Friday, November 8, 2013

Making Mistakes: Part 5

I wish you could see me right now. It's 8:30 am. I am in bed. My wrinkled pajamas and bed head clearly indicate I haven't traveled far in the few hours I have been awake. I got out of bed long enough to get the laptop out. The iPad is streaming a show next to me, and my 2 year old is watching a movie on my phone cuddled up to my side. I almost made a commercial for Apple with this image. All I need is a runny nose and cloudy weather outside and it would be justified. I think I am getting sick.

But I am stalling.

This is the mistake that really got the entire ball rolling on this series, and I don't know if I am ready to tackle it. Oh, I've been rolling it around in my head for months, but am I ready to make it public? In a way I already have long ago, under different circumstances, but here it is again.

Deep breath.

I hope you believe it when I say I do believe every situation is different and what may look like a mistake to one is exactly the right choice for another. It's up to each of us to decide what is right for us. I really do believe it. I hope you do to. Age and experience does that to a person. Lots of experience.

Now that all the appropriate disclosures have been made, read on.


Mistake #5: Buying a home.

There I said it. Before you disagree with me, keep reading. Buying a home is a mistake IF the timing is wrong. My history with housing has produced fairly strong feelings on the subject. Buying a house is always a big decisions, but now that we are at this junction in our lives it is huge. It's not something to rush into or take lightly.

What is the first thing that everybody wants the minute they graduate from school and move for residency, or pass from residency to the real-life? What you had before was real too, but you know what I mean.... that life that everyone told you was waiting around the corner and would be a shifting point in your experiences. Everybody wants a house. There isn't anything wrong with that. Or at least I hope there isn't. I have been carrying around a photograph of a house and floor plan that I saved from a magazine from the year 2007!

After fellowship we were completely unprepared to buy a house. Of course, we wanted one. By all accounts we deserved a house, and not just any regular house: we deserved a dream house. The word deserve drives me nuts. And we can certainly afford one. Can't we?

Yes our income skyrocketed, but most of the time you still need a down payment to buy a house. (Yes, there are some loan products available for doctors with zero down - but don't be fooled, there is always a catch, like higher interest). Unless you are going to buy a house identical to the one you lived in in residency - it is going to take time to get it together. More than a month. The more you put down the more favorable your rates, and the more leverage you have.

You may be wondering how this mistake is my mistake? Well I don't know if it is a mistake yet or not. We sort of bought a house - but that story is too long to tell today.


Here is a warning, given in love, from someone who was very, very recently there:

Nobody likes moving twice. So buying a house directly after residency/fellowship is tempting. Take your time. You have waited so long already, can you give it another 6 months?

Get a feel for your new city. Yes, you can research online but there is nothing that compares to being on the ground and getting a feel for a neighborhood. Listen to the sounds, watch the traffic. Notice the location of grocery stores and schools and power lines. It can't be replicated through online research.

Get a feel for your new income. There are going to be some shocks (taxes) and other expenses that you never dreamed of. You may not actually have as much to work with as you think you will. And even then you might be surprised to find out that what you have doesn't buy as much as what you thought it would. If you have deferred your student loans you will also be adjusting to that expense that wasn't previously a consideration. There is an adjustment period that will take place before you know what is really your disposable income to work with.

Do you plan on giving generously to worthy or unworthy causes? Do you plan on traveling extensively? Do you want to buy furniture one day? Will your children be attending private school? How do you image utilizing the money you earned?

If you buy a house before getting your other ducks in a row you will be working around a house, possibly at the expense of your retirement future, and the lifestyle you want for the present. If you put your plans for the future in place first you can confidently plan for a house that works for you not against you. 

Banks are eager for the business of a new doctor. They will always lend you more money than you need. They aren't interested in whether or not you are able to save 20% of your income after the house payment is made... they just want you to make the house payments. They don't work for you, they work for the bank. What's good for the bank may not be what is good for you.


Suggestions:

Retain the services of a financial planner that you trust and who understands the unique circumstances of your profession several months before you start the "job". 

Most of us are starting careers at least a decade, or more, after our counterparts in other professions. The majority of us have no speakable assets and an abundance of liabilities. The hole is really deep and we are significantly behind the curve. Not to mention we have a limited window of earning opportunity for savings before desired retirement.

Do not trust the bank who is lending you the money to tell you how much you can afford. You need a third party who knows your spending/saving goals to help set a realistic budget for a home.

Only a professional can help you make sense of what this means for you. You have stepped into a new world and need help. You DO need help. This is not the time to do it yourself.


P.S. Yes, I will write about our potential house experience soon.

Photobucket

26 comments:

  1. I'm glad to "hear" that coming from someone who knows better. Owning a home is that ultimate dream for me, a dream that my own parents only just fulfilled after 2-3 years of looking and unsuccessfully trying to put in a bid for the one that they really did want and even more years of planning.
    In large cities, the rent is often more expensive than the mortgage and associated fees, so a lot of people my age like to say things like "oh, if I just had the money to put down the down payment, I would just buy a house." It sounds reasonable on the surface, but I think there are a lot of thing to consider when buying a home that I only know of because I watched my parents go through the same thing.

    ReplyDelete
    Replies
    1. Thank you for your comments. I am so excited for your parents. After that much time, it really is well worth it!

      Delete
  2. I am enjoying your "mistakes" series! Our plan was to sell our current home and buy right after he signed on with the group he's with. That was two years ago. Yes, we will be able to get a physician's loan, but we have to have 20% cash down. That's a really good-sized chunk of change. We've been tempted to just go find something that will work for now, but we have a dream home waiting to be built and we're sticking to that plan. It's hard being crammed in this small space and with children now entering teens, we are so ready to give them the new space. Ready to hear about your housing experience!

    ReplyDelete
    Replies
    1. I hear you on the small space with children. I can't wait to tell you about our living conditions - no body expects us to be living like this, but the truth is maybe more of us should:-)

      Delete
  3. You basically wrote this entire post for me lol! We are thinking about buying a house right out of fellowship in June but after reading this it really makes me think twice. I think we are trying to rush just because were sick of moving again and want instant gratification that residency was worth it. Everything you wrote resonated with me. I will show this to my husband later too. Seriously best timing ever thanks a million!!

    ReplyDelete
    Replies
    1. I am glad you appreciate it, and that the timing was right. It felt like the right time to confess:-) I can't say it enough welcome to the blogging world!

      Delete
  4. Completely agree that you should never rush into buying a home, even though it is tempting! Although so difficult, I'm so glad we had to wait to purchase because we really had a better grasp of the city and area and nailed down where we wanted to be.
    I'm also blown away by what the banks were willing to loan us as a resident- it was absurd! We would be completely broke (even with me working) if we had taken all of the money they tried to give us. It's SO important to keep your head out of the clouds and understand what day-to-day expenses you will have with any income, big or small.
    Again, I love this series- thank you :)

    ReplyDelete
    Replies
    1. If we took what the banks were willing to give us there is no way we would ever be able to save anything, or do anything. They really must think money grows on trees, and it's easy to get. Thank you for you for your encouragement of this series.

      Delete
  5. Oh my goodness... you are so right. Take your time buying a house. Take some time to realize you don't have as much money as you think you do. Cry-ckie! And remember home improvements are much more expensive then they tell you. Yowza.

    ReplyDelete
    Replies
    1. I always appreciate hearing that I am right:-) Your confirmation means that it must be true... I am wishing I had more time to take right about now.

      Delete
    2. I'm wishing I had more time to pay these bills!!! My butt is puckering in the ugliest of ways. *sigh*

      Delete
  6. I was just thinking to myself today (when I was frustrated throwing money to rent AGAIN), That I can't wait to own a house when he (my husband) is done.... I have found myself doing this a lot through medical school... I CAN'T wait till he is done with the first two years of school, I can't wait till he is done with rotations, I can't wait for a bigger place, a nicer TV, etc... Its really hard not to feel like we deserve but I have to remind myself daily how lucky we really are and enjoy each moment in this Medical journey :)

    Thanks for your great honesty!!!

    ReplyDelete
    Replies
    1. I know this is easier to say when it is all said and done, but I remember feeling like I missed so much because I was so focused on the end. It's hard to enjoy the present when the present doesn't feel comfortable. Try to enjoy the journey:-)

      Delete
  7. I so appreciate your honesty in writing about all of your mistakes the past couple of weeks. It's because of you I'm telling my husband that we are NOT buying a house when we move for residency next summer. But here's the concern I have about after residency/fellowship. We have four kids (with #5 due three weeks before we move across the country--yeah, our timing is great). Our oldest child will be in high school by the time my husband is done, our second in junior high/middle school. These are tough years to be switching schools. I don't want to move to an area when my husband gets his first post-residency/fellowship, start my kids in school while we rent/get a feel for the area, and then buy a house that may require them changing schools AGAIN. I have absolutely NO problem with the concept of renting, but I really don't want to have to uproot my kids time and time again--especially at that age. I guess we'll just have to do a lot of praying when that time comes (it's 5-6 years away and I'm already worried about it).

    ReplyDelete
    Replies
    1. Those are legitimate concerns and even with our small children I have worried about it. My son had been in two schools, one during residency another during fellowship, another and another on the horizon. My kids have transitioned better than I ever would have thought they would. Most of the time I realize I have been projecting my fears onto them. I am worried about them... they aren't worried about it. They still talk about their friends from other schools, but it isn't stopping them from making new friends. Kids are amazing:-)

      Delete
    2. Yes, I see your point about projecting my fears on them and children do tend to be very resilient. But you must admit that high school is a completely different ball game from elementary school (especially when your children tend to be on the shy side).

      Delete
  8. *I meant "first post-residency/fellowship JOB"

    ReplyDelete
  9. Ok now I really am convinced that you are inside my head! The homes we're looking at online in our future town are way more expensive than we anticipated. I always thought we would buy a fabulous home right when we start the "real job" but we have quickly realized that the signing bonus is nowhere near 20% down we would need to get a good rate. Now we're considering buying a townhome instead.

    ReplyDelete
    Replies
    1. I felt the same way... when did everything get so expensive! We seem to always miss the "perfect time". If only we would have finished two years ago:-).

      Delete
  10. this is really invaluable advice. thank you so much. adjusting to a new life style is difficult , challenging and scary. Your advice is the type of practical advice that medical student need before they get to that stage.

    ReplyDelete
    Replies
    1. Oh the things prospective students should know.... maybe they should teach a special class. They could call it dispelling the myths about your live after school/training.

      Delete
  11. I love your post. You are 100% right. Don't shoot me - I am A LENDER. I cringe sometimes about the calls I get from new doctors buying big houses right out of the gate with the new salaries. Luckily the conservative debt to income ratio brings them back down to reality.

    What I have found in my interaction with the loan process that it’s usually Mrs. Doctor’s wife more that Dr. that are eager to get started. BUT I can’t blame them. They want to plant roots, start a family or get their small children settled in a great school. They too have a lot invested in this journey. Residency is hard on everyone. Long hours, nights and weekends with your husband slaving away for a 1/8 of the pay for the work performed. It’s natural to want to leap to the next step. But almost 1% of my clients even have a financial planner or any financial plan in place. It’s so important!

    Still, when you ARE ready then the 100% Doctor Loan is a great option. Why? Because the realistic next step in the financial process is getting those student loans paid off. You don’t have to throw money away renting. Get a mortgage for the amount that you would be paying in rent. Your first home does not have to be a palace. Your rental most probably isn’t right? Plus the bonus is that you can write off the mortgage interest with your taxes. A benefit that you don’t get when paying rent. It’s a nice little chunk of change – Ask your accountant!

    I also agree with your statement about the rate being higher on the Doctor Loans. I have worked for the big banks who offered this loan and thought “Wow that is high rate” – But I thought it was a trade off. But during my 12 years working with this loan program this pesky little name came on coming up and I kept on loosing clients to it. It was SunTrust Mortgage. The rates at SunTrust will dispel the myth of sacrificing rate for the benefit of the program.

    I encourage you to call Bank of America, Regions, BB&T, Fifth Third, etc. and get a quote from them before you call me – at SunTrust. I’m confident that you will be pleasantly surprised.

    Our program offers:
    • 100% up to $650K
    • 95% up to $1M
    • 89.9% up to $1.5M

    Mortgage insurance is not required - Available for both home purchases and mortgage refinances - Competitive pricing - Both fixed rate and adjustable rates offered - No penalty for prepaying your loan - Gift funds or seller contributions may be used for closing costs

    The program is offered in the following States: Alabama, Arkansas, Delaware, Florida, Georgia, Maryland, Mississippi, North Carolina, South Carolina, Tennessee, Virginia, Washington, D.C. & West Virginia.
    With unparalleled commitment to serving physicians’ needs, you can rely on me and my dedicated team of mortgage professionals to work with you every step of the way.

    Thanks for taking the time to read my input from the other side.

    Stephanie Arcelay
    Asst. Vice President
    SunTrust Mortgage, Inc.
    615-484-6690 Direct
    Email: Stephanie.Arcelay@suntrust.com
    Web: https://www.suntrust.com/PeopleFinder/stephanie.arcelay
    NMLSR# 897166

    ReplyDelete
    Replies
    1. Always nice to hear the other side. Thanks for taking the time to share it. I am sure there are some readers who are writing down your number right now!

      Delete
  12. Very helpful to read!!! Thanks!

    ReplyDelete
    Replies
    1. You are almost in the house hunting/post training phase, aren't you?

      Delete

Comments are fun, don't be shy. If you are visiting this blog for the first time leave me a note to introduce yourself.