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Buying a Home Before Residency

Every year thousands of new doctors ask the same question “Should I buy a house during residency?” The answer to this question depends on many personal factors and is far from simple, but this year, the answer to that question for many will be yes. That is because now is the best time in decades to buy a home. Prices have fallen dramatically from their height in 2006 and they are not expected to fall much further. Interest rates are at their lowest point, in fact, it they cannot fall any further. For many, this will make the decision to buy very easy, however it may also tempt those who would not otherwise buy during residency to do so. The two primary issues to consider are whether it is a good financial decision, and how can you afford to make it happen. Here are some key points to keep in mind as you make this decision.

Is it a good financial decision?

Whether your residency program is three, four, five years or more, it is very likely that your home would appreciate in value before the end of your program, which makes buying a home a good idea even for those residents who do not expect to stay in the city where they match. Short-term adjustable-rate mortgages (ARM’s) make purchasing a home for three to five years a possibility because they offer fixed, low interest rates for a period that would cover your time in residency. However, this can also be risky and requires flexibility because if it becomes difficult to sell your home after residency, then you may be forced to stay in the city until it is sold or make other arrangements to rent the property until it does sell. If you do decide to buy and hope to sell after residency, keep in mind that single-family homes are often easier to sell more quickly, and they tend to retain their value more predictably than condos.

If you expect to remain in the same place after your residency ends, then buying now is almost certainly a good idea. In this case, the best financing option is most likely a fixed-rate mortgage because it would allow you to lock your interest rate now, when rates are at their lowest. However, you should still consider carefully several issues. Do you expect your family to grow over the next few years? If so, would the property your are considering provide enough room for you and your family? Will your job after residency require you to move very far? Do you expect a significant change in income, either increase or decrease, anytime in the near future? All of these issues can greatly affect your decision to buy a home during residency, and should be considered carefully.

How can I afford it?

Residents in general all have the same financial concerns when it come buying their first home during residency. They are carrying large student loan debts, often more than $200,000, and they do not have much money for a down payment. This makes conventional financing almost impossible. Fortunately, there are good financing options specifically for doctors, but they can be hard to find. Some lenders offer true “Doctor Loans” which provide 100% financing with a 0% down payment, no requirement for private mortgage insurance (PMI), and are lenient when considering deferred student loan debt. However, there are also many lenders that advertise a “Doctor Loan” but charge outrageous rates, require PMI and have very high closing costs. Distinguishing between the two can be nearly impossible. So, when it comes to financing your home, buyer beware, and make sure to read the fine print.

Bottom Line: If you plan on staying in the same city after residency, and you can find the right financing, then buying a home this spring is definitely something to consider, especially given the great deals out there and the fantastic interest rates. Just be sure to have a good agent representing you who understands the issues young doctors face in the real estate market.

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