Ah, choices. So many choices, no?
For many new residents, Match Day is the same day they plan to pick up and move to a different city or state. After getting their minds around the new city they’re moving to, relocating residents often follow up their Match Day results with one question:
“Should I rent or buy a home with a physician loan mortgage?”
This question isn’t limited to new residents; it can impact established doctors moving to a different job, or anyone else outside of the medical industry. Fortunately, using a physician loan can make it easier for doctors and new residents to buy a house earlier on in their careers.
While potentially making buying your house easier, physician home loans may not be a perfect fit for you. Keep reading to see arguments for each side.
Factors That May Impact Your Decision
Flexibility – Both renters and buyers have extra flexibility in different areas. Renters don’t have to worry about leaks and maintenance issues, and can move wherever they want each year. Renting offers ultimate flexibility in that regard. On the other hand, homeowners can make improvements and changes to better suit their lifestyles. If you’d like to update your kitchen or bathroom, you can make that decision on your own. The flip side is that you’ll have to deal with issues as they come up, or hire someone who will do the repairs. This can quickly become a costly nuisance, especially in older homes.
How Long Do You Plan On Staying? – Knowing how long you will stay in an area has a huge impact on your decision. If you don’t plan to stay there long, it may make more sense to rent. If you plan on staying there longer (over 3 years), it would probably be beneficial to buy a house and start building equity.
One question to ask yourself is: “Would I regret not buying a house if I had to stay a few years longer?” If the answer is yes, you should consider buying. Online rent calculators like this one can help you see which option makes more sense for your situation.
How Do You Feel About Your Job Opportunities? – If you feel you will have a stable job and will stay where you go for your residency, you should consider buying. This goes hand in hand with the last factor: if you are confident that you will want to stay in a particular hospital or area, buying may be a better choice. If you aren’t sure how stable the market is where you moving, renting could be the better option.
Housing Market – Yet another factor to consider is the state of the housing market in the area you will be moving. Always do a little research to see if it’s a good time to buy a house in that particular area.
Your Credit Score – While a physician loan mortgage makes it easier for doctors to get a loan, your credit score will still play a major factor in the lender’s decision. Having a low score can negatively impact the terms and rates you qualify for.
Do You Have Pets? – Having pets can make finding a new apartment or rental home very difficult in some markets, especially if you want a yard. Many apartments and rental properties do allow pets, but you’ll pay a premium in addition to higher deposit fees. Buying your own home offers much more flexibility in this regard.
Have You Ever Considered Being a Landlord? – As a new resident or relocating physician, it’s possible to keep and rent our your old home after moving on to a new area. Property management companies make this easy by removing most of the headache from being a landlord. Most of them take care of everything from finding tenants to dealing with complaints and repairs; you just pay them a percentage of the monthly rent (8% – 10%) plus a tenant finding fee (1/2 month to 1 full month’s rent). Being a landlord isn’t for everyone, but if you’ve considered it in the past this may be something to think about.
Compare the Payments – Look at how much you will pay per month on your physician loan mortgage vs. how much you will pay in rent. Remember that a good chunk of your mortgage payment will go towards paying off your house, which is kind of like saving. With rent, you pay the entire sum to your landlord in exchange for a place to live. With a mortgage, you pay the bank a portion of your payment in rent (your interest payment), but the rest goes towards what you owe them (your principal).
- For example, payments for a $200,000 30-year fixed mortgage with a 3.5% interest rate are $898.09 per month.
- Of this $898.09 monthly payment, $583.33 is paid in interest, and $314.76 goes towards repaying the principal loan balance.
- The longer you make payments, the less you pay in interest and the more you pay towards the principal.
When comparing rent and mortgage payments, you can use the money you pay on interest as the cost of your mortgage. The remaining money, in this case, $314.76, goes towards paying off your house. If you end up selling, and the home has increased in value, you will likely get this money back.
If you’d like to apply this methodology to your situation, this calculator can show you exactly how your mortgage payments will be broken out.
Some people who want to sell you a house will tell you, “Buying a house is a great investment.” This is not exactly true. Homes don’t have the best long-term rate of return and have historically underperformed compared to the stock market.
Roughly, average yields on a home are 3% as opposed to an average of 7% in the stock market. Everything being equal, and all other criteria aside, putting money in a house that returns 3% is better than spending it on rent. Therefore, you can think of paying off your mortgage as saving instead of investing.
If that’s all too much to take in don’t worry, you’re not alone. Online calculators like this one or this one are fantastic ways to get down to the essential numbers.
Physician Loan Mortgage vs Renting Conclusion
Owning a home isn’t a good or bad decision on its own, it depends on your individual situation and goals. Residents may benefit from buying with the intent to sell at a profit, as many have in the past. This allows them to live in a house while paying a mortgage, and then sell it when they want to move. Doing so often costs less than paying monthly rent, including maintenance costs.
Physician loans make it easier for relocating doctors and residents to buy a house, but buying isn’t for everyone.
Over the next few weeks, think about what would work best in your situation and how it will impact your post-Match Day move. By making the right decision, you’ll have one less thing to think about when starting your new job.
Whatever you decide, start putting money away now so you can have something saved for when you move; who knows what opportunities might appear.