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Sign in bonus and condo mortgage

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  • Avatar SameMD 
    Participant
    Status: Resident
    Posts: 11
    Joined: 07/03/2019

    Hi everyone – Thank you so much for reading this post. I am new to all this financial world, so I apologize in advance for not using the right vocabulary. My situation is complicated; I appreciate your time in advance. I am 42 years old, foreign grad (had to redo all my training here residency and fellowship). I am starting my last year of fellowship.  I live in the East Coast, due to the high rent prices in the area I decided to buy a small condo 0$ down (through a physician mortgage with no mortgage insurance) which gave me slightly better monthly payments. As you can imagine Murphy moved with us the day after we bought the property, so the expenses have been much more significant than we expected. My current income is 79k, and we live paycheck to paycheck (I feel like drowning) my wife stays at home with the kids (daycare expenses would be higher than what she would make working a side job, we ran the numbers, but I am open to suggestions). We have no retirement, no investments, 425k owed in the property, and 125k in money I borrowed from my parents. No credit card debt and I bought my car cash.

    I will finish my training next year, and I got an offer from an employer in the midwest that is willing to give me 150K sign in bonus as a “loan forgiveness program?”. If I sign with them now, I would be able to get the 150k whenever I ask. They will forgive the principal and the interest if I stay with them for four years. However, they will add the interest and principal they forgive as income to my W2 for tax purposes every year. The interest they are charging me is the wall street + 2 %, and it is not compounded. It would start adding up the day I get the money. My household income will go up from 79k to 400k next year. My questions for you are:

    Regarding the sign in bonus should I:
    1. Sign now and put that money (150K) in the condo mortgage (425k at 3.45% fixed for five years (two more to go), then variable) considering that I will pay taxes on the principal and interest that money will build up for one year until I graduate.
    2. Take the 150K and pay off most of the money I owe my parents (125k)
    3. Take the money and invest it
    4. Don’t take the money and wait until I start to minimize the income taxes it would build on the income and interest
    5. Use the money for a down payment for a house in the new location (was considering renting too)

    Regarding the condo:
    1. Should I keep it as a rental? It is in a good location close to supermarkets, hospitals, and to the highway, so renting shouldn’t be a problem. I don’t have experience in the rental business. However my wife is open to dedicating her time to that.
    2. If I keep it, should I use the sign in bonus to pay it off more quickly considering it will switch to a variable rate in 2 years?

    I was not aware of the complexities of the financial world. I bought your book; it should be arriving soon.

    Thank you so much for what you do! You are changing the world for a lot of people!

     

     

    That's what all we are. Amateurs. We don't live long enough to be anything else.
    - Charlie Chaplin

    #227439 Reply
    Avatar Gamma Knives 
    Participant
    Status: Physician
    Posts: 149
    Joined: 06/25/2017

    First sorry you bought that condo but that is in the past now. As far as the condo I would recommend selling it. I don’t think you want to be a long distance landlord. Most likely you are going to continue to have more expenses than you expect. If you are dead set on keeping it I would refinance to a fixed rate as rates are low right now.

    The sign on loan is complicated. I am not a huge fan of having the tax bomb that you get hit with for the 150k plus interest or being stuck somewhere that long. Of course if you are going to work with them for 4 years you don’t want to turn away that money. What are the repayment terms if you leave? You don’t want to be stuck somewhere because you can’t afford to quit. Instead of the loan would they be willing to pay you an extra $40k per year?

    If you take the money I am generally a fan of getting rid of personal / family loans but that depends on you and your parents.

    Finally, don’t buy another place. Rent.

    #227460 Reply
    CordMcNally CordMcNally 
    Participant
    Status: Physician
    Posts: 2475
    Joined: 01/03/2017

    The first thing to do is to quit digging yourself further in the hole. I’m also completely shocked (well, not really) that given your current housing expense, you want to turn around and do the same exact thing in a completely new place. High rent prices is not a reason to buy because more than likely your owning costs are going to be even higher. You can’t just compare the rent vs. mortgage when making this decision. As you’ve learned, owning can be very expensive. As far as housing goes, I would try to sell your house and find a place to rent. It’s all sunk costs at this point.

     

    With regards to your new job offer, I’m afraid you’re making even more mistakes. Do you know anything about the Midwest or the area you’re moving to? Most places generally offer a signing bonuses for good reason (it’s a bad job). A 4 year commitment is also ridiculous. With that said, if, for whatever reason, you decide to take the job, I wouldn’t take the money up front. If you do, you should only put the money in a high yield savings account which won’t earn as much interest as they’re charging you. What if you don’t take the money up front and stay 4 years? Do they give you the $150k then?

     

    Again, the first thing you need to do is quit digging.

    “But investing isn’t about beating others at their game. It’s about controlling yourself at your own game.”
    ― Benjamin Graham, The Intelligent Investor

    #227507 Reply
    Liked by childay
    Avatar SameMD 
    Participant
    Status: Resident
    Posts: 11
    Joined: 07/03/2019
    Earnest refinancing bonus

    Thank you so much for your advise. I apologize for the late reply, this is my first post, and I didn’t know how the forum worked. Somehow I thought I was going to receive an email when a response was posted.

    What are the repayment terms if you leave?

    They forgive interest and principal on a monthly basis, so for example if I work for them only 2 years (out of the 4) I would owe them $75K plus the interest earned in the previous 2 years in addition to the interest it would build up based on the time it takes me to repay the remaining balance.

    Instead of the loan would they be willing to pay you an extra $40k per year?

    I asked the same question; they were not willing to doing that. The lawyer that reviewed the employment agreement told me they usually do that to make it a bit more challenging to leave.

    If you take the money I am generally a fan of getting rid of personal / family loans but that depends on you and your parents.

    Me too, would you take the money right away or you would wait until you start? They sent me a recalculated escrow last week, and it looks like I will be forced to add the difference (300$/month) to my credit card (17% APR), so I was looking into the possibility of cashing part of the bonus now to put it in the mortgage and delay the future payments until I graduate and then just sell it. I also thought about selling it now and finding something cheaper to rent during my last year of fellowship; however, if I consider moving expenses and closing costs, the numbers don’t support selling now.

    Finally, don’t buy another place. Rent.

    Do you have a time cutoff to consider purchase over rent? (3 years, five years, etc.)

    Do you know anything about the Midwest or the area you’re moving to?

    A couple of friends have been working there for 4 and 8 years, and they are pleased with their job, that’s why I considered the position.

    What if you don’t take the money up front and stay 4 years? Do they give you the $150k then?

    I asked the same question; they said that it was mandatory to take the loan in the beginning, that I couldn’t just keep the balance until the end of the four years. I also asked if I could get it divided into monthly payments as I work and they told me that if there is no interest to forgive, then it was not considered a loan and they couldn’t give it to me. Trust me this issue raised a lot of red flags; however, the people I know inside told me there was nothing to be worried about.

    Thank you so much for the feedback.

    That's what all we are. Amateurs. We don't live long enough to be anything else.
    - Charlie Chaplin

    #229039 Reply
    Avatar Peds 
    Participant
    Status: Physician
    Posts: 3944
    Joined: 01/08/2016

    just a few comments:

    – your situation is not complicated. you are not uniquely special. you guys dug yourself a hole.

    – seems like a very predatory offer. its not your money until 4 years is up, therefore wouldn’t spend more than 25% of it per year.

    – stop spending. start learning. start saving.

    #229045 Reply
    Avatar Tim 
    Participant
    Status: Accountant
    Posts: 2573
    Joined: 09/18/2018

    “they couldn’t give it to me. Trust me this issue raised a lot of red flags;” Of course acquaintances that have completed the four years are satisfied. But they don’t have your wife and children. It is a retention bonus, regardless of the words.

    I believe wouldn’t was the correct explanation.
    Signing bonus with loan forgiveness was the offer.

    Retention Bonus of $37.7 for 4 years with monthly or regular payroll payments is your request. OR
    increase base comp the 4 years.

    They Can but they may not.

    #229052 Reply
    Avatar Chessknt 
    Participant
    Status: Resident, Physician
    Posts: 6
    Joined: 04/16/2018

    How does this offer compare to other offers in similar markets in your field? That is a huge retention bonus  which makes me think you might be in a competitive field and could do better for yourself.

     

    If you decide on this job it is absolutely better to take it this tax year since you will pay marginal income tax at a lower rate than you will in the future with your lower income. I also would not sink it in to your mortgage since you are having so many cash flow issues you are using credit cards to survive. With 150k in the bank your cash flow issues will be gone, just be sure to not change any other aspect of your lifestyle just because it is there. You will owe around 25%+state tax to the IRS/state tax agency but you can draw down the extra $300/month from the balance to pay your higher escrow payment. Pay off any high (eg >5%) interest debts in the mean time with whatever is left over and leave it alone otherwise.

    #229055 Reply
    Liked by childay, Anne
    Avatar Anne 
    Participant
    Status: Physician
    Posts: 1047
    Joined: 11/07/2017

    What is the condo currently worth?

    Can you expand on why your escrow is increasing by $300/month?  Did property taxes go way up?

    Are you in a payment plan with your parents right now?  What is the interest rate and what is the monthly payment?  How important to them is the timeline of when you pay them back?

    What other job offers are you looking at?  Would you take this job if there was no $150k sign on bonus?

    Does the job pay relocation expenses?

     

    P.S. There is a box you can check at the bottom of the post “notify me of follow-up replies via email” if you want to get notified of new replies.

    P.P.S. I can’t imagine completely redoing training in a new country, you are a much stronger person than I–kudos!

     

    #229082 Reply
    Avatar octopus85 
    Participant
    Status: Resident
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    Joined: 08/13/2017
    If you decide on this job it is absolutely better to take it this tax year since you will pay marginal income tax at a lower rate than you will in the future with your lower income.

    Click to expand…

    I got the impression that the “forgiven” loan is treated as income, and since it forgives throughout the first 4 years of service, there may not be that tax advantage.

    #229089 Reply
    Liked by Anne
    Avatar SameMD 
    Participant
    Status: Resident
    Posts: 11
    Joined: 07/03/2019

    just a few comments:

    – your situation is not complicated. you are not uniquely special. you guys dug yourself a hole.

    – seems like a very predatory offer. its not your money until 4 years is up, therefore wouldn’t spend more than 25% of it per year.

    – stop spending. start learning. start saving.

    You’re right; it was a terrible decision. Regarding the offer, do you think it would be wise to put aside some money every month in the event I have to leave the company? Thanks for the recommendation.

     

    Retention Bonus of $37.7 for 4 years with monthly or regular payroll payments is your request. OR
    increase base comp the 4 years.

    I tried, I even asked my lawyer to negotiate that, but they refused to do it that way. I agree with you my family situation is very different. Thanks for the input.

     

    How does this offer compare to other offers in similar markets in your field? That is a huge retention bonus  which makes me think you might be in a competitive field and could do better for yourself.

    It is a pretty standard offer for a nonprofit organization in the midwest.

    If you decide on this job it is absolutely better to take it this tax year since you will pay marginal income tax at a lower rate than you will in the future with your lower income. I also would not sink it in to your mortgage since you are having so many cash flow issues you are using credit cards to survive. With 150k in the bank your cash flow issues will be gone, just be sure to not change any other aspect of your lifestyle just because it is there. You will owe around 25%+state tax to the IRS/state tax agency but you can draw down the extra $300/month from the balance to pay your higher escrow payment. Pay off any high (eg >5%) interest debts in the mean time with whatever is left over and leave it alone otherwise.

    They said I would start paying taxes once I start working because that’s when they will forgive the interest and principal. The interest and principal will be added as “income” to my W2, and those are the taxes I will pay. They also said that no matter how much I bring down my taxable income, that forgiven amount will be taxed at the highest bracket.

     

    What is the condo currently worth?

    It is about the same $425k.

    Can you expand on why your escrow is increasing by $300/month?  Did property taxes go way up?

    The bank calls that difference “shortage” in the communication they sent. I know the home insurance went up but only like 100$. I started shopping for a new homeowners policy, but they are off by like $500+, so I am going to keep the current one.

    Are you in a payment plan with your parents right now?  What is the interest rate and what is the monthly payment?  How important to them is the timeline of when you pay them back?

    I am the one that wants to pay them back as soon as possible, but they are very flexible. Initially, they didn’t want me to pay them any interest. However, I informed them that I had to, so they asked me to find out what was the minimum interest that the IRS recommended.

    What other job offers are you looking at?  Would you take this job if there was no $150k sign on bonus?

    I am looking everywhere in the midwest, so far this is the best offer I’ve received. A couple of friends who recently graduated from different programs signed for a similar base salary but with sign-on bonuses of $25k and $50k. Also, they will be in more remote places. If I was offered a different sign on bonus, I think I would still take it based on the input I’ve received from the current employees that I happen to know before I started looking for jobs.

    Does the job pay relocation expenses?

    Yes, they offer 12k for relocation, but they make you pay taxes on anything above $7500.

    P.S. There is a box you can check at the bottom of the post “notify me of follow-up replies via email” if you want to get notified of new replies.

    Thanks!

    P.P.S. I can’t imagine completely redoing training in a new country, you are a much stronger person than I–kudos!

    Thanks! 😉

     

    I got the impression that the “forgiven” loan is treated as income, and since it forgives throughout the first 4 years of service, there may not be that tax advantage.

    Exactly, that’s what they explained to me. Thanks for the input.

     

     

    That's what all we are. Amateurs. We don't live long enough to be anything else.
    - Charlie Chaplin

    #229137 Reply
    Liked by Tim
    Avatar Infinity 
    Participant
    Status: Physician
    Posts: 52
    Joined: 05/25/2019

    What is your immigration status and your long-term plan?

    Do you plan to work in US until your retire?

    #229318 Reply
    Avatar Anne 
    Participant
    Status: Physician
    Posts: 1047
    Joined: 11/07/2017

    You should sell the condo when you move.

    Are you on a clear budget? I think you need one, given that you feel like you are drowning and living paycheck to paycheck and a $300/month increase is making you turn to a credit card. You need to figure out where you can economize and save some money.

    Do you have any retirement plans available at work right now?

    I don’t know what the right answer is about the bonus. You might be a little short when you go to sell and so may need a little cash then. It would be really great if you guys could get started with retirement via at least Roth IRAs this year. The main thing is getting the condo sold when you move, then you’ll be starting with 400k income, $125k debt which can be paid off fast either via the bonus or cash flow. Rent in the new place and live a middle class lifestyle–maybe 100k/year, then invest whatever is left after taxes. Keep enough set aside so that you can repay the bonus if you need to leave the job. Focus on enjoying your career while catching up on retirement savings for 5 or so years and then you can reassess what you want to do. If after a couple years you decide you love the job and location and want to stay you can start looking at buying.

    #229386 Reply
    Avatar SameMD 
    Participant
    Status: Resident
    Posts: 11
    Joined: 07/03/2019

    What is your immigration status and your long-term plan?

    I am a permanent resident in the path for citizenship

    Do you plan to work in US until your retire?

    Yes

    Are you on a clear budget? I think you need one, given that you feel like you are drowning and living paycheck to paycheck and a $300/month increase is making you turn to a credit card. You need to figure out where you can economize and save some money.

    I am on a very tight budget; I currently use “Mint” to keep track of my expenses. That’s why the change in my escrow concerned me that much.

    Do you have any retirement plans available at work right now?

    I probably have one, but I haven’t put anything aside given my current situation.

    I don’t know what the right answer is about the bonus. You might be a little short when you go to sell and so may need a little cash then. It would be really great if you guys could get started with retirement via at least Roth IRAs this year. The main thing is getting the condo sold when you move, then you’ll be starting with 400k income, $125k debt which can be paid off fast either via the bonus or cash flow. Rent in the new place and live a middle class lifestyle–maybe 100k/year, then invest whatever is left after taxes. Keep enough set aside so that you can repay the bonus if you need to leave the job. Focus on enjoying your career while catching up on retirement savings for 5 or so years and then you can reassess what you want to do. If after a couple years you decide you love the job and location and want to stay you can start looking at buying.

    Would you recommend putting some of the bonus into an IRA? My only concern is that I would be charged with interest starting the day I take the money (I still have one year of fellowship ahead). They won’t charge me directly with the interest if I stay with them, but they will consider the forgiven interest as income, and I will be taxed on that. Thank you for your advice!

     

    That's what all we are. Amateurs. We don't live long enough to be anything else.
    - Charlie Chaplin

    #229671 Reply
    Avatar SameMD 
    Participant
    Status: Resident
    Posts: 11
    Joined: 07/03/2019

    Do you have any retirement plans available at work right now?

    Just fund out they offer these options:

    • Contributory Retirement Plan (CRP)
    • Retirement Income Plan for Employees (ERIP)
    • Supplemental Retirement Annuity Plan (SRA)
    • 457B DEFERRED COMP PLAN

    That's what all we are. Amateurs. We don't live long enough to be anything else.
    - Charlie Chaplin

    #229689 Reply
    Avatar Infinity 
    Participant
    Status: Physician
    Posts: 52
    Joined: 05/25/2019

    If you can’t find a better job offer elsewhere, I would sign now and take $150K now.

    You will need that money to pay for $300 extra mortgage, retirement contribution, or condo if you have to sell at a loss.

    would not payback parents, or pay down the mortgage, or buy a house.  You need that $150K for emergency funds.  Interests and taxes on $150K are not a big deal to me.

    I would not buy a house if I am not sure that I will stay in it for at least 3 years.  So, rent is your best option.

    You should start paying for social security as soon as you can because you need 10 yrs (40 quarters) of payments to be qualified for medicare and you will need medicare when you retire.

    Estimate how much condo is worth (rent/sell) after fellowship?  If you can’t get at least $3000/mo rent, I would sell it.  Distant landlord is not recommended.  If you need to sell it at a loss, you will need to have money to payback the bank.

    If you have some money left from the above processes, then I would fund all available retirement options now.  If you have Roth option, I would fill it first.

    After fellowship, please live like a resident for 4-5 yrs. Live with your current income ($79K). You will pay ~30% tax on $400K and have ~$200K left ($400K-$120K-$79K=$201K).  Put that $200K in savings in tax deferred and then after-tax investments.  You are 10-12 yrs behind others because your situation.

    Never ever think about taking that credit card debts (17% interests is robbery).

    Good luck on your journey.  You are tough, you can do it.  Please let us know how it goes?

     

    #229974 Reply

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