New physician - pay off loans early or buy a house?

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NewDocMD20
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Joined: Fri Nov 06, 2020 3:34 pm

New physician - pay off loans early or buy a house?

Post by NewDocMD20 »

I’m a physician who just finished my residency and took my first real job. I have relatively few expenses, so I’m trying to where makes the most sense to put my extra cash flow, either making additional student loan payments (after consolidating) or saving up to buy a house? I think I've included all relevant details

Demographics: 29, single, no children

Income: $475k base salary guaranteed for 3 years, or about $9k per paycheck bi-weekly. I will likely keep this same salary with contract renewal but as with anything I can’t be 100% sure. I have the possibility of a productivity bonus, but this is unlikely for 2020 or 2021 due to covid.

Debt: $226k student loans, currently all federal loans at average 6% interest, but plan to refinance once the interest free period lapses in January. I suspect I can get something at 3% or so.
Car: $12k at 2.75%, ~$400/month
CC: Nothing substantial, I use it for my day to day expenses and pay it off in full at the end of every month.

Savings/Retirement:
1. Roth IRA - $40k, will do $6k backdoor Roth contribution in January for 2021
2. Roth 403b - $17k, this account is from residency
3. Governmental 457b - $23k, this account is also from residency
4. 401k - $15k, will be maxed out at $19k by the end of the year. Starting in 2021 will have additional $17k/year employer match fully vested by mid-2022
5. Taxable vanguard account - $15k, currently adding $1k per 2-week pay period
6. HYSA - $120k at 0.6% interest, mix of emergency fund and where I’ve been putting my student loan “payments” while they’ve been deferred

Rent is currently $1.6k/month, disability insurance from residency $150, in the process of getting an additional disability policy which will cost another couple hundred a month, otherwise all my other expenses come out to maybe another $1.5k/month. For the most part, I’ve had between $5k and $8k leftover each paycheck that I have been putting in my HYSA.

I guess my question comes down to timing. I believe I will be in my current city for the foreseeable future so I would like to buy a house sooner or later. I will at least be renting through my current lease until June 2021. Will it behoove me to use my extra money each paycheck to pay off my student loans early, or should I try to extend paying them off as long as possible if I’m able to get a good interest rate and instead use the extra money to save for a down payment? The area I live in is not very HCOL, but the specific part of town where I would like to stay is a little more expensive, so I would probably be looking at something in the range of $400k-550k. I don’t think I would be comfortable buying something more expensive than this.

My thinking is on one hand, I would love to be completely debt free so that I don’t have to worry about it anymore, but on the other if I do go ahead and buy a house then my $10k SALT plus mortgage interest would be greater than the standard deduction and theoretically should save me money on taxes which is a return much higher than the immediate 3% I would get from paying off loans. Or should I split the difference and just expect to put <20% down if I end up buying at the end of my lease?

I’m not sure if it really matters to this question, but in addition to the above, I am strongly in favor of FIRE and would like to be completely financially independent with a reasonable ($100k/year or so) salary by 45-50. Thoughts? Any help is greatly appreciated!
rich126
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Joined: Thu Mar 01, 2018 4:56 pm

Re: New physician - pay off loans early or buy a house?

Post by rich126 »

I'd lean towards paying down the debt since I think housing is pricey right now due to covid and extremely low inventory of homes in the areas I know. Depending on how the next year goes, I'd watch how things are going and modify as necessary.

Also buying a house means more expenses whether they are remodeling, maintenance, etc.
Outer Marker
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Re: New physician - pay off loans early or buy a house?

Post by Outer Marker »

Congratulations on your new job and impressive starting salary. There's a loan program just for you. You can get a "physician's loan" with little or no money down, and no PMI. https://www.nerdwallet.com/article/mort ... or-doctors

I'd focus on paying down the debt at 6% and shopping for a home you like as soon as possible. You're certainly not over-extending yourself in that price range, and as long as you maintain an eye towards saving and investing are going to be more than fine no matter what you do.

P.S. is your student loan "interest free" i.e. zero interest until January, or just in forebearance, i.e. you don't have to make payments, but are still incurring interest charges? I suspect its the latter, in which case you want to refi that debt to a lower rate asap.
Topic Author
NewDocMD20
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Re: New physician - pay off loans early or buy a house?

Post by NewDocMD20 »

Outer Marker wrote: Sun Nov 08, 2020 2:17 pm Congratulations on your new job and impressive starting salary. There's a loan program just for you. You can get a "physician's loan" with little or no money down, and no PMI. https://www.nerdwallet.com/article/mort ... or-doctors

I'd focus on paying down the debt at 6% and shopping for a home you like as soon as possible. You're certainly not over-extending yourself in that price range, and as long as you maintain an eye towards saving and investing are going to be more than fine no matter what you do.

P.S. is your student loan "interest free" i.e. zero interest until January, or just in forebearance, i.e. you don't have to make payments, but are still incurring interest charges? I suspect its the latter, in which case you want to refi that debt to a lower rate asap.
I'm vaguely familiar with physician loans but need to do more research on the pros/cons. I think White Coat Investor tends to think it's better to save up the 20% down payment for a lower interest rate and immediate equity in the property, but I'll look into the link you gave

My loans right now are zero interest until January, they're not in forebearance. I wanted to keep my federal loans through residency because of some of the income/payment protections offered but will definitely plan to consolidate at a lower rate as soon the interest-free period is up.
stan1
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Re: New physician - pay off loans early or buy a house?

Post by stan1 »

I would not be in a hurry to buy a house given the information you have posted. What lifestyle benefit would you get from owning a home over renting an apartment or a condo? Find a place with a garage and in unit laundry if you want some luxuries. No need to buy just to get those.
Topic Author
NewDocMD20
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Re: New physician - pay off loans early or buy a house?

Post by NewDocMD20 »

stan1 wrote: Sun Nov 08, 2020 2:28 pm I would not be in a hurry to buy a house given the information you have posted. What lifestyle benefit would you get from owning a home over renting an apartment or a condo? Find a place with a garage and in unit laundry if you want some luxuries. No need to buy just to get those.
No real lifestyle benefits, I have pretty much everything I need in my current apartment. My thinking is if I'm going to be in this city long term, does it make sense to start building equity in a home now using the extra cash flow and stretch out my student loan payments given the (potentially) low interest rate after refinancing and being able to take advantage of mortgage interest deduction? Or should I just stick with the current plan of paying off my loans ASAP and then saving for a down payment after?
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eye.surgeon
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Re: New physician - pay off loans early or buy a house?

Post by eye.surgeon »

I'm a physician , I still live in the (paid for) home that I bought immediately after residency and still work in the same job so years later. That house is now valued at about 10 months income for me.

I'd buy a house if you are highly confident that you will stay in your area for the next 6+ years and confident you will remain single. If you see yourself married with kids in a few years, I'd rent. Your wife won't want to live in the house you buy now.
Last edited by eye.surgeon on Sun Nov 08, 2020 2:55 pm, edited 2 times in total.
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calvin+hobbes
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Re: New physician - pay off loans early or buy a house?

Post by calvin+hobbes »

You have a ton of cash in that HYSA. You can put most of that towards your loans and be done with them within a year. Your cash flow after that is goig to be tremendous.

Rent for 1-2 years. You're single with no kids and have a ton of flexibility. Make sure the job is good and you know what area you want to be in before buying.
TIAX
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Re: New physician - pay off loans early or buy a house?

Post by TIAX »

You can refi your student loans to 1.95% with first republic. Don't pay off your student loan or buy a house. Invest in the market in a taxable account after you max tax advantaged account.
mortfree
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Re: New physician - pay off loans early or buy a house?

Post by mortfree »

What would 20% down be in terms of dollars?

With 120k why do you have a car loan?

How many hours do you work? Will you even be home much?
Topic Author
NewDocMD20
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Re: New physician - pay off loans early or buy a house?

Post by NewDocMD20 »

To answer a few of these questions:

A few reasons I have so much in my HYSA right now. For one, despite all federal student loan payments being on pause due to covid, I've continued to "make payments" since graduating residency so that I can make a large lump sum payment when the interest free period runs out, probably around $60k. Second, I received a signing bonus that I'll be required to pay back on a pro-rated basis if I were to leave this job before my contract is up, so I am keeping some of that in my HYSA for added flexibility in case I needed to bail and pay it back immediately. Lastly, I'm planning to keep a reasonable emergency fund ($20k or so) which should cover several months of expenses including student loan payments were I to lose my job.

I could easily pay off the car now, but at 2.75% interest I'm just not in any hurry.

I work about 40-45 hours a week almost entirely Monday through Friday.

20% down for houses in my price range in this area would be anywhere from $60k-$110k
LittleMaggieMae
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Re: New physician - pay off loans early or buy a house?

Post by LittleMaggieMae »

here's the thing. With your income and debt - you could come up with a 24 or 36 month plan and have your debt paid off AND be in a house and be working strongly on your Retirement. It isn't like you have to do "pay of loans" OR "buy house" OR "save for retirement". You're goal acheivement horizons are so short... I'd come up with a time frame (2 or 3 or 4 or 5 years) and then figure out how to accomplish all three things within that timeframe.
I'd focus first on the "pay yourself first" thing - retirement. If you come up with a "back of the envelope" number so you can "retire" at 55 (25 years a way) and set up your 'savings' to achieve that - and then implement that level of savings NOW - you will be way ahead of the game - even with a student loans and a mortgage.
I'd then figure out some plan for your SL debt (as in it's paid off in 2 or 3 years... just rip off the bandaid and pay the things off while you aren't committed (to other debts) or stretched.
I'd then figure out the "the house plan" again with the 3 or 4 year horizon. Houses have way more money and time commitments than just the initial purchase. Choose carefully.

The funny thing about financial decisions is that they aren't often one and done. And the decisions you make today -- they keep effecting future decisions over and over and over again. Do you really want to be thinking about your SL debt 5 years from now? Do you really want having to consider your SL debt in financial decisions 5 years from now?
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NewDocMD20
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Re: New physician - pay off loans early or buy a house?

Post by NewDocMD20 »

LittleMaggieMae wrote: Sun Nov 08, 2020 3:09 pm here's the thing. With your income and debt - you could come up with a 24 or 36 month plan and have your debt paid off AND be in a house and be working strongly on your Retirement. It isn't like you have to do "pay of loans" OR "buy house" OR "save for retirement". You're goal acheivement horizons are so short... I'd come up with a time frame (2 or 3 or 4 or 5 years) and then figure out how to accomplish all three things within that timeframe.
I'd focus first on the "pay yourself first" thing - retirement. If you come up with a "back of the envelope" number so you can "retire" at 55 (25 years a way) and set up your 'savings' to achieve that - and then implement that level of savings NOW - you will be way ahead of the game - even with a student loans and a mortgage.
I'd then figure out some plan for your SL debt (as in it's paid off in 2 or 3 years... just rip off the bandaid and pay the things off while you aren't committed (to other debts) or stretched.
I'd then figure out the "the house plan" again with the 3 or 4 year horizon. Houses have way more money and time commitments than just the initial purchase. Choose carefully.

The funny thing about financial decisions is that they aren't often one and done. And the decisions you make today -- they keep effecting future decisions over and over and over again. Do you really want to be thinking about your SL debt 5 years from now? Do you really want having to consider your SL debt in financial decisions 5 years from now?
Thanks, I think this is mostly what I needed to hear. You're completely right, I really don't want to be dealing with student loans 5 years down the line and I'd be more comfortable taking a pay cut for better schedule/lifestyle if I didn't have them hanging over my head...

Appreciate everyone's input!
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Nate79
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Re: New physician - pay off loans early or buy a house?

Post by Nate79 »

You are deep in debt. Fix your financial problems first before taking on another significant debt.
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ram
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Re: New physician - pay off loans early or buy a house?

Post by ram »

NewDocMD20 wrote: Sun Nov 08, 2020 1:07 pm
Demographics: 29, single, no children

Income: $475k base salary guaranteed for 3 years, or about $9k per paycheck bi-weekly.

Is your salary 475K per year. If it is then it calculates to 18 K/ 2 weeks (or 9 K/ week)

Debt: $226k student loans.
Car: $12k at 2.75%, ~$400/month

In your first 18 months:
Income: 475x 1.5 ....................= 712K

Taxes .....................................= 214 K (30%)
All debt paid off........................= 238 K
Living expenses (10K/mo).............=180 K
Savings ( Roths, 401K etc).............= 80 K
Total .....................................= 712 K


In the next 6 months save house down payment and you can buy your house at the 24 month mark. By then you have a much better idea if you want to continue your job beyond the stipulated contract.
Ram. MD
Last edited by ram on Sun Nov 08, 2020 3:57 pm, edited 2 times in total.
Ram
2tall4economy
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Re: New physician - pay off loans early or buy a house?

Post by 2tall4economy »

When I graduated from college with my masters degree in engineering I figured I’d be an it guy For the rest of my life at a small company that was really good to me and never live outside of Michigan, where I had spent my whole life.

20 years later I have an MBA I work in finance for my third Fortune 500 after spending 6+ years living in countries that I didn’t even know existed.

...pay off the debt and build your nest egg. Buying a house because you can’t imagine living somewhere, ESPECIALLY before wife and kids is a fools bet.
You can do anything you want in life. The rub is that there are consequences.
hightower
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Re: New physician - pay off loans early or buy a house?

Post by hightower »

NewDocMD20 wrote: Sun Nov 08, 2020 1:07 pm I’m a physician who just finished my residency and took my first real job. I have relatively few expenses, so I’m trying to where makes the most sense to put my extra cash flow, either making additional student loan payments (after consolidating) or saving up to buy a house? I think I've included all relevant details

Demographics: 29, single, no children

Income: $475k base salary guaranteed for 3 years, or about $9k per paycheck bi-weekly. I will likely keep this same salary with contract renewal but as with anything I can’t be 100% sure. I have the possibility of a productivity bonus, but this is unlikely for 2020 or 2021 due to covid.

Debt: $226k student loans, currently all federal loans at average 6% interest, but plan to refinance once the interest free period lapses in January. I suspect I can get something at 3% or so.
Car: $12k at 2.75%, ~$400/month
CC: Nothing substantial, I use it for my day to day expenses and pay it off in full at the end of every month.

Savings/Retirement:
1. Roth IRA - $40k, will do $6k backdoor Roth contribution in January for 2021
2. Roth 403b - $17k, this account is from residency
3. Governmental 457b - $23k, this account is also from residency
4. 401k - $15k, will be maxed out at $19k by the end of the year. Starting in 2021 will have additional $17k/year employer match fully vested by mid-2022
5. Taxable vanguard account - $15k, currently adding $1k per 2-week pay period
6. HYSA - $120k at 0.6% interest, mix of emergency fund and where I’ve been putting my student loan “payments” while they’ve been deferred

Rent is currently $1.6k/month, disability insurance from residency $150, in the process of getting an additional disability policy which will cost another couple hundred a month, otherwise all my other expenses come out to maybe another $1.5k/month. For the most part, I’ve had between $5k and $8k leftover each paycheck that I have been putting in my HYSA.

I guess my question comes down to timing. I believe I will be in my current city for the foreseeable future so I would like to buy a house sooner or later. I will at least be renting through my current lease until June 2021. Will it behoove me to use my extra money each paycheck to pay off my student loans early, or should I try to extend paying them off as long as possible if I’m able to get a good interest rate and instead use the extra money to save for a down payment? The area I live in is not very HCOL, but the specific part of town where I would like to stay is a little more expensive, so I would probably be looking at something in the range of $400k-550k. I don’t think I would be comfortable buying something more expensive than this.

My thinking is on one hand, I would love to be completely debt free so that I don’t have to worry about it anymore, but on the other if I do go ahead and buy a house then my $10k SALT plus mortgage interest would be greater than the standard deduction and theoretically should save me money on taxes which is a return much higher than the immediate 3% I would get from paying off loans. Or should I split the difference and just expect to put <20% down if I end up buying at the end of my lease?

I’m not sure if it really matters to this question, but in addition to the above, I am strongly in favor of FIRE and would like to be completely financially independent with a reasonable ($100k/year or so) salary by 45-50. Thoughts? Any help is greatly appreciated!
Absolutely, without a doubt, crush the debt before you do anything else. I wouldn't even be putting money into taxable yet. In fact, you should only put enough into tax-advantage accounts to get any matches your employer offers, but everything else should go to your loans. It shouldn't take you long at all to get rid of that debt with what you're making (less than a couple years I would guess?). Take it from me and countless other docs who wish they could go back in time and pay off their student loans quickly and completely early in their careers BEFORE upgrading your life. Don't take on a mortgage until you have that debt gone. You'll thank yourself in a couple of years.

With that being said, I fully and completely understand the temptation to FINALLY be able to buy a home and feel accomplished after completing residency. So, chances are you won't listen;) But if you do, you'll be in an elite club of new attendings who are debt free and able to shop for a home with a proper down payment in hand and no debt overhead. Also, get rid of that car loan and plan on paying cash for cars from now on. Come on over the white coat investor if you haven't been there yet, you'll find lots of great resources.

Also, if you've never owned a house before, don't feel like you're missing out on much. It has its perks sure, but it's also a huge drain financially in ways you wouldn't expect. The temptation to spend a lot of cash furnishing it or renovating it is stronger than you'd think. Then there's the maintenance costs that can be unexpected. I am buying an $11K new furnace and A/C unit this week for my house for instance. The house is only 10 years old. It happens. And the poster above that said don't pick a house before you're married. Totally agree with that. Let your fiancé or wife pick the house. You'll earn a lot more brownie points that way;) If I were single, no way would I bother with owning a home knowing what I know now about home ownership. It's such a burden when it comes time to move. Selling is stressful. You don't need that headache now. Even though you like your new job and you "think" you'll be sticking around long term, don't be surprised if that changes in a couple of years. It took me a little while to realize I didn't like my first job and I've since moved on. Burn out is also very prevalent these days and you might find you don't want to work full time for as long as you initially thought. Being debt free gives you options that many docs don't have.
pseudoiterative
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Re: New physician - pay off loans early or buy a house?

Post by pseudoiterative »

Here's another way to think about it: you're young and unattached, who know what the next few years will bring. It is quite likely that in a couple of years you will want something different to what you want today. Focus on making "moves" that increase the space of options available to future you. Buying a house reduces your flexibility and options as it adds a long-term tie to your current location. Taking on a bunch more debt for a mortgage reduces your flexibility and reduces your future options as it locks you into a path of needing to maintain a high enough income to service that debt. If instead you pay off some or all of your debt and build equity in liquid investments (e.g. the stock market and fixed income) then you increase the number of options available to future you: it'll be easier to move, or switch your job, or deal with periods where you want or need to stop working and have reduced income, etc.
campy2010
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Re: New physician - pay off loans early or buy a house?

Post by campy2010 »

Option #3 Invest! You can easily beat the 3% rate of your student loans. Buy a house when you’re ready.
Xrayman69
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Re: New physician - pay off loans early or buy a house?

Post by Xrayman69 »

NewDocMD20 wrote: Sun Nov 08, 2020 3:16 pm
LittleMaggieMae wrote: Sun Nov 08, 2020 3:09 pm here's the thing. With your income and debt - you could come up with a 24 or 36 month plan and have your debt paid off AND be in a house and be working strongly on your Retirement. It isn't like you have to do "pay of loans" OR "buy house" OR "save for retirement". You're goal acheivement horizons are so short... I'd come up with a time frame (2 or 3 or 4 or 5 years) and then figure out how to accomplish all three things within that timeframe.
I'd focus first on the "pay yourself first" thing - retirement. If you come up with a "back of the envelope" number so you can "retire" at 55 (25 years a way) and set up your 'savings' to achieve that - and then implement that level of savings NOW - you will be way ahead of the game - even with a student loans and a mortgage.
I'd then figure out some plan for your SL debt (as in it's paid off in 2 or 3 years... just rip off the bandaid and pay the things off while you aren't committed (to other debts) or stretched.
I'd then figure out the "the house plan" again with the 3 or 4 year horizon. Houses have way more money and time commitments than just the initial purchase. Choose carefully.

The funny thing about financial decisions is that they aren't often one and done. And the decisions you make today -- they keep effecting future decisions over and over and over again. Do you really want to be thinking about your SL debt 5 years from now? Do you really want having to consider your SL debt in financial decisions 5 years from now?
Thanks, I think this is mostly what I needed to hear. You're completely right, I really don't want to be dealing with student loans 5 years down the line and I'd be more comfortable taking a pay cut for better schedule/lifestyle if I didn't have them hanging over my head...

Appreciate everyone's input!
40-45 Hours a week and mostly M-F as a physician new to the work force and you would consider taking a pay cut for better schedule/lifestyle?

Don’t buy a house.
a_movable_life
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Re: New physician - pay off loans early or buy a house?

Post by a_movable_life »

+1 on not buying a house. Maybe you fall in love with your first job, maybe you network and get an opportunity elsewhere to be a partner in a practice. Maybe you end up being a Medical Director. Like other have said your future partner will probably have different opinions on what they need for housing.

Here is one other factor. You may hit a wall in 5-10 years of practice and want to change direction or slow down.

Consider doing a bit of both. Invest AND pay off some of the debt each year for the next 5-10 years. You can model where the "Sweet spot" is for this.

Having a huge chunk of money in the bank at 35-40 gives you options, even if you have to pay capital gains or take a margin loan to get at some of it.
GotNoWisdom
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Re: New physician - pay off loans early or buy a house?

Post by GotNoWisdom »

Pay off loans, 100%.

Not sure what your specialty is, but healthcare is changing rapidly and almost no physician position is truly safe, in the sense that market forces can turn a desirable job into an undesirable one within a short amount of time.

Get the loans cleaned out, and you’ll have exponentially more freedom. Then you can buy a house, change jobs, move, or even change nothing at all, depending on what you want to do.
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White Coat Investor
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Re: New physician - pay off loans early or buy a house?

Post by White Coat Investor »

NewDocMD20 wrote: Sun Nov 08, 2020 1:07 pm I’m a physician who just finished my residency and took my first real job. I have relatively few expenses, so I’m trying to where makes the most sense to put my extra cash flow, either making additional student loan payments (after consolidating) or saving up to buy a house? I think I've included all relevant details

Demographics: 29, single, no children

Income: $475k base salary guaranteed for 3 years, or about $9k per paycheck bi-weekly. I will likely keep this same salary with contract renewal but as with anything I can’t be 100% sure. I have the possibility of a productivity bonus, but this is unlikely for 2020 or 2021 due to covid.

Debt: $226k student loans, currently all federal loans at average 6% interest, but plan to refinance once the interest free period lapses in January. I suspect I can get something at 3% or so.
Car: $12k at 2.75%, ~$400/month
CC: Nothing substantial, I use it for my day to day expenses and pay it off in full at the end of every month.

Savings/Retirement:
1. Roth IRA - $40k, will do $6k backdoor Roth contribution in January for 2021
2. Roth 403b - $17k, this account is from residency
3. Governmental 457b - $23k, this account is also from residency
4. 401k - $15k, will be maxed out at $19k by the end of the year. Starting in 2021 will have additional $17k/year employer match fully vested by mid-2022
5. Taxable vanguard account - $15k, currently adding $1k per 2-week pay period
6. HYSA - $120k at 0.6% interest, mix of emergency fund and where I’ve been putting my student loan “payments” while they’ve been deferred

Rent is currently $1.6k/month, disability insurance from residency $150, in the process of getting an additional disability policy which will cost another couple hundred a month, otherwise all my other expenses come out to maybe another $1.5k/month. For the most part, I’ve had between $5k and $8k leftover each paycheck that I have been putting in my HYSA.

I guess my question comes down to timing. I believe I will be in my current city for the foreseeable future so I would like to buy a house sooner or later. I will at least be renting through my current lease until June 2021. Will it behoove me to use my extra money each paycheck to pay off my student loans early, or should I try to extend paying them off as long as possible if I’m able to get a good interest rate and instead use the extra money to save for a down payment? The area I live in is not very HCOL, but the specific part of town where I would like to stay is a little more expensive, so I would probably be looking at something in the range of $400k-550k. I don’t think I would be comfortable buying something more expensive than this.

My thinking is on one hand, I would love to be completely debt free so that I don’t have to worry about it anymore, but on the other if I do go ahead and buy a house then my $10k SALT plus mortgage interest would be greater than the standard deduction and theoretically should save me money on taxes which is a return much higher than the immediate 3% I would get from paying off loans. Or should I split the difference and just expect to put <20% down if I end up buying at the end of my lease?

I’m not sure if it really matters to this question, but in addition to the above, I am strongly in favor of FIRE and would like to be completely financially independent with a reasonable ($100k/year or so) salary by 45-50. Thoughts? Any help is greatly appreciated!
You're doing great. You'll be fine whatever you want to do. If you like the job and the job likes you, buy the house. Use a doctor mortgage so you can use your spare cash and earnings to pay off the student loans. Then if it makes sense you can refinance the mortgage. Heck, you could just pay off the house too within just a few years if you want.
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familythriftmd
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Re: New physician - pay off loans early or buy a house?

Post by familythriftmd »

Nate79 wrote: Sun Nov 08, 2020 3:26 pm You are deep in debt. Fix your financial problems first before taking on another significant debt.
Actually it looks like OP has a great debt-to-income ratio for a new doc. But OP would probably benefit from refinance and aggressive pay-down and enjoy the freedom.
He/him/his
bogledogle
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Re: New physician - pay off loans early or buy a house?

Post by bogledogle »

White Coat Investor wrote: Mon Nov 09, 2020 9:37 am You're doing great. You'll be fine whatever you want to do. If you like the job and the job likes you, buy the house. Use a doctor mortgage so you can use your spare cash and earnings to pay off the student loans. Then if it makes sense you can refinance the mortgage. Heck, you could just pay off the house too within just a few years if you want.
This.
AB609
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Re: New physician - pay off loans early or buy a house?

Post by AB609 »

If you have any potential for getting married in the next several years, I would not buy a house. Spouses often have different ideas about what is ideal. I would work on getting rid of the debt in the meantime. With your income and low expenses, you can be in great financial shape in a few years.
khangaroo
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Re: New physician - pay off loans early or buy a house?

Post by khangaroo »

Use your GIGANTIC shovel and get out of debt. With that income and amount in your HYSA, you can easily be debt-free in 1-2 years.

Don't get "Doc-itis" as Dave Ramsey likes to say and have that big income get you into trouble. It sounds like you've already got your financial wits about you so hopefully you're immune to that ailment.

If I was in your shoes, I would stop all of my investment contributions, use $119k of my HYSA to pay off my car then the rest into my student loans, and then continue to live like a resident until I had my loans paid off in a year.

I don't agree with everything Dave Ramsey says but the feeling of being debt-free is truly like no other.
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goodenyou
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Re: New physician - pay off loans early or buy a house?

Post by goodenyou »

If you want to accumulate wealth, don't buy a house now. Get rid of all debt fast, save like crazy, and give yourself options. There is no more liberating feeling than options to do what you want without financial peril. You will want them, especially in medicine these days.
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Re: New physician - pay off loans early or buy a house?

Post by qwertyjazz »

Do not buy a house until you are sure you want to stay in your practice.
Hospitals and medical practices frequently help guarantee loans for new houses so people are more likely to stay. You are less than a year in your new/first job. You do not know where the skeletons are buried yet. If you are in a job that includes partnership considerations in a couple of years, wait until then. You have extreme flexibility and leverage now. Wait at least a year until you know enough to buy a house and lock in the location.
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diydocwifejd
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Re: New physician - pay off loans early or buy a house?

Post by diydocwifejd »

Hi! My husband and I were in your shoes a little over three years ago. He's an academic surgeon subspecialist, and I'm a corporate lawyer. We started out making ~$650k/year and are now at about $800k/year.

Based on your income, you can do a combination of things. I would suggest focusing on maxing tax advantaged accounts, paying off loans in 2-3 years, and saving for a downpayment on a home (2-3 years or up to 5 years). I wouldn't rent longer than 5 years. And I certainly wouldn't buy a house until you are out of debt.

What we did the first couple of years was this:

We maxed all tax advantaged accounts, HSAs, backdoor roths, etc., and our take home pay was ~$30k/month. 1/3 of that went to debt paydown, 1/3 went to savings for down payment/furniture on eventual house, and we lived on the other third. We had about $250k of debt to pay down, we wanted to pay off in 2 years, so that's how we calculated what we needed to pay per month. Also with a house, we wanted a 20% downpayment with cash to spare to furnish/decorate and were looking at one that was below 25% of take home pay for PITI payment. That coincidentally was going to be about $250k for the down payment + furniture.

What it taught me was this -- we can always live off of 1/3 of our take home pay. We were so used to living on 1/3 of take home pay for 2 years.

Most importantly - coming from someone who is married to a doctor -- you're single. Houses are a pain. And they're work. We bought a 1 year old house. Like brand spanking new. And there are still things that need to be done in terms of regular maintenance. Those things take time. Doctors, frankly, do not have the time to deal with cleaning air vents, fixing leaky faucets, etc. Enjoy the time you have now to pay someone else to deal with that problem. Delay it as long as you can. Trust me (this is coming from the partner in the relationship who has to coordinate all of that stuff. And I also work. I miss our renting days so much!!)

But as others have said, if you buy a house, I would likely wait until I were married. Like others have said, you will inevitably end up with a partner who wants something different.

Good luck. And feel free to PM me advice!

Keep reading about this stuff. And listening to podcasts. You're on the right track!! Congrats on actually taking in interest in these things. They matter.

But I'm telling you -- you'll feel so much more happy and prepared once the loans are gone and you have a stack of cash to throw down on an eventual home purchase. Take your time. We're still driving old cars. But have a plan. And work hard!!
jerrysmith
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Re: New physician - pay off loans early or buy a house?

Post by jerrysmith »

Congrats and what a great job!

I'd pay off the debts. You have tremendous earning power, use it to get debts to zero build up a war chest of cash then look around to buy.

Good luck
kayli69
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Re: New physician - pay off loans early or buy a house?

Post by kayli69 »

I am a physician also, lucky also to be in a very high paying specialty. The decisions you make over the next 2-3 years are going to have a dramatic effect on your wealth building. I would rent for the next two years, kill those loans, continue to divert any extra cash flow to your taxable account and of course max out all your retirement accounts. Do not buy a house right now. You still remember what it was like to be a resident/ fellow. if you live like one for the next 1-2 years you will be in a fantastic spot
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Re: New physician - pay off loans early or buy a house?

Post by pasadena »

kayli69 wrote: Tue Dec 01, 2020 4:49 pm I am a physician also, lucky also to be in a very high paying specialty. The decisions you make over the next 2-3 years are going to have a dramatic effect on your wealth building. I would rent for the next two years, kill those loans, continue to divert any extra cash flow to your taxable account and of course max out all your retirement accounts. Do not buy a house right now. You still remember what it was like to be a resident/ fellow. if you live like one for the next 1-2 years you will be in a fantastic spot
This reminds me of a piece of advice from WhiteCoatInvestor to new attendings: Live Like a Resident (see also this post).

Although I'm not a physician, this stuck out to me as the best advice one could give to someone fresh out of college.
WhiteCoatInvestor wrote:If you could live in a 2000 square foot home in a mediocre neighborhood as a resident, you can still do it. Doing so allows you to do several things- First, you can pay off your student loans. Now that they're all at 6.8% rather than the 1.9% my classmates refinanced at, paying them down quickly is much more important. Second, you can get your portfolio jumpstarted.
Student loans act like ballast, and will weigh on your future like nothing else will. These are the best opportunity that you will ever have to reach all of your goals faster.
(1) Max out retirement savings
(2) Pay off the loans
(3) Save for big goals like a home
(4) Upgrade your lifestyle

Obviously you can, and should, do 1 and 2, then 1 and 3 and 4 at the same time. But paying off the loans is the one thing that will pay off the most (that, and hard work :)).

You should also take the time to make sure you like your job and your circumstances before you marry into them by buying a home. You're young, no need to go too fast.
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