By Stephen Lloyd
Buying your first house is like having a child. You’re never really ready.
It’s a huge decision that will potentially impact your finances either negatively or positively for years to come. And that’s scary.
For most medical families, buying a house is even more intimidating and overwhelming because you have so much going on, rotations at different sites, the dreaded step exams, the match, relocating etc. Many never even begin to look at their purchase options.
My goal with this post isn’t to convince you to go out and just BUY a house, rather to convince you to go ahead and crunch the numbers for your given situation, and to better enable you to decide whether or not a home purchase is going to be beneficial to you. Sometimes it isn’t, sometimes it’s a toss up, and sometimes it will really get you ahead financially.
We were fortunate enough to have a friend who had purchased a home as an intern and he shared his experience with us, which encouraged us to begin a search of our own as soon as we knew where my wife had matched. This was before I started formally working in real estate, so I still had a lot to learn, but we managed to make a purchase that set us up to come out well ahead after three and a half years of ownership.
The following are some important factors to consider when making a decision on whether or not to purchase a home:
Credit Score
Without a decent credit score it is VERY hard to secure financing; in my experience physician loan providers are looking for a minimum of a 680, but preferably a score of 720 or higher to secure the best interest rates with zero in down payments.
FYI- physician loan providers will usually provide 100 percent financing (yes, that means zero down payment) to physicians who have a contract to start a residency within a predetermined number of days/weeks. So you can potentially close on a home before residency even begins.
Your Local Real Estate Market
What are prices doing? What are they projected to do? Are there any great deals currently available? Have there been any great deals over the past six to twelve months? What is the cost to rent versus buy? Jump on a website or app like Zillow.com and look at prior sales over the past six to twelve months, this will give you the most accurate idea of current value. Looking at current asking prices can scare people away, as they are often artificially high.
Your Timeframe
How long will you be there? If it’s less than three years its rarely in your best interest to buy, unless you find a crazy deal that you can sell for significant profit. I repeat, very rare.
Luckily for you, residency is typically three years or longer.
So look at all of the above, and start putting the numbers together.
Remember, no matter what you decide, living in a house you own or buy is going to COST you money. Unless of course you’re a cash heavy house flipper with inside connections in the foreclosure department at the bank who has cheap labor and tons of experience. That’s probably not you.
Here’s a real world example, from the first home we bought. The numbers are all sum totals over the three and a half years we owned the home.
| A | Purchased house for: | $130,000 |
| B | Sold house for: | $140,000 |
| C | “Profit” | $10,000 |
| D | Add equity at time of sale | $8,500 |
| E | Total cash in hand at closing | $18,500 |
| EXPENSES | ||
| F | Mortgage payments | $35,000 |
| G | Improvements/maintenance | $5,000 |
| H | Total | $40,000 |
| I | Cost to own (H-E) | $21,500 |
| J | Cost to rent | $46,000 |
| Rent versus buy | -$24,500 | |
Some notes on the table:
- I adjusted the sales price to allow for the commission we paid to the buyer’s
- We had the sellers pay closing costs when we made the initial purchase.
- We took out a 100 percent physician loan at the time of purchase, so did not put any money down as deposit.
- To keep the table simple I lumped mortgage/taxes/homeowners insurance all into one calculation. Our interest rate on that purchase was 4.875 percent. We had reasonable taxes and average insurance.
Please note that despite selling our home for over $10,000 more than we paid for it, it still cost us $21,500 to live there for three and a half years. In our market renting a comparable space would have cost approximately $46,000 so it was an easy trade off. From the table you can see that even if we’d sold our home for $10,000 less than we’d paid for it (or had massive unexpected ownership expenses), we would still have broken even when compared to renting.
As I mentioned previously, you need to evaluate your situation and run the numbers that apply. I used the above table when we were looking to buy our second home and it definitely helped us out after we worked out what we would be paying in rent compared to mortgage/taxes/insurance.
If taxes are ridiculously high where you live, or rent is crazy cheap, then it might be best to rent and save as much as possible for when the time comes for you to move. Whatever you end up deciding I hope this information will be helpful to you and your family. Also please look out for my follow-up article on high return home improvements that you can make during residency.
Stephen Lloyd is originally from South Africa and immigrated to the United States after he met and married his wife Bree, now a first year attending practicing inpatient psychiatry at the VA in St. Petersburg, Florida. Stephen is a stay-at-home dad to their two boys and still uses and maintains his real estate license with Arbella Properties Inc., based in Tennessee.
For any questions or scenarios regarding home purchases or sales you are considering, email Stephen at [email protected]. He is more than happy to assist fellow physician families regarding this life changing decision.