Why I don’t plan to buy a home after graduating from medical school

I’m a graduating 4th year medical student and as most physicians know, this has been one of the best years of my life. I just matched into my top choice residency and am one step closer to becoming a primary care sports medicine physician, my dream job. Many of my classmates have capitalized on this time of excitement by making the controversial decision to buy a home before they start residency. I have not. Here’s why: 

1. I don’t have money saved for a down payment. During medical school, I was so busy completing rotations and studying for exams that I barely had time to sleep, let alone work a job. Thus, I didn’t save money for a house down payment. Although my status as a graduating medical student with a residency contract qualifies me for a physician loan, very few of these loans offer a 0% down payment and the ones that do require a higher interest rate in return.

2. I don’t have cash for the transaction costs. Transactions costs associated with buying a home are expensive. The cost of attorney fees, escrow, home inspections, etc. add up to an estimated 3% of the entire cost of the home. Although some banks can roll these costs into your mortgage, that usually increases your monthly payment, something that may not be a wise decision for a first-year resident on a fixed income.    

3. I don’t have an emergency fund for repairs. As a renter, if something breaks I contact my landlord and she calls someone to fix the issue. Most importantly, she pays for it. If I were to buy a home, this responsibility would fall on me. Having to coordinate repairs is not something I want to add to my plate. Plus, I haven’t had time to save money to pay for these inevitable costs and don’t want to rely on a credit card for these charges.

4. I already have a lot of [student loan] debt.  Despite getting scholarship money, I took out student loans to help pay for my education. Like most medical students, I have over $200,000 to repay. Taking on an additional $250,000 in debt to buy a home I don’t need seems unnecessary. I need to prioritize paying off debt instead of accumulating more.

5. Homes cost more than I can afford in my area. Many homes in the city center of Atlanta (where I will be doing my residency) cost at least $500,000. As a single person with a resident salary of only $60,000 and substantial student loan debt, I couldn’t even qualify for a mortgage that big, let alone afford one. There are cheaper homes outside of the city, but they are further away from the hospital which would add tons of traffic to my work commute.

6. I need to save money for other things. I have other uses for the money I’d be able to save a resident. Along with paying down debt, I also need to put money into an emergency fund and save up to buy another slightly used car. Although I love my 2012 Toyota, I may need a different car in a few years. Instead of financing a new car, I’d rather save up money to purchase a slightly-used car in cash. 

7. It won’t save me money in taxes right now. Before the Tax Cuts and Jobs Act, many young professionals bought a house and used the mortgage interest deduction to save money on taxes. Nowadays, that is much less common. Why? Because with the new tax changes, taking the standard deduction saves us more money. If I wait to buy a home as an attending, I might be able to take advantage of those tax savings.

8. Homeownership costs are expensive and renting is cheaper. After learning about the home-buying process, I’ve realized that you cannot just compare the average rent payment to the average mortgage payment and make a decision. There are many other costs associated with buying a home in addition to monthly expenses like property taxes, homeowners insurance, and repairs that add another 40% to your monthly budget. Renting is cheaper.  

9. My residency is only 3 years. If you live in a home for less than 5 years, there’s a good chance you will lose money in the deal, even if you sell the home for more than you bought it. Why? Because the closing costs associated with buying a home, recurring costs associated with maintaining a home, and transactions costs associated with selling a home are really expensive. It generally takes about 5 years to break even on a home when you consider these costs. Since my residency is only 3 years, there is a good chance I would lose money if I bought a home now.

10. I’m currently single. On a more personal note, I am an unmarried female. I don’t have to be married to purchase a home, but having a spouse who works would certainly help. As a graduating medical student who has substantial debt and a resident salary for the next 3 years, purchasing a home and paying the homeownership costs by myself is a heavy load I’d rather not bear alone.

11. I like living in the city. As a young professional, I love living in the city. Restaurants/bars are within walking distance, Uber rides to city events are affordable, and my commute to work is shorter. If I were to purchase a home, this may not be the case. Homes in the middle of the city are more expensive than I can afford as a single resident.

12. My life may change drastically in the next few years. As an unmarried female, my life could change drastically during my time in residency. I’m no Julia Roberts, but there’s a good chance I could get married and have a child in the next 4 years. If that were to happen, the things I’d want/need in a home would be significantly different. Right now, I loathe the thought of doing yard work and prefer to live closer to the city. However, if I were married with a child I might opt for a place in the suburbs with a backyard and better schools.

My point? Although you may not have all of the same factors in your life as me, I’d venture to say that some of my reasons for not buying a house are applicable to you as well. I’m a firm believer in free choice, but I would caution any graduating medical student against buying a home at the start of residency if they share many of these things in common with me.

Of note, I published this article on KevinMD.com on March 31, 2019.

Adulting 101: Pros and Cons of Buying a Residential Home

As a young professional establishing your career, you may start to consider buying a house. Before you make a decision on whether to buy a home or keep renting, weigh the pros and cons listed below:

Pros: Buying a home can help you….

1. Purchase an asset that can increase your net worth. One of the perks of buying a home is that it is usually considered an “asset.” Unlike cars which depreciate or go down in value each year, homes tend to appreciate or go up in value. Clearly, things can change, as many people painfully saw during the housing market crash in 2008, but that is not the norm. Plus, even when there are rare “down years” the housing market usually recovers shortly afterwards. If you buy a home there is a fairly high chance that in a few years, that house will be worth more than you originally paid for it. As the home appreciates in value, your net worth increases.  

2. Build equity (or value) in your own investment. Many people like the idea of owning a home. They would rather send in a monthly check towards something that is “theirs” and feel like renting is “throwing money away.” Although I disagree with this statement, I understand where they are coming from. When you rent, your money goes to the landlord and someone else uses that money to build his or her net worth. In contrast, when you buy a home, the money you pay the bank each month is used to pay off your mortgage. As you pay off your mortgage, you decrease your debt. Each payment you make to decrease your debt, decreases the percentage of the home the bank owns and increases the percentage of the home you own. Thus, you are able to increase the equity (or value) you have in the home, which again increases your net worth.

3. Potentially save money in taxes. When you buy a home you usually take out a mortgage (aka a home loan) from the bank. As you pay off this mortgage each month, you are paying back a portion of the amount you borrowed (the principal) and the fee the bank charged you when they gave you the loan (the interest). The first few years you pay a mortgage the majority of your payment is interest. According to the tax law, you can actually deduct the part that is interest from your taxes each year which can save you money.

   Keep in mind, you can only use this tax deduction if you “itemize your taxes.” Many young professionals don’t itemize their taxes because they opt for the standard deduction which saves them even more money. My point is that buying a home has the potential to save you money on taxes if you happen to have a very high income, are already planning to purchase an expensive home, or have to itemize your taxes for some other reason.

4. Achieve that feeling of accomplishment. Let’s face it. Many people like the idea of owning their own home. It’s a major part of the American Dream many of us want to achieve. Plus, it makes us feel like we’re finally maturing and have reached true “young professional status.” While I may not be able to quantify the “feeling of accomplishment” that comes with homeownership, its value is definitely there. If you are established in your career and plan to stay in same area for at least 5 years, homeownership is viewed as the next step and often provides internal and external validation of our life choices.

Cons: Unfortunately, if you buy a home you will have….

1. Less mobility. Unlike signing a one year lease to rent a house or an apartment, purchasing a home is more binding. When you take out a bank loan to purchase a home, you sign an agreement to pay back that loan (aka the mortgage) over 15-30 years. Although you can sell the home if you decide to leave the area, it is not as easy as you may think. In fact, most people who buy a home plan to stay in that home for at least 5 years (I talk about why that’s the case in a previous post). If you are going to stay in a home for at least 5 years you have less mobility than if you would have simply rented an apartment or a home using a one-year lease. If you change jobs or have to move to a different state, it is much easier to break a rental lease than it is to put your home back on the market and sell it in a reasonable amount of time.

2. More debt. Perhaps the biggest disadvantage to purchasing a home is that you have to take a large loan in order to do so. The vast majority of people don’t have $300,000 lying around to spend on a home so they put down a small percentage of the purchase price (usually 3-20%) and get the rest of the money from a bank in the form of a mortgage. While there is nothing inherently wrong about getting a mortgage and making a payment each month towards it, you cannot ignore the fact that doing so puts you in a large amount of debt.

   Although a mortgage is considered “good debt” since you are purchasing an asset that can go up in value over time, you may not be in a position to do so right now. Many young professionals already have credit card debt, car payments, and a large amount of student loans they already have to pay back. Taking on another $200,000 in debt may not be ideal. Plus, the more debt you take on, the longer it will take you to pay it all back. The longer you take to pay back your debt, the more money you waste in interest payments and the harder it becomes to dig yourself out from under this pile of debt to actually build your net worth.

3. High upfront costs- I talked about the added costs associated with buying a home in a previous post, but in case you missed it let me state it again. Buying a home is expensive. The transaction costs (or closing costs) associated with buying a home are an estimated 3% of the entire purchase price. So, if you buy a home for $250,000 expect to spend another $7,500 in transaction costs. Along with this expense, you also have to purchase furniture and appliances. Lastly, you have to factor in decor items and moving expenses. Those who rent don’t usually have to worry about the majority of these high upfront costs.

4. Additional monthly/annual expenses. Along with high upfront costs, there are recurring expenses you must add to your monthly budget if you buy a house. Every homeowner must factor in the cost of property taxes and homeowners insurance. Some people even have homeowners association (HoA) fees they must consider as well. Plus, when you own a home you are responsible for any repairs. This means you have to put aside additional money each month to cover these inevitable costs. Altogether, the cost of property taxes, homeowners insurance, and repairs typically add another 40% to your monthly costs. For example, if your mortgage is $800 a month then you can estimate spending an additional $320 a month ($800x40%) on top of that $800, in added homeownership fees.

To summarize, before you buy a home as a young professional, there are several things you must consider. By purchasing a home, you are able to buy an asset that increases in value and build equity in an investment that can increase your net worth. You also have the potential to save money on your tax bill while experiencing that feeling of accomplishment knowing you are making boss moves in your life. On the other hand, purchasing a home gives you less mobility in the event that you need to relocate. It also causes you to take on a large amount of debt (in the form of a mortgage), has high upfront costs, and adds additional expenses like property taxes, homeowners insurance, and repair costs to your monthly budget. Before you purchase a home it is important to consider these pros and cons to ensure you are making a sound decision.  

If you are unsure whether to buy a home or keep renting you can refer to my post “Should you buy a home or keep renting part 1 (and part 2) and use to the New York Times’ rent vs buy calculator as a guide.