For new attending physicians, moving from a training salary to an attending salary will be a huge change and will seem like a ton of money. But there are things to consider when thinking about where to put your new paycheck. So should you buy or should you not buy...
Maybe, or maybe not. Sorry to be so non-committal, but there are so many variables to consider when thinking about home ownership that it’s hard to give a blanket recommendation. But there are some things to really ponder when you’re looking to buy a home as a new attending.
If you’re moving to a new area, you may want to consider renting first so that you get a good idea of whether you like your new job and its location, and to get to know the area better.
After all, a huge percentage of doctors quit their first post-residency jobs within three years, and even realtors say it’s hard to break even on a home unless you’re in it for at least three years.
Plus, closing costs can add up. You have to spend between two to five percent of the value of a home when you buy it and another two to five percent when you sell it. So that gain in your home’s value that you might have hoped to see may not pan out.
The calculations are a little different if you grew up or already know the area well. You probably know which neighborhood you want to live in and have a good idea about things like your commute and area schools.
If you are ready to buy a house, remember that it’s recommended to spend no more than 30 percent of your gross monthly income on housing. And don’t forget to include insurance and property taxes in your monthly payment calculations!
When you’re looking at mortgages, think about whether you want a 15- or a 30-year mortgage. 15-year mortgages usually have a lower interest rate than 30-year mortgages.
15-year loans have a higher monthly payment, but you pay less interest. 30-year loans have lower monthly payments, but you pay more for the house in the long run due to the increase in interest.
An example to illustrate the difference is by using this amortization calculator. Assuming a 15-year fixed mortgage interest rate of 3.5%, and a 30-year fixed mortgage interest rate of 4.25%, let’s run the numbers!
With a loan of $500,000 and a 15-year mortgage, you’ll end up paying $643,320 over the life of your mortgage.
With the same loan amount and a 30-year mortgage, you’ll pay $885,240 for that loan. That’s a difference of $241,920!
Also, save up as much of a down payment as you can. There are “doctor loans” that require little to no down payment, but just because someone is willing to lend you money without a down payment doesn’t mean that the loan is actually a good deal for you.
If you want to use a “doctor loan,” you may have only one or two lenders to choose from. Whereas a 20 percent down payment gives you more options and lets you avoid private mortgage insurance that would be added on top of your monthly payment.
It basically boils down to this: buy a house because you need a place to live and want to put down roots. Don’t buy a house because you are hoping for, or worried about, future price appreciation.
You can’t control it and you can’t predict it, so don't make that your sole reason to buy quickly.
Do it! If you’re going to spend some hard-earned money, let lifetime memories be the return. Plus, it’s a great time to recharge.
(This is of course assuming that you have an emergency fund and a budget!)
The best car to buy as a new attending is...the one you already own.
Only buy one if you can’t avoid it. Do it if you're without a car or the old one is dying, but don’t take money out of your emergency fund to do so.
And if your car dies and you’re a new attending, consider buying something inexpensive. A car is a depreciating asset and not a great place to put your money immediately. Reliable transportation doesn’t have to be expensive!
As a new attending physician, really focus on building assets as opposed to gathering liabilities like a car. After all, if instead of spending $5,000 for the next 45 years on car payments you invest that money into a Roth IRA with an eight percent return, you’ll have over $2 million just from that money by the time you retire!
Seriously, don’t buy a boat until you’re debt free. Boats depreciate even faster than cars do, and they require a lot of maintenance.
If you’re debt free and you still want to buy one, then try out owning a boat by renting one. Figure out how many days a year you would need to use the boat before owning is cheaper than renting (and don’t forget to add in maintenance costs of ownership).
Boat ownership is far more expensive than it seems at first, and young attending physicians usually have other non-retirement financial needs and goals to save for. So seriously consider skipping the boat for now.