Student Loan and Mortgage question

[bobbula]

Hello everyone. Sorry if this is in the wrong sub, it is somewhat of a combined loan and mortgage question.

I will be completing fellowship soon in a surgical subspecialty and expect a gross income of about $400,000. Based upon various online calculators, I calculated my monthly net income to be about $17,000 conservatively. I am looking into purchasing a home valued about $450,000 using a doctors loan, with an estimated interest rate of 4% and zero down, 30yr. Again, based on online calculators, this gives me a mortgage of about $2200/month. I will have a principal loan balance of about $322,000 at 6.8%. I plan on paying this off as quickly as reasonably possible. Paying $7,700/month will have my loans gone within 4 years.

Here are the raw numbers (monthly):

Income: $17,000

Loans: $7,700

Mortgage: $2,200

This leaves me with roughly $7,000 for living expenses and savings

I was planning on using the standard payment plan of 10 years, which would require a minimum payment of about $3,700/month and just add the additional $4,000 towards my principal. Does this seem like a reasonable plan? As soon as my loans are done I'll have an additional $7,700/month to apply towards savings/retirement/etc. I was also considering refinancing for a lower interest rate, although it would not change how quickly I want to pay off my loans.

Thank you for your help.

[Dicast]

Not the worst plan.  At least you are thinking about it and you will make forward progress.

If you are planning for a 4 year payoff of your student loans I think you'll save quite a bit of money by refinancing to a 5 year term.  I don't see why you'd keep a 6.8% interest rate.

Make sure your mortgage payment includes taxes, insurance and HOA fees.  Also, after 4 years of this plan you'll only have $35,000 of equity in your new home which is only about 7% of the value of the home.  If you want to leave your job and move or just decide you don't like the house then you'll be very likely to have to bring money to the table at closing.  I'm not completely against home ownership prior to retiring student loans.  I am however reluctant to place myself in a situation that limits future options because of avoidable debts.

 

[MochaDoc]

I've heard/read too many horror stories of folks buying homes straight out of residency/fellowship and then having to move when that first job doesn't pan out for whatever reason. I'd recommend renting comfortably and cheaply for 6-12 months to make sure this job is a good fit for everyone involved. During that time, as Dicast recommended, refinance your student loans to a lower fixed or variable rate, pay off as much student debt as possible while you have lower, fixed expenses (they will increase with home ownership) and max out all your retirement options.

One more thing, doctor's loans tend to have a higher interest rate as well, so if you pay down/pay off your student loans (bringing down your DTI) and save up a good-sized down payment prior to shopping for a home mortgage you should get a more favorable rate which will also save you money in the long run.

[Zaphod]

bobbula wrote:

Hello everyone. Sorry if this is in the wrong sub, it is somewhat of a combined loan and mortgage question.

I will be completing fellowship soon in a surgical subspecialty and expect a gross income of about $400,000. Based upon various online calculators, I calculated my monthly net income to be about $17,000 conservatively. I am looking into purchasing a home valued about $450,000 using a doctors loan, with an estimated interest rate of 4% and zero down, 30yr. Again, based on online calculators, this gives me a mortgage of about $2200/month. I will have a principal loan balance of about $322,000 at 6.8%. I plan on paying this off as quickly as reasonably possible. Paying $7,700/month will have my loans gone within 4 years.

Here are the raw numbers (monthly):

Income: $17,000

Loans: $7,700

Mortgage: $2,200

This leaves me with roughly $7,000 for living expenses and savings

I was planning on using the standard payment plan of 10 years, which would require a minimum payment of about $3,700/month and just add the additional $4,000 towards my principal. Does this seem like a reasonable plan? As soon as my loans are done I’ll have an additional $7,700/month to apply towards savings/retirement/etc. I was also considering refinancing for a lower interest rate, although it would not change how quickly I want to pay off my loans.

Thank you for your help.

Click to expand...

I would not do a zero percent down, 5 at least. You have nothing to help you out at zero. I dont like putting too much down as its sunk costs but as Dicast mentioned, you dont want to have to pay for closing costs on both sides and think of it as insurance. Also, I wouldnt buy until you've been there a couple years and know for as good as you can that you are staying there.

Your mortgage calculation isnt correct and I would use Zillows as its a bit more accurate and gives you about 3000-3100/mo. Thats not counting maintenance, utilities and the occasional yet predictable problem.

Also agree with the refi, it just makes sense.

[MochaDoc]

bobbula wrote:

Hello everyone. Sorry if this is in the wrong sub, it is somewhat of a combined loan and mortgage question.

I will be completing fellowship soon in a surgical subspecialty and expect a gross income of about $400,000. Based upon various online calculators, I calculated my monthly net income to be about $17,000 conservatively. I am looking into purchasing a home valued about $450,000 using a doctors loan, with an estimated interest rate of 4% and zero down, 30yr. Again, based on online calculators, this gives me a mortgage of about $2200/month. I will have a principal loan balance of about $322,000 at 6.8%. I plan on paying this off as quickly as reasonably possible. Paying $7,700/month will have my loans gone within 4 years.

Here are the raw numbers (monthly):

Income: $17,000

Loans: $7,700

Mortgage: $2,200

This leaves me with roughly $7,000 for living expenses and savings

I was planning on using the standard payment plan of 10 years, which would require a minimum payment of about $3,700/month and just add the additional $4,000 towards my principal. Does this seem like a reasonable plan? As soon as my loans are done I’ll have an additional $7,700/month to apply towards savings/retirement/etc. I was also considering refinancing for a lower interest rate, although it would not change how quickly I want to pay off my loans.

Thank you for your help.

Click to expand...

If you haven't already, you should buy and peruse the WCI's book. I think it will be very educational.

 

[Hatton]

I agree with all of the above posters that you should wait for 1-2 years before buying a house.  You might not like the job or you might not like the neighborhood.  Working and saving for a down payment is very wise. Work on the loans, save a down good down payment, work on a nest egg.  Life is good you will get a nice house just do it a little later.

[jhwkr542]

Agree with everything above. Refinance. Save up for a down payment.

My wife and I are in a similar position as new attendings. I find it hard to imagine after loans are gone, you'll want to stay in that same house. I looked into doctor's loans and they seem to take advantage of physicians with high pay and little to negative net worth by having high closing costs and/or high interest rates. Don't do that to yourself. With that salary, you can save up a nice down payment within a year while also making a debt in loans. Once you get the house, then all that money you were saving up for a down payment can go towards loans.

[Josh0731]

I agree with several of the other comments.

Slow down. No harm in renting for a little while, make sure the job is what you expect.  If there's a problem with the job and you have to move on in 1-3 years, you've essentially been just spinning your financial wheels under your proposed plan.

Rather that get a suboptimal mortgage and then race to pay it off, why don't you spend a year or two to get a downpayment saved, then get a low-rate 15-yr mortgage?  You'll probably pay less in interest overall and have the benefit of having money stored as home equity.

Also, a $450,000 house without enough down will be a jumbo loan (= higher interest rate).

The Zillow mortgage calulator is a good one, allows you to estimate insurance and HOA. I found it to be very accurate when I got my mortgage.

If you're new here, I believe many of these comments will help you realize that the secret to physician finances is that, despite looking at a nice salary there, you don't have any money. The more you realize that, the better you'll be.

[The White Coat Investor]

Other than the buying of a home straight out of fellowship part, it seems reasonable to me. I'd probably rent my first year.

[bobbula]

Thank you all for the great feedback.

I definitely see the benefit to renting early on and saving up for a down payment. Great advice. I understand that many people have concern over not liking my first job and the potential for having to move. I would be living in a suburban community close to mine and my wife's families and so even if my first job didn't pan out, I would seek other employment in the nearby surrounding areas so my home location shouldn't be a factor.

Using physician loan calculators I came to the $2,200 amount, estimating about 4% interest. Using the Zillow calculator (excluding PMI because it's a physician's loan) and factoring in home owner's insurance and estimated property tax for the area I'd be living in, the mortgage comes to about $2,600/month, so not horribly off from my previous estimate.

I certainly see the benefit to renting and strongly considered it for a while, but I moved out of state for fellowship and will be moving back to my home state as an attending and my concern with renting an apartment was having to pick up and move my family yet again. I also felt (likely incorrectly) that renting an apartment for $2,000/month versus buying and paying $600 more per month for a mortgage seemed like throwing money away with renting.

Everyone's input is appreciated.

[Hatton]

It seems that no one finishing up residency or fellowship wants to hear the nearly universal advice Rent for a year. My house is paid for and there are times I wish I had the flexibility of renting an apartment.

[DMFA]

"Doctor" loans can be a trap, esp with zero down: more $ financed at a higher rate.

If you're stuck paying your whole student loan (i.e. not PSLF), then you need to refinance to the lowest possible rate. Otherwise you're needlessly wasting money on interest at a horrible 6+% rate.

Only you can decide what's right for you in your life; all any of us can really tell you is what's mathematically best.

[jhwkr542]

There's quite a few more costs of home ownership than just the rent vs pimi. Lots of upkeep to a house that really adds up. Yardwork, higher utilities, HOA fees, stuff that breaks, etc. Regarding moving, will you plan on staying in this house forever? I'm guessing no. Moving from an apartment to a forever home will likely be easier than from a $450k home to a forever home.

Bottom line: using a doctor's loan at this point will cost you a large chunk of money now that will make you financially independent at a later point in life.

If this is worth it to you, then that is your choice. Personal finance is just that: personal. We all have our priorities with money. Some travel, some like fancy wine, some like fancy cars, etc. Our advice to rent is based mostly on the bottom dollar and is devoid of emotion.

[Curbside]

Have you thought of a physician home loan? There is little or no downpayment required, low interest rates, no PMI, etc. I would contact a company to help you out with this. Try Curbside Real Estate [email protected].

[YSH]

We strongly considered buying immediately after graduation during my chief year in residency, actually actively looked at places from January to June of chief year. At that time, both partners had secured stable paying jobs in an area where in laws are (where we both grew up).  This was 6/2008 and in a very HCOL location.  We even put in bids on several houses but were outbid (this turned out to be a VERY, VERY lucky thing for us).

We rented and enjoyed the HCOL location for the next couple of months as a young married couple.  Then boom, Bear Sterns, Merrill Lynch and Lehman Brothers evaporated off the face of the earth, along with spouse's job security, within the next 15 months.

I vividly remember having dinner with my spouse the day one of those companies got wiped out and spouse said to me from across candlelight fine dining, "I am so glad you have a job and we have no liabilities".

True story.