The journeyman path that many of us take through medical school and training leaves a dust cloud of landlords and leases. For those finishing training and beginning life as an attending physician, July 1st confers a whole new meaning – and, hopefully, a new home. By Christopher Malgieri, MD
Many of you remember the angst and uncertainty of transitioning from medical school to internship; you prepared for the worst, said goodbye to loved ones and resigned yourself to a financially strapped and consistently time-crunched existence.
When your life is a question mark determined by test scores, interviews, and the mysterious contents of an envelope; leasing makes sense. You can commit to a year, pay your rent, and go to work. At the end of the year, you can renew or move on to the next stop. Leasing is the autogenerated PACU orders of housing options. If something breaks, you call someone to come fix it. If you do not like the building or the vibe of the neighborhood, you pack up your things and move.
When juxtaposed to the simplicity of renting, buying a house can be daunting. But it is a necessary financial step for almost every new attending physician.
For medical school graduates, it’s the month when the calendars come off the wall and a new year begins. School children have September, accountants have January, and doctors have July.
Unless you are dedicated to a life in the most glamorous neighborhoods of San Francisco or New York, you should plan on buying a home immediately. Plenty of online calculators will help you estimate an appropriate price range (I prefer Zillow, myself). If you assume a mortgage that is manageable with respect to your household income, you will almost certainly begin to accumulate wealth.
“But what if my home value plummets?!” many of us risk-adverse folks might ask.
To this I would suggest the same response you offer healthy patients that suggest they “might not wake up” from general anesthesia for an appendectomy.
Home values typically increase 3.5-4% annually. Unlike almost everything else you will purchase in your life, your primary residence will INCREASE in value as you use it. When you get that big promotion, or find a more suitable job in another location, you will usually make money when you sell your home. In essence, you will likely live in a home (rent-free) and be paid for your troubles when it is time to pack up and move.
“But what about the interest on my mortgage, or property taxes and insurance? I never had to pay for those things when I rented!”
You are correct. Banks are not as generous as parents can sometimes be. They will expect you to pay them interest on the loan you receive. But here’s the rub: Interest rates are at a historic low. Some might argue that the interest rates are currently lower than inflation. Further, the money you pay back to the bank that goes towards interest is tax deductible. Depending on your state income tax situation, your property taxes are also likely tax deductible. This did not mean much to you when you were an employee making sixty thousand dollars a year, but it is going to mean a great deal to you as your income ascends you into the top percentiles of earners in this country. To summarize – buying a house will likely set you up for free housing. You will pay a mortgage every month while you gain progressively more equity in a home that YOU own (as opposed to someone else owning). Further, as a reward for living rent-free, the government is going to SIGNIFICANTLY reduce your tax burden. Whether or not this is a fair system can be dedicated to another post on another blog, but suffice it to say that your long term plan should include home ownership.
“But where will I get money for a down payment? I finished residency with a mountain of student loans and an embarrassing bank account statement!”
Never fear! Banks are so dedicated to expediting your free housing and tax-advanced status, that they will lend you money with special terms. Typically, financial institutions require you supply 20% down payment before lending money for a mortgage. If a borrower is unable to do this, they can put down a smaller payment but pay “mortgage insurance (TMI)” or a financial penalty to the bank to compensate them for lending a “high-risk mortgage”. Since you are a physician, most banks will lend to you without charging you TMI. These special ‘Physician Loans’ can sometimes be offered with as little as 5% down payments.
No matter what type of home you decide to buy or which kind of mortgage you take; you should buy a home immediately. There are some nuances to the policies that I outlined in this blog, but you didn’t come this far in your professional life by doing things haphazardly. Be a good anesthesiologist – do your research, make a plan (and a maybe a backup plan if your first home offer falls though), and execute by purchasing. Celebrate the new (doctor) year by becoming a homeowner!
The ASA Committee on Young Physicians is pleased to present this monthly article series on personal finance. These articles are not written by hedge fund managers or real estate tycoons but by practicing physicians. Some have business degrees and some do not – but every contributor is an anesthesiologist who has some guidance to offer the rising generation of attending physicians. It is not the intention of the committee to offer definitive financial advice, but rather some pearls of wisdom to consider while developing a personal fiscal plan.