Financial planning is comprised of the six decisions people make with their money. Physicians need to make decisions as to how you earn, spend, save, borrow, give, and protect yours. Home buying typically touches on all of the six money decisions.
Home buying often begins with a mortgage, so you will have to make decisions about borrowing money. You also must earn money or at least have the potential to earn money to qualify for a mortgage. Physicians can qualify for a physician loan during training, with zero income, if there is a spouse or co-signer with an income. Physicians and dentists also may need to save money and spend money to buy a house. Lastly, insurance is necessary to protect mortgages or homes, and homeowners are required to pay property taxes, which is where giving your money comes into play.
The six money decisions are important because people think they have worked with a financial planner, when you may have worked with a professional to set up a Roth IRA, someone helped you buy an insurance policy, or you worked with a CPA who helps you manage your taxes. While those are all critical financial components, they don’t quite rise to the level of comprehensive financial planning or service all six of the money decisions.
This home-buying decision can apply to you if you are in residency and thinking about buying a house or it can apply to you during your transition from training to practice, as you are settling down in your medical practice. At some point, this question is likely to come up, whether it’s today, three or five years from now.
First, you need to decide if it really makes sense for you to buy, depending on your current and future situation. If you do decide to buy a home, the next step is to figure out how much house you can afford. Once you figure out the price/budget, you’ll need to figure out what type of loan is best for you. Then the fun part comes in — finding the right house. Below are the four main questions you should answer when considering buying a home.
Should I buy or rent?
Owning a house may sound intimidating or super awesome to you, but does renting actually make sense for your current situation if you are in a temporary location for your training? Banks might loan you the money to purchase a home — which, would indicate you can buy — but you may not be ready, based on where you are today and where you see yourself in the future. To help you decide if you should buy a home or rent, consider these questions:
1. Do you plan to move in the next five years? This is important because if there is a possibility that you would move in the next five years, you may not be able to recoup the cost of buying or selling the house.
2. Length and location of your residency?
3. Do you plan to do a fellowship? Where will it be located and how long will it be?
4. Where do you plan to practice medicine after training?
5. Is the home you buy a starter home or forever home?
6. If you do plan to move, would the home become a rental?
How much house can I afford?
If you have answered the six questions above and you have come to the conclusion that it is time for you to buy, you may have already been looking on Zillow or Realtor.com for the perfect house. It’s OK to check out the area you are interested in to see the prices and types of homes, but we suggest to analyze your budget and work with a lender first.
Depending on your financial situation, your medical student loans and other debts can affect how much house you can afford. If you are paying IBR (income‐based repayment) on your student loans, it is crucial to consider the projection of your student loan payment in the future. Once you have factored your student loans into your budget, also think about your car situation, if you are planning to send your kids to private school, or if you will need to finance starting or joining a medical practice.
What type of loan?
There are several mortgage loan options out there. Many banks offer a doctor loan for physicians and dentists, with great benefits for those who qualify- including residents. It is important to shop around for a mortgage lender and work with the one you choose to get pre-approved for a mortgage loan. Your financial planner and the lender can also help you decide which loan works best for your personal financial situation.
How do I find the right house?
Once you are pre-approved for a loan, the home buying process becomes real, and you now have the credibility to tour houses and ultimately put in an offer. Now is the time to shop around for a realtor to help you through the home buying process and represent you at closing.
John Dameron is a financial planner and partner, Spaugh Dameron Tenny. He is the author of the Residents and Fellows Financial Survival Guide. He is a registered representative of and offers securities, investment advisory and financial planning services through MML Investors Services, LLC. Member SIPC (www.sipc.org). 4350 Congress St., Suite 300, Charlotte, NC 28209. Spaugh Dameron Tenny is not a subsidiary or affiliate of MML Investors Services, LLC, or its affiliated companies. CRN202102-243147
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