Buying house post graduation

[Guest hcruz496]

Hello, I am pre-pa, a nontraditional student with a family and in my late 20s.  I thought I would come to ask current PAs for advice.  I am wondering how my student loans will impact me in the long term.  I was accepted into the PA program at NSU, and I currently live in Houston.  

I am a homeowner.  I have about 10 years of equity on my home, 10 years into a 30 year mortgage.  I know that with PA school I will have to take out tens of thousands of dollars in student loans.  After graduating will it be pretty difficult to get another home loan right away?  My program starts in May and I am contemplating whether I should sell or rent my home.  I think I can rent it through a property management company while I am away at school and pretty much break even between the mortgage and their fees.  I have never done this before so I don't know if this is a good idea.  I am just looking to see if there is someone else that has been in my shoes and can give some suggestions.  I am just worried about the difficulty of getting another mortgage with so much student debt to my name.  I don't want to set myself up for added unnecessary stress while going through PA school, yet it would be nice to keep my home, build more equity and not have to worry about being able to get another mortgage once I graduate.  

[DizzyJ]

I purchased my first home about a year after graduation without any problem.  It comes down to your debt to income ratio.  If you can reflect income being more then enough to pay your minimum monthly student loan payment and cover a mortgage, then you should have no problem. 

I also then kept that home and rented it out while I moved over seas for a year.  Same situation using a property management company and I broke even.  I'm glad I kept the house as it made it easy to jump back into my old life once I returned to the states.

Deciding to sell or rent would depend on where you want to end up after graduation.  I personally would keep the house if you want to go back to Houston after graduation.  Then you wouldn't have the added stress of house/apartment hunting when you graduate and can settle into your new career.  Of course this only works if you have the rental income to cover the expenses for 2 years. 

[BruceBanner]

If you stand to profit off of the sale of your home, I would sell. Markets are high nationwide. Renting I think would potentially be more headache than it's worth. You are only breaking even and renters really put miles on a home. You will have to dump money into it when you are least ready or able, it just seems to work out that way.

Dont worry about getting a home loan after school---unless you have other major debt you will have no problems. I have bough 2 homes and have significant student loan debt. I am also married and have excellent credit though.

[Boatswain2PA]

hcruz - Unless you are wanting to move back into THAT home after graduation (doubt it), then put it on the market as soon as you are accepted to PA school. 

You trying to rent that house out breaks all of the rules of being a successful landlord (and I know that, cause I was the broke-ass landlord for a long time because I didn't know the rules).  

1.  Don't own long-distance rental properties.  Nobody protects your property like you do, even property management companies.  Yeah, they will watch out for the tenant, but did they REALLY have to mow the yard for $75?  Did they REALLY have to repaint for $600?  Why didn't they see the first derelict car in the yard, let alone the 2nd and 3rd??  Even if you have a prop management company, YOU need to swing by your properties every once in a while to keep the prop management company honest.

2.  Only the banks make money off rental properties with mortgages on them.  For years I leveraged myself buying properties on credit and renting them out.  Seemed like I never really got anywhere.  Yeah, on paper I had a little bit of a positive cash flow, but just never got ahead.  It wasn't until I got serious, sold a few and paid off the mortgages on the rest that I started actually making money.  I think one year I paid over $30,000 in INTEREST.....see who's getting rich there!  It wasn't me.

And THEN there is the stress of PA school, and the high amount of student loans you say you already have.  

I kept two out-of-state rental properties (both with mortgages on them) through PA school and it about killed me.  I remember sitting at lunch studying with classmates when the phone call came from prop mgr telling me the AC one of the houses was out, needed $2600 to replace it...and I didn't have it.  I was broke.  Had to borrow (even more) money to get it done.  The stress of that was tremendous, on top of the stress of constant testing from school.

Meanwhile my other house, in another state, had a tenant who found out he liked meth.  I was in school, certainly couldn't afford time or money to go check on the house....so he TRASHED it over 2 years.  I had to spend over $30K to get it repaired....

Just sell the house.  Tuck the money into savings and consider it an insurance policy to ensure you get through school.  Once you get out of school and making good money, keep living like a pauper for a few years while you pay off your student loans.  At that point you won't have ANY problems getting a mortgage on your DREAM house.

[south]

All things considered, I think I may be on team "keep and rent", but honestly not by much and only...

IF...

1.  you are very sure you want or "need" to return to THAT home - what if you get a great job offer way across town or in another city?  I say this because going out of state for school means you won't have access to the rotation offers and other networking, and may have to broaden your horizons.

2.  You have 100% help.  Is your spouse pretty savvy and can take over the reins?  You need to be un-distracted, especially in didactic year.  Can you afford the slight loss and inevitable phone call about the AC replacement?  That's coming.  

I do take the point that the housing market gains mean money in your pocket when you sell, which gives you options.  You don't indicate what your family will do - relocate with you?  You may just want to keep it simple and go "on the road", renting as needed until you settle back down.  This is more flexible.  Home ownership has a time and place, and that is not really where you are right now. 

And like Boats, I've had tenant issues in the past and that's good advice.  A friend of mine said that if he could do it again, he would have properties with painted concrete interior walls and a big floor drain in every room.  Clean with fire hose between tenants.

I think I just talked myself onto the other side of the fence...

Interesting question.  You will need to sit with your spouse and pen and paper and really go to town on this one. 

[tapialr]

I'm a recent graduate, March 2016... Just FYI (and I'll admit I haven't had time to keep up with this if it's changes since - new job in ER, new baby) but July 2016 they laws changed regarding how they view your student loans in your debt to income ratio.  So it used to be that they could just use your monthly payment, whatever it was and whatever plan it was on, say... income based repayment...  the monthly payment would be relatively low even if you had massive debt (could be anyway).  So we were getting out of school, kicked out of our rental house, had a new baby, and new job on the way... so between May and July of 2016 we were trying to get into a house quickly because after the end of July last year they would look at your student loan debt and take a monthly payment that would pay it off in 10 years....  so my theoretical payment was soooooo high... and relative to my income... that really chops down your debt to income ratio and the amount that you would be approved for with a new mortgage.  

I would talk to a mortgage guy now and see what those laws look like, and if you are planning ahead I'm sure that will help with your decision to rent or sell.

Also it may guide your thoughts on how much debt to take on.  I started PA school in my early 30's with four children, half at home, so we definitely financed everything to the MAX to be able to afford a home that fit us, etc...  I didn't really plan ahead.  I thought I could write off much more of the student loan interest (FALSE)... I thought student debt would be evaluated differently for loans (FALSE)...  

If I could go back in time and do it over...  I would have pushed more for forgivable loans in the state i went to school... and gone balls to the walls with applications for scholarships like National Health service Corps...  which would basically pay for PA school, and give you a small stipend, and in return you only have to work TWO YEARS!   thats nothing...

Anyway...   sorry I'm long winded... its hard to control.  Good luck with everything! 

[south]

44 minutes ago, tapialr said:

 after the end of July last year they would look at your student loan debt and take a monthly payment that would pay it off in 10 years....  so my theoretical payment was soooooo high... and relative to my income...

I got interested in this.  Fannie Mae's underwriting rules changed again in May of this year, making it a little easier.  They now use your actual payment (on a payment plan)  if the amount is reported on your credit report.  If it's not, they will use 1% of your loan balance as you describe here.  So a $100,000 balance would have a calculated payment of 1,000.

Here's their actual rules. 

Student Loan Payment Calculation We are simplifying the options available to calculate the monthly payment amount for student loans. The resulting policy will be easier for lenders to apply, and may result in a lower qualifying payment for borrowers with student loans. If a payment amount is provided on the credit report, that amount can be used for qualifying purposes. If the credit report does not identify a payment amount (or reflects $0), the lender can use either 1% of the outstanding student loan balance, or a calculated payment that will fully amortize the loan based on the documented loan repayment terms. Effective Date This policy change is effective immediately.

Here's an article on the change.  

https://www.washingtonpost.com/realestate/new-rules-on-student-loans-may-make-it-easier-for-many-to-qualify-for-mortgages/2017/05/01/0dea7ea6-2e8f-11e7-8674-437ddb6e813e_story.html?utm_term=.580b9f48358b

Now, keep in mind this are federal underwriting rules, not "laws" as you state above.  Lenders can do whatever they want, and traditionally over time, more and more risk is taken and rules get looser.  The crash of 2008 proves this, and it seems to be happening again...much more quickly...but I digress...and if you haven't seen The Big Short, it's really good...I digress again...

[south]

56 minutes ago, tapialr said:

thought I could write off much more of the student loan interest (FALSE)...

Indeed.  This deserves a separate post.  If your AGI is above 80,000 single / 160,000 filing jointly,  you aren't eligible at all.  The deduction starts getting reduced at 65/130.  

So a lot of us aren't eligible, especially if you are single.  (worth it though, ha ha!)

[Boatswain2PA]

Why would you want to buy a house with $100K in student loans, or a $1K loan payment?

Better to wait 4 more years while living like a pauper.  Take 2 years to pay off your loans, then save $100K down payment.  Banks LOVE you when you come at then with 30-50% down.

Think about it this way: 

Option A:  Graduate PA school with $100K in debt, struggle to buy a $200K house.  10 years later, you are still struggling to pay the student loans while struggling to pay $200K mortgage.

Option B:  Graduate PA school with $100K in debt.  Live like pauper for 2 years while paying off loan.  Live like pauper another 2 years while saving up, then buy a $300K house that you could pay off in 4-5 years (same $200K debt, but no student loans). 10 years later you have no debt, a paid off house, and you then begin to really live large.


 

[Guest hcruz496]

I am worried about getting the tenant from hell, especially when I am across the country.  I could end up with someone that pisses off the HOA, not sure how they address that with renters.  

Since I already know I will have massive student loan debt, I was thinking, if I go back to my house after graduation I would be able to have a lot of free income to tackle student loans.  My mortgage is very modest, only $1,100 a month.  Ideally, I would pay off all of my loans within 2-3 years then quickly pay off the mortgage.  Then I could do whatever I wanted.  That would be amazing to have a paid off mortgage on a PA salary.  I'm not sure if this is realistic with this career path because who knows where I will end up.  

On the flip side of this, I bought the house during the housing market crash so I got an excellent deal, not to mention a free 8k first time homebuyers tax credit.  If I do sell I stand to make at least $40k more than I bought the house for.  

[MusicalPA]

14 hours ago, Boatswain2PA said:

Why would you want to buy a house with $100K in student loans, or a $1K loan payment?

Better to wait 4 more years while living like a pauper.  Take 2 years to pay off your loans, then save $100K down payment.  Banks LOVE you when you come at then with 30-50% down.

Think about it this way: 

Option A:  Graduate PA school with $100K in debt, struggle to buy a $200K house.  10 years later, you are still struggling to pay the student loans while struggling to pay $200K mortgage.

Option B:  Graduate PA school with $100K in debt.  Live like pauper for 2 years while paying off loan.  Live like pauper another 2 years while saving up, then buy a $300K house that you could pay off in 4-5 years (same $200K debt, but no student loans). 10 years later you have no debt, a paid off house, and you then begin to really live large.


 

What are your thoughts on areas of the country where you can get a cheaper mortgage payment than paying rent to someone?

[tapialr]

It might be helpful down the road to have another mortgage deduction on taxes.. as far as "getting 100K more in debt" is concerned 

[Boatswain2PA]

12 hours ago, JC40 said:

What are your thoughts on areas of the country where you can get a cheaper mortgage payment than paying rent to someone?

#1:  You are still thinking in the "I can afford it if I can make the monthly payments" scheme.  This is how the banks make money while we stay poor.  Let me give you an example:  You buy a $100,000 house, zero down, 4.5% interest.  Your payments are $500/mo, plus $35/mo PMI, $80/mo insurance, and $80/mo taxes....total $695.  Of that, only $130 is going toward your principle.

Problem is, you will pay $2k-$4K in closing costs when you buy it.  At $130/month toward principle, it will take 1.5-3 YEARS of payments just to catch up with closing costs.

So you sell it 3 years later (because your mortgage was so low you were able pay off your student loans and now you can afford your dream house).  What's the market gonna do?  Gonna sell it for $120K?  Great, $7200 goes to realtors, and another $1k in closing costs.  You made a whopping $11.8K in 3 years.

Market stayed the same?  You're out $7K paying for realtors & closing costs.

Market drop out on you and you can only sell for $95K?  Get ready for heartache, cause you still owe $95500 on the house. And the realtor wants a check for about $5500.

So, after 3 years the bank has made $13,000 from you in interest (plus closing costs).  You might be able to make $11.8K in a hot market, if market stays the same you lose $7k, or if market drops (again) you lose your shorts and can't move out of little house.

#2: Tenants don't pay for repairs. I just replaced water heater.  Costed $600.  Would've been $1k if I paid someone.  Rule of thumb for household maintenance is 3-5% of cost of house annually.

#3 Most new grads stay in first job short period of time.  Renting allows you to move.

So, to answer your question - I would rent a decent house instead of buying.  Graduate, get out of debt, build huge down payment, then your golden.

 

 

[Boatswain2PA]

2 hours ago, tapialr said:

It might be helpful down the road to have another mortgage deduction on taxes.. as far as "getting 100K more in debt" is concerned 

Why spend $4500/year in interest only to save $1000/year on your taxes?

[Boatswain2PA]

On 10/31/2017 at 7:01 PM, hcruz496 said:

I am worried about getting the tenant from hell, especially when I am across the country.  I could end up with someone that pisses off the HOA, not sure how they address that with renters.  

Since I already know I will have massive student loan debt, I was thinking, if I go back to my house after graduation I would be able to have a lot of free income to tackle student loans.  My mortgage is very modest, only $1,100 a month.  Ideally, I would pay off all of my loans within 2-3 years then quickly pay off the mortgage.

....On the flip side of this, I bought the house during the housing market crash so I got an excellent deal, not to mention a free 8k first time homebuyers tax credit.  If I do sell I stand to make at least $40k more than I bought the house for.  

Prepare for tenants from hell.  See above post about concrete walls and floor drains.

My most profitable rental is an almost indestructible small slab-foundation house in a great neighborhood.

If you REALLY plan onoving back to THAT house because you LOVE that house....then maybe keep it.

Otherwise sell it.  Put your $40k (minus realtor and closing costs) into savings to ensure you get through school.  If you get through, use the savings to jumpstart paying off loans.

[Lightspeed]

So much can happen from the time you start school to when you finish. I come down on the side of maximum flexibility, especially considering the market is high, renting out your house is a crapnshoot, and you might end up with a sweet deal waiting for you in a different place. I think that peace of mind is worth more during the stressful school years than the meager income you’d get out of the house. You don’t get ahead in life with just one rental property anyway. If you want to play in real estate, get into it when you are done with school. Now really is a great time to sell. I’d be selling right and renting until the next downturn if I could right now, but I’m in a house that’s so insanely affordable that it would be a bad idea. I like it a lot as well. I bought it.... during the last downturn... because I wasn’t stuck in a different house. Cash out. There’s your rainy day fund. Boatswain speaks truth.