Why You Should NOT Buy A House In Medical Residency | Physician Finance

Описание: There are many smart financial tasks you SHOULD do in residency, but one thing you should NOT do is BUY a house in residency! Again, do NOT buy a home in residency and we are going to breakdown why you should NOT buy a house in residency. The last year of professional school, many young doctors and healthcare providers seem eager to buy their first house, but there are SO many reasons as why they should NOT purchase a house during those training years.

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The last year of professional school, many young doctors and healthcare providers seem eager to purchase their first home, maybe it’s the feeling of delayed gratification, but there are SO many reasons why renting for those training years are better than renting.

For starters, student loan debt is a huge issue for many residents, with the average debt amount toppling nearly $235,000, adding a monthly mortgage and 6 figure debt on top of those student loan payments can quickly become overwhelming, especially if you are making an average of $59,000 a year as a resident. The stress of another loan payment on the house you should have not bought during residency is an additional stress you just do NOT need.

Buying a home may not only come with an additional monthly loan payment, but home maintenance can eat up the resident’s wallet and time, precious time, remember in residency every free minute counts.
Purchasing a home in residency may require a hefty down payment, and that is money you may NOT have. Having a down payment on your home provides many incentives:
1. Better rates and more options
2. Avoid private mortgage insurance
3. Avoid Jumbo loan rates
4. Real estate market swing protection
5. Lessor mortgage payments
Without a down payment, you are susceptible to all the above and that may result in losing money on your first home rather than profiting

When applying for a loan, you are required to show several documents to the lender, one of which is proof of income. The last months of your medical education, you do NOT have an income, sure you may have matched into your number 1 residency and have started the onboarding process, but you don’t have a real income until mid July. So in the eyes of the lender, why would they offer you, the in-debted medical resident a better loan than someone who is out making money?!

We must NOT forget that residency is only 3-5 years! And it truly flies by, breaking even on your first home is difficult unless you are in it for at LEAST 3 years, and that time goes smoothly with the market.

You are expected to spend 5% of the value of a home when you buy it, and another 10% when you sell it (that includes closing costs, cost of repairs, furnishing, commissions, plus vacancy while selling), in order to make up for that 15% in transaction cost, you will need to pay down the loan and the house must appreciate.

So on a typical 30 year mortgage at a 4% fixed rate, say you bought it with 0% down! You will have paid down 5.5% of the mortgage in 3 years and 9.5% in 5 years, now residency is over and you need to sell that home because you got a kick ass job across the country or fellowship! That means you need the home to appreciate about 3% a YEAR during residency just to break even.

But even if things work out for the best, and you spend 5 years in that house and it appreciates 3%/year, you are looking at 9.5% gain the value of the home. That is $19,000 on a $200,000 home assuming all variables are equal to rent, BUT do NOT forget to deduct the cost of repairs and maintenance PLUS the re-sell costs that you will accrue!

Renting is just so much easier, you can call the landlord when something breaks, especially is it is a major break, they take care of it while you are studying and rounding, you have specific start dates and end dates, you know the monthly rent won’t change, and if you are good tenant, your landlord may NOT increase rent for all 3 years, and when you finish, you pack up and move on to bigger and better things! No worrying of selling, vacancy, potential damages, property taxes, insurance etc.

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