Even though most doctors don’t see their home as an investment, buying a home is one of the largest purchases, and therefore investments, you’ll make. Aside from medical student loans, your home mortgage will likely be amongst the largest amounts of money you borrow as well. Because of these things, we often see questions in our physician communities about housing, such as members asking how much they can afford to spend on a house, if it’s a good idea to buy or rent, and questions about mortgages and interest rates. Below, we cover these topics and other tips physicians should know before buying a home.
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The Physician’s Guide to Buying a House
Below, we cover some of the most common questions we’ve seen when it comes to buying a home to help you navigate the process. If we’ve overlooked your question, feel free to ask the hive mind in our Physician Side Gigs Facebook group.
Should I buy a home or rent?
Before digging into how much home to buy and the logistics of buying a home, it’s important to assess if now is the right time for you to consider buying. While real estate is a great way to build wealth, buying too early can end up being a costly mistake.
Transaction costs for buying and selling a home are both high. When purchasing a home, expect to pay for:
Inspection costs
Closing costs on a mortgage, including homeowners insurance and taxes
Furniture for your new home
Costs for upgrades, remodels, and renovations
When you go to sell your home, you’ll face additional costs as well, including:
Commission fees to agents
Staging
Document/stamp fees
Title and lien searches, title insurance, etc.
These fees range from thousands to tens of thousands of dollars on both sides of the buying and selling equation. Your early mortgage payments will also be heavily going toward paying interest to the lender over paying down the balance and building equity in the home.
With these fixed costs, you want to make sure you’ll be in the house long enough that your house value will appreciate enough to make up the costs, or that your net costs will at least be on par with or less than what you would have spent in rent during the same time. While houses generally appreciate in market value over time, housing markets can be unpredictable, especially on the local scale. Certain markets appreciate more than others, and some may even see a dip in house values.
The more time you spend in your house and the more equity you build, the more stable your housing situation will be. A good rule of thumb is to plan on being in a home for at least 5 years so that you don’t buy high and then sell low. Higher interest rate environments can lean closer to a 5-7 year range.
For Residents and Fellows
Given the length of residency and the unpredictability of where your first attending position will be, most residents and fellows should usually rent unless they’re going to be in a longer training program and the buy to rent ratio is favorable. Generally speaking, it is very hard to count on enough appreciation to offset the transactional costs for a training program that is 3 years or less. In a worst case scenario, if the housing market shifts and you have to sell the house for less than what you bought it for when you leave, it could be very hard to come to the closing table at the time of sale with the amount of money you owe your lender when you still don’t have substantial savings. And while we love real estate investing as a great way to generate alternative income, becoming an accidental landlord is usually not the best situation or return on your investment.
Also consider the fact that even if you plan on staying in the area after training, the house that you buy during training is unlikely to be your forever home. As you become more financially secure, what you want in a house and the type of house you can afford will likely change, not to mention that as you live in the area for a while, you may find that other locations may better serve what you want in terms of proximity to jobs, friends, schools, and other amenities.
For New Attendings
On average, a physician usually stays in their first attending job for less than a few years. The reason why this is the case is beyond the scope of this article, but know that for a number of reasons, the first job is statistically very likely to not be your last job. Even if you intend on joining a private practice and getting partnership, it may not work out. While we understand the urge to finally settle down after moving around so much during college, med school, residency, +/- fellowship, it is financially the smarter decision to rent at first and make sure you like the job. Additionally, this will allow you to get to know the area, where you want to live, and also get comfortable with your new budget as an attending so you can make a more informed decision about what you can afford and buy accordingly. This will prevent you from being house poor if you buy too much house, as well as prevent you from buying a house that won’t serve your needs for long because you’re still in scarcity mode from training. While your salary may seem huge to you on paper, it takes a little time to equilibrate with the sudden change in income, as well as understand the implications of taxes and changes in lifestyle once you hit attending mode.
When Relocating for a Job
When relocating to a new area without much background knowledge, we often see posts in our Physician Community Facebook group asking for insights and recommendations from other physicians familiar with the area. If you can’t get a good feel for the town or city from family, friends or colleagues, you may want to consider renting for a short time to get a better understanding of where you might like to live long term, especially if you are earlier in your career and your housing budget is tighter. Once you live in an area for a while, you may realize the difference between two houses a few miles away from each other in terms of traffic patterns or convenience, and you don’t want to end up with buyer’s regret.
This also buys you time to gauge if you really like your new job or helps ensure you have partnership, providing more job stability before purchasing.
But what if my mortgage payment is cheaper than rent?
People often think that renting is just throwing money away. This is especially true when they run the numbers and discover that their mortgage payment could be less than what they’re paying in rent.
While this is true, it isn’t a full picture of the cost of home ownership. Mortgage payments and rent are not an even comparison. There are several costs of home ownership not factored in, including:
Your down payment, if you had one, and the opportunity cost of not investing that money or paying down student loans, etc
PMI (private mortgage insurance) if you don’t have a physician loan
Closing costs paid during purchasing a home
Insurances (homeowners, flood, etc. are much more expensive than renters)
Property taxes
HOA fees
Maintenance and repair costs
Utilities, and routine services such as lawn mowing, shoveling the driveway, clearing leaves, etc
Renovations and furniture to make the house yours, which you may not invest into a rental
While you may be able to receive a tax deduction for the interest portion of your mortgage payment if you itemize your taxes, it likely won’t make up the difference in the additional cost of home ownership responsibilities.
How much home can I afford to buy?
Once you’ve decided to buy a home, determining how much to spend can be difficult because your home is both an investment and it isn’t. While your home builds equity, you always have to live somewhere, making your home the most illiquid asset you’ll likely own. In order to sell it to reap the benefits of your investment, you have to move.
Having too much of your net worth tied up in your house can thus make it more difficult to accumulate wealth versus having that money working for you in other ways, such as:
Paying down high-interest debt
Investing in tax-advantaged retirement accounts
Investing in rental properties that cash flow
Investing in taxable accounts
It’s also important to know that while your house may appreciate at a rate similar to what you could make investing in the stock market, it’s better not to buy a house based on this assumption. Home values can fluctuate, up and down, based on several factors outside of your control, such as:
Mortgage interest rates
An economic recession
New development in the area
School district ratings
While your local housing market might experience a boom, that might not be the optimal time to move and sell your home to capitalize on the gains. And as your house appreciates, the others in your local market will too, so buying another house will be more costly as well.
When assessing how much home to buy, it’s best to treat your home as a fixed and illiquid part of your overall asset portfolio rather than an investing tool to grow your wealth. You’ll want to spend enough to like where you live (both the house itself and the community) but not so much that you feel ‘house poor,’ where the strain of your monthly payment prevents you from investing in the opportunities listed above, or otherwise just enjoying your life.
The more discretionary income you have in your monthly budget, the more home you can generally afford to buy. Discretionary income is the amount you have left after paying all your required bills and necessities. Take into consideration expenses such as:
Your student loan payments
Payments for other loans (auto loans, etc.)
Your insurance payments: life, disability, auto, health, etc.
Retirement savings (try to prioritize paying yourself a set amount every month)
Groceries and transportation
Learn more about budgeting for physicians if you don’t have a good idea of your discretionary income yet.
Remember to also factor in the additional costs associated with home ownership that we outlined above, as they will become necessities as soon as you purchase your home.
Guidelines on how much to spend
There are different budgeting metrics and rules of thumb often cited to assess how much home you can afford. It’s important to recognize that these are general guidelines that may not apply to your specific situation, especially if you live in a very high cost of living area (VHCOL) where these rules would preclude you from home ownership entirely. Here are some of them:
The 50/30/20 budget recommends allocating 50% to all your needs (including housing and the other expenses listed above), 30% to wants, and 20% to retirement.
Your mortgage starting balance should also be less than 2x your gross (before taxes and deductions such as health insurance premiums and retirement contributions) household income. While this may not be possible in high cost-of-living (COL) areas, it’s still a good target to keep in mind for these situations.
Another general guideline is to allocate a maximum of 20% of your household income toward housing-related expenses. This is not only your mortgage, but other expenses such as insurance premiums, property taxes, HOA fees, etc.
What if I get preapproved for more than what I was expecting?
As a doctor, the amount you “can” afford to squeeze into your budget is generally pretty high. This is the amount that the lender will offer you, as they don’t have to deal with the anxiety of making sure all your other bills are paid by the end of the month or have to consider what you may want to spend your money on to actually enjoy your life (vacations, meals and nights out, kids’ activities, etc). As a general rule, do not spend the maximum amount a bank will lend you. This is one of the easiest ways to become “house poor” unintentionally. Stick with the guidelines above.
What type of mortgage loan should I get?
There are several different mortgage options, including physician loans. You want the loan that aligns with your financial and lifestyle goals. Compare your total costs with the different types of mortgages, such as conventional loans and physician loans, and 15-year and 30-year options.
To initially compare apples to apples, ask lenders to provide quotes with the least amount of closing costs possible so that you can assess the total costs in each scenario. You can then ask about ways to get the rate down by paying higher upfront closing costs later.
A physician loan provides you the opportunity to get into home ownership earlier by requiring less (or no) down payment, but a conventional mortgage will create instant equity in your home and lower the amount of mortgage you are paying interest on, which can save you tens of thousands to hundreds of thousands depending on the size of your mortgage.
An ARM (adjustable rate mortgage) can offer even better terms, but the interest rate becomes variable after a set introductory period, which can make your mortgage payment unpredictable in following years, depending on market interest rates.
In general, at interest rates like those in 2024, if you have the money to put down a down payment, a conventional mortgage is worth considering despite the option to have a physician loan. It will likely get you a slightly better rate and in general you will pay less in interest over the life of the loan since you’re financing a smaller amount, so unless you have a better investment option or use for that money (paying down high interest debt, saving for a buyin for a private practice, etc), it’s likely worth it to take the guaranteed ROI not paying interest on that money in post tax dollars offers over investing in an asset that has more risk and which you will then also pay taxes on.
Therefore, it’s important to not just assume that the physician mortgage is the better option just because it has a special name. Do the math both ways and judge what’s best for your scenario.
If you take a physician loan, remember to reassess regularly whether it’s still the best option. You can always refinance into a new mortgage as your situation changes (interest rates decrease, you reach 20% equity in your home, you get below the jumbo limits on your loan size, etc.).
Learn more
Where can I find a mortgage when buying a home?
Shop around and price options with a few different lenders. Mortgage lenders will typically negotiate their rates and/or closing costs when they know there’s competition.
Word of mouth recommendations can be a great way to navigate the options available. We’ve partnered with mortgage lender sponsors who have been used and recommended by members of our physician community to help you get started.
Conventional Mortgages and Refinancing Sponsors
Credible: Credible has partnered with Physician Side Gigs to offer options for primary mortgages and mortgage refinancing. Explore options through our affiliate link. NMLS #1681276, in all states except NV, NY, UT, and WA.
Physician Loan Mortgages Sponsors
Fifth Third Bank: Tony Lupescu (tony.lupescu@53.com) does physician loans. He can do loans in Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, North Carolina, Ohio, South Carolina, Tennessee, and West Virginia. NMLS #224410.
Central Bank of the Midwest: Brian Smith (brian.smith@centralbank.net) does physician loans in Arkansas, Colorado, Florida, Illinois, Iowa, Kansas, Missouri, North Carolina, and Oklahoma. NMLS #1452834.
Wintrust Mortgage: Garrett Larkin (glarkin@wintrustmortgage.com) and his associates do physician loans in Arizona, California, Florida, Illinois, Indiana, Iowa, Minnesota, Montana, North Dakota, and Wisconsin. NMLS #945946.
How do I find the right house?
Once you’ve finished your research and have an idea of your price range and which type of mortgage you want, a lender will often provide a pre-approval letter. Many real estate agents will want to see before setting up a tour for a house.
You can work with a real estate agent familiar with the local area who can help you assess current market trends. As you shop, ask about current days on the market and averages for the area. This will not only give you an idea of how hot the market is, but can help gauge how easy or difficult it may be to resell when you’re ready to move. If it’s a hot sellers’ market and homes are moving quickly, don’t use the pressure as a way to rationalize overspending your house budget. It may require a little more patience, but you will find the right house.
Keep in mind while you house hunt that there is no such thing as a “dream home.” We already mentioned that what you want in a home will change with your career, your income, and your life. Weigh the pros and cons of each home you consider based on what you and your family are looking for. A list of requirements and desired features that are non-negotiables as well as a separate list of “would be nice, but not necessary” before you start house hunting can help point your real estate agent in the right direction of what to look for.
There may not be a house that ticks all your desired boxes, but you’ll likely find one that’s close. As with most things in life like picking a college, a med school, and a residency, there’s what you ideally want and then what life somehow figures out for you. A few months after you move into what you may perceive as your dream house, you’ll probably discover there were other features you didn’t consider that you wish you had. It’s all part of the process, but ultimately, it’s your memories in the house that will make your house a home, so don’t sweat the rest.
Conclusion
Buying a home, especially your first one, can be exciting but also overwhelming. We hope the guide above helps you navigate through the home buying process. If you want to learn more, explore some of our other resources:
Disclosure: This page contains an advertisement from a third-party advertiser, Credible Operations, Inc., which is licensed as a mortgage broker in some, but not all, states (see https://www.credible.com/a/mortgage/licenses). Information contained herein is provided for illustrative purposes only, without any representations or warranty as to its accuracy or applicability to you. All credit requests are subject to review and approval, and your actual loan terms will depend on your financial situation. Credible Operations, Inc. is solely responsible for the content of its advertisement and the services it provides.