There are a host of arguments for and against buying a house as a resident:
- You don’t have much money now, but you will in a few years
- It’s better than throwing away money on rent, except when the market tanks
- You have to live somewhere, but that somewhere may be in a different state after you’ve completed your training
- You want to buy now because who knows how long mortgage rates will stay this low
- You want to wait to buy because right now it’s a seller’s market
Here are a few reasons why it you may want to consider buying a home as a resident and some reasons why it may not be the best decision.
Qualifying for a conventional mortgage is often difficult for doctors. You lack many of the lending requirements mortgage lenders look for including a history of solid income, past borrowing experience (aside from student loans, yikes), savings for a down payment, and a small amount of current debt.
That doesn’t mean you lack mortgage options.
For one, physician mortgage loans are specifically designed for the unique challenges facing doctors and dentists who are starting out their careers later in life than other professionals, and are doing so with a massive amount of student loan debt. Lenders who provide these mortgage loans will waive or reduce many of the requirements of traditional mortgages like standard debt-to-income ratios and minimum required down payments.
You can also save money on your mortgage by obtaining an adjustable rate mortgage (ARM). This type of mortgage establishes an interest rate that will adjust over time. The rate will stay fixed for the first 3 to 10 years, depending on the term selected. After that initial term expires, the rate will adjust regularly based on certain economic factors and interest rates.
The main advantage of an ARM is that the initial rate will likely be lower than what you can get on either a conventional loan or a doctor loan. However, the rate you pay will probably rise after that period expires. Using an ARM may be a good way for a resident to pay less for a mortgage, then have the cost rise as the doctor’s income also increases. Or it’s also a way to save on your mortgage cost if it’s possible you’ll move once the initial term expires.
Paying rent is money spent you can never get back. Buying a house today and selling it later can net you at least some return on your monthly mortgage payment in a good market.
Each mortgage payment reduces the amount of principal you owe on your mortgage loan. Plus, the longer you own a home, the more likelihood that it will appreciate in value. The combination of the two creates equity, which is the difference between the home’s market value and the amount of money owed on the mortgage.
Home equity is an asset. If/when you sell, your home’s equity can be used as a downpayment for your next house. You can also borrow against it to start a practice or pay down higher interest rate debt.
You’re also investing in your future credit rating. By taking out a loan and making your payments on time, you’ll be improving your credit and helping your ability to borrow later in life.
I purchased a home during my second year of residency. Granted, this would not have been possible without the assistance of my parents due to the low salary for residents vs. the high cost of living in San Diego area.
I decided to purchase a property that needed work – an investment property. With the small amount of time I had away from working in the hospital, “DIY” work around the house was a great stress relief. Fortunately, It turned out to be a great investment.
My advice for a medical student starting residency is to evaluate the rental and home buying market. I am a numbers guy. Crunch numbers and figure out if it makes financial sense to buy or rent. Also, consider if the area you are doing your residency in is somewhere you want to stay long term. If not, rent.
Dr. Alex Roher M.D.
Board-certified by the American Board of Anesthesiology
San Diego Botox Inc.
If you have a spouse who’s already working full-time and/or you have children, then buying a home may be a great option option. You’ll have the ability to make the mortgage payment, you can start building credit and you can begin raising your family in your own home.
See Also: The Ultimate Guide to Mortgages for Doctors
Many will tell you that it’s best to wait until you’re fully employed. Assuming you complete your training, your future career promises to pay you well. But while you’re still in residency, you’re earning a minimum salary and likely have a six-figure student loan debt to repay.
Therefore, you probably don’t have much saved up to use for a down payment or closing costs. While you have mortgage options that can minimize those costs, buying a house can also result in moving expenses, new furniture, and making immediate updates like paint or appliances.
Once you’re moved in, your mortgage won’t be the only expense. Anything that breaks — appliances, the plumbing, or your air conditioner — will cost you to repair or replace. When you rent, those costs are typically the responsibility of the landlord.
You also have to pay property taxes and insurance, which will likely be included in the mortgage but will nonetheless add to your housing costs. If you decide to buy in a homeowners association, there are membership fees. Your utilities will likely be more than they would if you rented an apartment. And if you buy a home in which you have to care for the property, you’ll need a lawnmower, snowblower (if you’re in a winter climate); or you’ll have to pay a service to take care of those needs.
Once you’ve completed your residency, do you know for sure where you’ll be setting up your practice? You may have an opportunity in a distance city, another state or even overseas.
While selling a house isn’t as expensive as buying, there are costs and fees. A good rule of thumb is that you will have to sell your home for 10 percent above your remaining mortgage balance to have enough to cover real estate agent commissions and other transfer costs.
If you purchased with no down payment, you won’t have much equity unless home values skyrocket during the ownership period. That’s because the first several years worth of payments on a mortgage mostly cover the interest on the loan, not the principal.
My husband and I purchased a townhouse when we started our residencies. We put all our savings, and a little side loan from a family member into that down payment. Our monthly payments, utilities, taxes and HOA fees were probably similar to that which we would have spent on rent. You tend to spend a little more in decorating your own home as well…especially if you’re a gal. Our place was a little cuter than some place we could have rented. By the time we left, the value of homes in that area hadn’t gone up that much. We sold for about what we paid. We started with nothing and left with nothing.
I don’t recommend buying unless you plan to stay somewhere for a while. It’s not a great investment. Advantage to home ownership is that you probably get to live in a place that’s cuter than some place you might rent. The cost of keeping up a home is expensive – both in time and money. Make sure you’re in a stable situation before considering a purchase.
Barbara Bergin, M.D.
Board Certified Orthopedic Surgeon
If your motivation for buying is to avoid apartment living, then you could consider renting a house. You have some of the benefits of owning without the many of the responsibilities.
Determining whether to buy a home during residency or waiting until after you’ve completed training is a difficult choice.
There is no one right decision for every doctor. It ultimately comes down to your individual circumstances.
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Colin is the CEO & Co-founder of LeverageRx, a personal finance company exclusively for healthcare professionals. A former investment banker turned entrepreneur, Colin has well over a decade of experience in the financial services industry and is also a licensed life and health insurance agent. He was named Midlands Business Journal’s 2019 Entrepreneur of the Year and his work has been featured in Forbes, Council for Disability Awareness, Medical Economics, Dental Products Report, HCP Live, and more.