Advice needed

[cozmopak]

We are a dual-income physician couple.  My wife, however, works part time, so her current income is a fraction of her projected income if she ever decides to transition to full-time.

We have 150,000 dollars in student loans, collectively.  I was able to refinance these at 3% interest rate through a family loan.

The buy-in into my practice will be roughly 200,000.  This is largely made up of hard assets, accounts receivable, etc.  The extra income made after buying into the practice seems to justify it in my opinion and I view it as an investment.

My question is when should we buy a house?  I don't want to accrue more debt.  I'm basing all of our financial decisions on our current income, not our projected one (which theoretically will be about twice what it is now).

 

[jfoxcpacfp]

Not sure I understand your question. If you "don't want to accrue more debt" you should buy your house when you have saved up enough to pay for it.

[Kamban]

cozmopak wrote:

My question is when should we buy a house? I don’t want to accrue more debt. I’m basing all of our financial decisions on our current income, not our projected one (which theoretically will be about twice what it is now).

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I would only do that after you have paid off the buy in, started to pay off the student loan and bring it to $75K or less, have 20 % saved for the house, in addition to having you 401K fully matched and have a backdoor ROTH and 6 month emergency savings.

Gosh, that was a mouthful.

[Craigy]

$150k in loans?  Two physicians?  Big whup.  Should be able to pay that off in a couple years, right?  Just wait until then.

[DMFA]

If you're particularly debt-averse, you should be able to chomp through that small-ish debt at that low interest rate fairly quickly on two physicians' incomes while still emphasizing retirement savings.

IMO the standard home-buying advice applies:

• 20% down


• Mortgage total < 2x annual income, or monthly payment <= 25% of your monthly gross income


• Don't buy more than you need


• Don't roll closing costs into the mortgage loan

Simultaneously, the standard retirement savings applies:

• At least 20% of gross annual income, preferably 25%


• Max tax-advantaged accounts first (401k/403b, backdoor Roth IRAs, HSA, 457, DBP), emphasizing matching if any


• Make up remainder with taxable brokerage account

And the standard debt repayment vs investing logic (this is my own scale, WCIs is slightly different, yours is likely slightly different depending on how you view debt):

• <2%: let it ride (min payments)


• 2-4%: should prob invest, but could reasonably pay down if you hate debt


• 4-6%: toss-up (I'd favor paying debt imo)


• 6-8%: should prob pay down the debt, but might make an argument to invest if you're feeling lucky and don't mind debt


• >8%: kill the beast

So based on that, here's what I'd do if I were you:

1. Retirement savings


2. Kill student debt


3. Buy house with 20% down with mortgage < 2x your annual gross income

All only in my own opinion.  All those points are reasonably debatable.  I think this is a good situation to sit down with a planner and hash it out.

[mobilehomegurl]

It really depends on your situation. Do you see yourself in the same area for the long term? Or is there a possibility you may want to move or relocate down the road?

If you can see yourself in the same area, it does not hurt to look into your options. Though, be sure to buy in an area you're comfortable living in and can also afford.

Good luck!  

[cozmopak]

We'll be staying at our current location for probably 5 years.  I've heard that for this length of time buying a house is usually prudent.  Agree?

[Zaphod]

cozmopak wrote:

We’ll be staying at our current location for probably 5 years.  I’ve heard that for this length of time buying a house is usually prudent.  Agree?

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Definitely not. Everything has to go right for that short time frame to work out, remember transaction costs are steep on both sides of the buy/sale, and that will severely limit your ability to profit at sale time. Five years is way too short unless you're gambling.

[jfoxcpacfp]

cozmopak wrote:

We’ll be staying at our current location for probably 5 years.  I’ve heard that for this length of time buying a house is usually prudent.  Agree?

Click to expand...

5 years is my line of demarcation for moving from "short term" to "long term". If you are staying 5 years at a minimum, I would be comfortable with that. It will help if you have the flexibility to keep the property as a rental for another 3 years should the market not favor selling at a profit at that point. Others' opinions will vary, of course.