My oldest son, Brian, is closing on his first house this month and will be moving into his own place soon. I’m proud to say he used good sense and bought something well within his budget and a bonus was having the appraisal come in significantly higher than his purchase price. Many people make a critical mistake at this juncture and end up crippling their finances for decades. They buy the house of their dreams instead of the house of their budget.
It’s easy to get caught up in the house-buying frenzy and end up with too much house for your budget, making you house poor. After so many years of depriving yourself during your training, when you finally start making money you feel you deserve a nice house. But at what cost? Does having five acres instead of one really make you happier? Will 5,000–10,000 square feet improve your well-being more than 3,500 square feet? If you bought the house for your family, but then you stay at work late to earn the money to pay for it and never see them, who are you kidding?
If you are overextended with too much house, there won’t be enough money left for all the other things you need and would like to have. What will you have to eliminate? The dream car? New clothes? Vacations? Your retirement savings? Your children’s college fund? Make no mistake, the extra money will have to be pulled from something. Is it really worth the trade?
How will it feel when you tell your children you would like to help them with their college costs, but instead you put the money into your expensive house? Did they enjoy the yard more than they would enjoy a college education without debt? Did you? Did your children enjoy going on vacation without one of their parents, who had to stay home working to make the house payment?
When I get ready to take a patient to surgery, I explain the procedure, alternatives, and risks. Only after I’m certain they understand what they are getting into, will I be satisfied if they make a decision to opt out of a needed surgery.
The same goes for your house purchase. Make sure you have counted the costs, checked the procedure, alternatives, and risks, and realized what you will be giving up to have that house. Otherwise, after buying too much house for your budget and struggling financially for the rest of your life, you may look back with regret.
A few house buying tips:
1. Buy a house only when it fits into the plan. If that means renting while getting on firm financial footing (e.g., not drowning in debt), that’s OK. Expanding your lifestyle slowly will allow you to get all the pieces in place before committing to the house payment. If you commit too soon, before you have accounted for everything in the spending plan—like disability insurance payments, for example—you may find yourself with too little money left to get everything you need. If you buy too soon, you may not be able to pay off your student loans quickly, and will pay unnecessary interest on them for years.
2. Don’t buy a house as a resident or new attending. Wait until you know you are in a practice you’ll want to stay in for more than five years. Avoid the forced sell at the end of residency, or if you discover you don’t like the job you picked. The market might be down and you don’t need the extra hassle at that point in your life.
3. Don’t take on a home mortgage greater than two and one-half times one spouse’s or partner’s income. This will leave plenty of space in the spending plan for all the other things life throws at you. It also keeps the two-wage-earning family safe if one of them loses their job. If you are in a higher-paying specialty, use an even lower multiple of your income.
4. Don’t buy a house to keep up with the Dr. Joneses; buy a house that meets your needs. The Dr. Joneses of the world are going broke—you don’t want to be like them. Fully understand what you need and what you can afford, and let those issues guide you more than what you want and what the bank will loan you.
5. Pay off the mortgage as fast as possible, and then start earning interest instead of paying interest. The quicker you turn interest around and have it work for you instead of against you, the quicker you will reach your financial goals.
6. Never think of your personal residence as an investment. It’s an expense. Always work to minimize expenses. If you think of it as an investment, it will taint your decision. You may get a bigger house to make a better investment, and the added accompanying expenses could push you into bankruptcy and foreclosure.
7. Never treat your house like a piggy bank, harvesting equity or taking a second mortgage to buy something. No car, boat, motorcycle, motorhome, or any other toy is worth putting your home at risk. None of those things feels as good as being debt-free.
8. Never get an adjustable-rate mortgage. It’s not worth the risk. Many people have lost their houses because of interest rate increases. Most people stretch their budget to the max to buy a house, leaving no room for the adjustable rate to adjust the payments higher. When it happens, you may end up in foreclosure.
9. If you find your house is too expensive and is choking out your spending plan, sell it. It is not worth the trouble it is causing you. The earlier you make the move, the better. It’s only a building; you can find another one. One that fits into your income better and creates much more happiness.
Never let a house become a ball and chain attached to your leg.
Make it instead a sanctuary of peace and tranquility.
If you need more information, check out my book “The Doctors Guide to Eliminating Debt” so you can stop managing debt and start eliminating it.
Also helpful is “The Doctors Guide to Starting Your Practice Right.”