait and make sure you like the job and want to stay there, then put down some roots.   I wish I had displayed more patience leaving residency - I could have saved some serious money if I had.

[jfoxcpacfp]

EnjoyIt wrote:

Renting and then waiting a year or two gives you so much more. 1) It allows you to learn the neighborhood better and understand what you want. 2) It gives you the flexibility to move and change jobs once you learn what you actually want from your work 3) You get to save some money in taxes by having a lower rate.

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Your first 2 points make sense to me, but I am trying to figure out #3 - where does the lower tax rate figure in? Sorry to be so dense, it will probably click as soon as I hit "submit"  :roll:

[VagabondMD]

I ended owning three homes (lived in a fourth) in an 11 month period early in my career, coinciding with moving to take a job that I did not like and then moving back to the old job in a 6 month period.* I was extremely lucky buying and selling into very strong, liquid markets on all four transactions, but in a choppy market or 2008-2009 style market, I could have taken a beating.

The take home would be that when you take a new job, play it safe, and do not over commit. In my scenario, I had no loans to pay but also had a smaller paycheck (18 years ago). Being otherwise debt-free did liberate me to try the job in a location that I thought I would l enjoy much more. As it turned out, the job sucked, and the location was not nearly as livable as I had hoped. It was a good lesson, and I generally look back fondly on the experience.

[EnjoyIt]

jfoxcpacfp wrote:

EnjoyIt wrote:

Renting and then waiting a year or two gives you so much more. 1) It allows you to learn the neighborhood better and understand what you want. 2) It gives you the flexibility to move and change jobs once you learn what you actually want from your work 3) You get to save some money in taxes by having a lower rate. 

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Your first 2 points make sense to me, but I am trying to figure out #3 – where does the lower tax rate figure in? Sorry to be so dense, it will probably click as soon as I hit “submit”  

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Ahh yes, accidental typing. I meant interest instead of taxes.  I fixed it.  Thanks

[jambadoc]

I agree with the above posters in that if you are moving to a new job in a new place, you should probably rent initially for at least a year (probably 2) to make sure that this is "the one."  When we moved to my now permanent position, I had been working part time for 2+ years with he group and we were pretty sure we knew the group and the area and this is where we wanted to be.

We used a doctor's loan when we purchased our house at our (hopefully long term) job.  We have been very happy with the process.  We contacted many of the people who advertise on this site and ended up with a 3.125% fixed 15 year mortgage almost 2 years ago.  We ended up putting about 8% down to get under the "jumbo" interest increase, but would not have been able to manage 20% down.  We ended up going with Fifth Third because they have local branches and had the best overall package when we were looking.  All in all, I was very happy with the process and the end result.

[djk3]

I guess I should have clarified better above about the home.  new build at $530k.  completely move in ready at that cost.  I misspoke when I said the $50k from our current home would go into upgrades.  I thought I had another 50k to spend with the builder to complete flooring and the kitchen but was wrong (its already included in the cost).  our current home's $ would help to cover our closing costs and then save the rest to invest.  I should say too that this doesn't affect our 6 month emergency fund either.  I'm reading my post from a few days ago and I don't know what I was even saying.  Trying to type at the end of a night shift is never a good idea...

[djk3]

jambadoc, i agree about fifth third.  we are using the same local mortgage officer that we purchased our first house with.  as of yesterday, rates are about 3.5-3.625% on a similar loan as yours, which isn't too bad.