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Save for 20% down payment OR invest and plan on physician loan?

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  • Save for 20% down payment OR invest and plan on physician loan?

    I have been an ER attending (1099) for two years. My husband is finishing up an ortho fellowship this month and will begin private practice in August. We will continue renting for the next 1-2 years until we find the right house.

    In terms of our finances, we currently max out all of our retirement accounts (401(k) x 2; backdoor Roth x 2; HSA). I have $150k in student loans that I have since refinanced to <2% variable with plan to make minimum monthly payment as long as interest rate remains low. We have paid off his student loans. We have an emergency fund. We also have a joint taxable account that we invested in during the crash in April.

    My question is, with regard to buying a house in 1-2 years (with flexibility to postpone if need be), should we:
    1. Start saving for a 20% down payment (approx 150-200k) in a high yield savings account and plan on a conventional mortgage
    2. Invest that money in a taxable account and plan on a physician loan.
    3. Invest that money in a taxable account and defer the decision to a later point in time based on the growth (or loss) of the investment and interest rates at the time. If at a low, we would need a physician loan. If at a high, could consider liquidating, paying taxes on the gains, and opting for conventional mortgage.

    My guess is that most people would advise the 20% down payment. However, if interest rates remain low, we were wondering if this would be the best long term investment.

  • #2
    "will begin private practice in August. We will continue renting for the next 1-2 years until we find the right house."
    I think the real goal is to make sure both are secure and satisfied with the job. Is he going to be on a partnership track?
    With a two physician couple, I wouldn't choose the market over 20% house down payment. Interest rates and market returns aren't needed for you folks to get into the house. You folks will need a taxable account as part for your 20% of growth retirement savings. Big shovels won't take you long. What you are basically proposing is using leverage to invest. Not advisable until you are settled.

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    • #3
      Yes- 3 years for full partnership. Completely agree with importance of job satisfaction prior to making decision to buy.

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      • #4
        Originally posted by AbCos18 View Post
        I have been an ER attending (1099) for two years. My husband is finishing up an ortho fellowship this month and will begin private practice in August. We will continue renting for the next 1-2 years until we find the right house.

        In terms of our finances, we currently max out all of our retirement accounts (401(k) x 2; backdoor Roth x 2; HSA). I have $150k in student loans that I have since refinanced to <2% variable with plan to make minimum monthly payment as long as interest rate remains low. We have paid off his student loans. We have an emergency fund. We also have a joint taxable account that we invested in during the crash in April.

        My question is, with regard to buying a house in 1-2 years (with flexibility to postpone if need be), should we:
        1. Start saving for a 20% down payment (approx 150-200k) in a high yield savings account and plan on a conventional mortgage
        2. Invest that money in a taxable account and plan on a physician loan.
        3. Invest that money in a taxable account and defer the decision to a later point in time based on the growth (or loss) of the investment and interest rates at the time. If at a low, we would need a physician loan. If at a high, could consider liquidating, paying taxes on the gains, and opting for conventional mortgage.

        My guess is that most people would advise the 20% down payment. However, if interest rates remain low, we were wondering if this would be the best long term investment.
        physician loan. 5-10% down. mortgage <2x income.

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        • #5
          Are physician loans readily available right now? I know a lot of jumbo loans have dried up or the terms of getting financing have become stricter, so I’m guessing that physician mortgage lending may have become stricter now as well (requiring more down, higher rates etc etc). I’d save up cash and try to stay out if getting a jumbo loan if you can. That way you absolutely will not buy too much house and will get great rates/terms. I’d put it all in a savings account.

          Having more cash to put down is also an advantage in a competitive market - I’d rather sell to the person putting 35% down than the person doing a 100% financing on a physicians mortgage.

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          • #6
            Don't forget partnership buy in. You should still be able to pay down student loans and save for a house in 3 years (want to guarantee partnership first)

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            • #7
              The "right" thing to do is to get rid of your student loans before doing anything else in my opinion. No reason for two high income earners to hold on to student debt. It's bad behavioral practice in my opinion. Yeah, I know, low interest rates, yaddy yadda, but you need to just accept the fact that you have to pay it off eventually no matter what and the best time to do it is early in your career before you have any notion of burn out to deal with. THEN, save up your 20% for a home. By then, your spouse will be established enough (and hopefully partner) in the new practice to make sure it's where you want to put down roots.

              I know interest rates on mortgages are very attractive right now, but that's NOT a good reason to rush into home ownership. There's so much more to consider and the first and foremost is establishing stable income. I understand the itch to own a home after all these years of being a student/resident. And I would bet you're both looking forward to starting a family? It's fun and exciting. But, getting stuck in a situation in which you own a home and then regret the purchase after finding out you don't like your jobs and then needing to sell in a down market, that could be bad. You can avoid that headache by being patient and saving up a proper 20% after making sure you're both satisfied with your work and that he actually gets partnership (that's not always a guarantee). Once he's made partner, you'll have a much better sense of what you can and should be spending on a home.

              Anyway, congrats to you both. An ER attending, plus an Ortho attending. That's $1+ million/yr income potential right there. You guys have a bright financial future to look forward to if you play your cards right.

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              • #8
                20% down is stupid. The opportunity cost is too high and it only protects the banks money.. Get the lowest down payment loan you can. Those with less means have to pay PMI, which really sucks for them. Fortunately for high earners, banks use your job as your collateral and will give you a loan based on your likelyhood of paying it back.

                Student loans under 2% are not a priority, unless they cause you stress. I'm 16 years into paying mine off at 1.6% fixed, and am in no hurry to change that. (Just 14 more years and that degree is mine! ) The fact that your loan is variable means I wouldn't drag it out the same as I am, but don't put too much effort into it. IF you get psychological stress from that balance, then by all means scratch that itch, but still not at the expense of your retirement accounts.

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                • #9
                  You’ll get so many different opinions with this loaded question. Ultimately, it’s a personal choice with what you’re comfortable with.

                  we are two physician household as well. Both attendings. Similar situation as y’all.
                  We paid off my low interest student loan, have now saved up 25% for down payment, and waiting for the right house to come around. And our plan will be to pay the house off as soon as possible. Why? Bc we don’t want to have debt. we are still saving with retirement and taxable accounts.

                  good luck and congrats on the new chapter in your life. Exciting times.

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                  • #10
                    Originally posted by Budgetmaestra View Post
                    Are physician loans readily available right now? I know a lot of jumbo loans have dried up or the terms of getting financing have become stricter, so I’m guessing that physician mortgage lending may have become stricter now as well (requiring more down, higher rates etc etc).
                    from personal experience they are still widely available. only changes i found was they upped the minimum to 5% down.

                    I’d save up cash and try to stay out if getting a jumbo loan if you can. That way you absolutely will not buy too much house and will get great rates/terms. I’d put it all in a savings account.
                    so everyone has to have a mortgage <500K? that seems like an unnecessary cut off.

                    Having more cash to put down is also an advantage in a competitive market - I’d rather sell to the person putting 35% down than the person doing a 100% financing on a physicians mortgage.
                    this makes no sense. the bank cuts you a check. it doesnt matter if the buyer put up 0%, or 99%....the bank cuts you the check.

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                    • #11
                      When we purchased our home, I decided to use the "doctor loan" route. No down payment at all. 100% from the bank, and I believe the rate was right around 3.4%.

                      As Molar Mechanic stated, the big 20% down payment protects the bank's risk and does not do much for you. We took out a 15 year mortgage and figured we'd pay a lot extra and get it paid off early.

                      Income wise, I'm probably in the same ball park of your future earnings so hopefully the bank will look at your risk the same as they did mine.....and want to throw money at you!

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                      • #12
                        This is a time where there are historically low interest rates; why in the world would you not take advantage of that? Physician loan all the way! 5% down if possible. Do not pay off your low interest student debt either, at least not while the rates remain this low, which will likely be for the next few years.

                        Get to building your assets. With a high-earning dual physician household, you can easily grow your taxable account in a very short period of time.

                        This is all assuming your jobs are currently stable, of course...

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                        • #13
                          Originally posted by Peds View Post

                          from personal experience they are still widely available. only changes i found was they upped the minimum to 5% down.

                          so they do need to save for some sort of down payment. And it is possible a year from now physician mortgages may require 10% down?


                          so everyone has to have a mortgage <500K? that seems like an unnecessary cut off.

                          Many markets have higher limits. Given their income they could easily save $300k in a couple of years which would be a $800k-$1m house. That’s a lot of house in most markets except the very high cost of living areas in a few major cities.

                          this makes no sense. the bank cuts you a check. it doesnt matter if the buyer put up 0%, or 99%....the bank cuts you the check.
                          The money down matters if the house doesn’t appraise. In a quickly rising markets many houses can appraise pretty low - I’ve seen appraisals 10% under the agreed upon price in our neighborhood (with back up offers at the same level as contract price). The person putting down 35 can adjust and still get financing to close. The person getting 100% financing (or putting 5% down) isn’t getting financing beyond the appraisal.

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                          • #14
                            Couple of quick noob questions: So it looks like it's pretty common to get a jumbo physician loan where you can put down less than 20% AND not have to pay PMI?

                            Wife and I are looking at possibly moving to a VHCOL location (Honolulu) and a nicer SFH will likely be at least in the 800k-1M range and so would help alot if we can get approved for a jumbo physician loan that also does not stipulate PMI. Of course our HHI is not as high as I'd like but maybe we can make it work (probably 300k gross annual income....)

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                            • #15
                              Originally posted by ginmqi View Post
                              Couple of quick noob questions: So it looks like it's pretty common to get a jumbo physician loan where you can put down less than 20% AND not have to pay PMI?

                              Wife and I are looking at possibly moving to a VHCOL location (Honolulu) and a nicer SFH will likely be at least in the 800k-1M range and so would help alot if we can get approved for a jumbo physician loan that also does not stipulate PMI. Of course our HHI is not as high as I'd like but maybe we can make it work (probably 300k gross annual income....)

                              Have you or your spouse previously lived in Hawaii? If you have, just ignore me. My family has traveled there a lot through the years, and we have always wished we could figure out a way to move there for six months out of the year. Its so expensive.

                              I recall performing a cost of living comparison calculation for where I live now vs Hawaii. Basically, I'd have to make almost three times my current income to maintain my level of living. Also, $800k-$1M will not buy much house there. But, I have seen some really nice condos in that range.

                              When we purchased our home, it was nearly $2M and we were able to get a physician loan with zero down payment, no PMI, and a 15 year rate at 3.45%. It was strange though. We shopped around for our mortgage and one bank gave us a hard time for approval for a loan (meaning I was not sure I'd get approved). We had zero debt, an excellent credit score, and I make a seven figure income. I told my wife "it seems like we'd be a perfect candidate". So, we quit working with that bank and kept checking others. The bank we used (I cannot recall what it's called now but it had been called SunTrust) gave us the above if we agreed to move our checking and savings account to them. No big deal because it was no different than other banks we'd used. The point is, don't be loyal to a particular bank and shop around for what's best for you.

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