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Category Archives: Cash Flow and Debt

Sell or Rent? Making the Most of Your Prior Home

If you’ve made the call to move—whether you’re upgrading, downsizing or simply looking for a change—you need to do something with your previous home. But what do you do? Sell it? Rent it as an income property? Keep it as a second home? In this article, I’m going to try to give you answers to some common questions that may come up when it’s time to move.

  • I’m planning to move to a different area. Should I sell my home or rent it?
    • Generally speaking, I recommend you sell unless doing so would cause you to take a significant loss that could be mitigated by holding the property for a period of time or you want to be a landlord and own a home in an area where you do not live. Real estate is a great investment; however, there are other ways to own real estate that alleviate you of the responsibility of day-to-day management.
  • What are some unique challenges that can accompany renting vs. selling a property?
    • Being a landlord is not for everyone. There are various challenges, including advertising for tenants, handling leases and deposits (In some states interest must be paid on a rental deposit) and the big one, especially if you live far from the property; maintenance. It is advisable to hire a property management firm if the owner does not want to handle these responsibilities; however, it comes at a cost. Another potential negative to renting your property; the tenants are unlikely to treat your former home with the same care you would.
  • Why would renting be advantageous?
    • If you own a property in an area with significant appreciation, renting your property can generate a significant gain long-term. And even in areas where appreciation isn’t significant, if you can generate enough rental income to cover you costs, someone else is paying off your asset for you.

Finally, do not be afraid to take a loss on a property to get out from underneath a mortgage, especially if you do not want to be a landlord or if holding the property as a rental makes it difficult or impossible to obtain a mortgage on a property where you are living next.

The debt on the rental property impacts your debt-to-income ratio, a factor in obtaining a mortgage and banks in general do not consider the rental income in total or at all in their calculation of your ability to pay both mortgages.

It is important to remember that three months—or worse, a year—without a tenant can dramatically increase your monthly expenses and impact your own financial independence goals.

Any plans to move? Are you considering an income property? We can talk through it together and determine how best to put your previous home to use.

Advisory Services offered through Larson Financial Group, LLC, a Registered Investment Advisor. Securities offered through Larson Financial Securities, LLC, Member FINRA/SIPC.
Larson Financial Group, LLC, Larson Financial Securities, LLC and their representatives do not provide legal or tax advice or services. Please consult the appropriate professional regarding your legal or tax planning needs.
The views and opinions expressed in this article are those of the author, are for educational purposes only and do not necessarily reflect the official policy or position of Larson Financial Group, LLC or any of its affiliates.
Not all Related Services are offered directly from Larson Financial Group, LLC or Larson Financial Securities, LLC but may be available through the Doctors Only network of companies.

Think Twice Before You Borrow the Maximum

As you weigh your options in buying a new home, you’ve got many factors to consider. Cost of the home, monthly mortgage payment, moving costs, etc. You may even get pre-approved from your lender for quite a bit of money, especially as a doctor. Be careful, though, because it may not be a good idea to borrow that full amount.

Especially for doctors looking to buy their first home, a good ballpark for your first mortgage is to keep it within 2-3 times of your annual income. That may not always be possible, especially in more metropolitan areas where home prices have gone up. In those situations, it may be a good idea to consider other options such as buying a condo or renting for a period.

If you’ve got an idea of the price range of a home, you’ll need to find a mortgage specialist to help you along. Many lenders offer something called physician loans. These kinds of products typically offer low or no down payments with no mortgage insurance. For a physician without enough cash on hand for a large down payment, this could be a good choice; keep in mind, however, that interest rates and lending guidelines can vary among lenders.

Some lenders will also try to offer a higher mortgage than you may be able to afford. Talk with your financial advisor about the various loan and mortgage products available to you. Doing so can help you decide how much house makes sense for you, given your other commitments or priorities.

You may feel the desire to use that full approval amount for your home. After all, living lean during medical school can make you eager to push that new higher income to the limit. During the decision-making process for a home, which is both emotional and financial, you can lean heavily on your financial advisor. They can help to ground you and give you perspective on the various familial, societal or other pressures you’re under to live large.

A final thought to keep in mind: buying a home is more than just the mortgage payment. There are upkeep costs, renovations if applicable, furniture, décor and more. These expenses can quickly add up based on the size of your home and your tastes. Remember, you can upgrade as you go along. Owning a home is a big step. Pace yourself!

Are you considering buying a new home? Let’s talk it over together.

Advisory services offered through Larson Financial Group, LLC, a Registered Investment Advisor.

Securities offered through Larson Financial Securities, LLC, member FINRA/SIPC.

Larson Financial Group, LLC, Larson Financial Securities, LLC and their representatives do not provide legal or tax advice or services.  Please consult the appropriate professional regarding your legal or tax planning needs.

Are You Properly Managing Your Debt?

Doctors can end up in unique situations regarding their professional lives. They often enter their high-earning years later in their career than other professions and can have much higher student loan debts. Plus, the cost of opening a practice, along with other expenses like homes or vehicles, can really add up to an intimidating amount of debt. The key to debt management is being proactive.

Planning for the debt that you know is incoming, like student loans, can help you get a start on your savings. Something to consider, though, is exactly how concerned are you with debt?

If debt is causing you a lot of stress or keeping you up at night, you may want to pay it down as quickly as possible. If you’re a little more comfortable with the debt you have, you can work with a financial professional to determine the strategy that works best for you.

A common answer to managing debt is to keep a budget. Budgets can be a great way to track your spending and make sure you have enough set aside to pay your bills and cover other necessary expenses each month. However, budgets may not work for everyone and if you have a busy schedule, setting aside time to balance and monitor your budget may be more difficult than creating the budget itself.

For a doctor in that position, a “pay yourself first” approach may be a better alternative. With this method, you set aside an amount of your income—either a percent or flat dollar amount—to save or invest each month. That leaves you free to spend the remainder guilt-free, as you’ve already put money aside to cover yourself.

Another unique angle doctors have is taking advantage of Public Service Loan Forgiveness (PSLF), which is a strategy whereby your student loan debt could be forgiven a period of working for a government or not-for-profit organization.

There are some caveats to this system. There have been efforts to defund or eliminate it completely, though they’ve been unsuccessful so far. If you’re a doctor pursuing PSLF, it could benefit you to begin or continue saving like the program may not exist in the future. Saving as though you’ll have to pay will help you avoid being blindsided, should something happen to the program.

Whether you’re a debt-managing wizard, you need some help or you’re unsure of the resources available to you, we can talk through your financial plan and make sure you’re on track.

Do you want a second opinion on your debt management strategy?

Advisory services offered through Larson Financial Group, LLC, a Registered Investment Advisor.

Securities offered through Larson Financial Securities, LLC, member FINRA/SIPC.

Larson Financial Group, LLC, Larson Financial Securities, LLC and their representatives do not provide legal or tax advice or services. Please consult the appropriate professional regarding your legal or tax planning needs.

Three Questions to Ask Yourself When Buying a Home

For many, buying a home is one of the largest purchases they’ll make. It’s a substantial life event and taking on a mortgage is a large responsibility—not to mention the costs of maintenance around the house, projects, updates, etc. Here are three questions to ask yourself before you commit to buying a new home.

  • Am I sure this is my long-term employer? Many residents and fellows headed into practice think they should immediately buy a home. In my experience, unless there are extenuating circumstances, renting allows you to be sure you are happy with your new employer and won’t need to move. Renting for 6 months also allows you to get used to the city and the neighborhood—especially if you are unfamiliar—to make sure you know where you want to buy.
  • Is the mortgage reasonable, given other competing goals? Lenders will typically approve a doctor for a large mortgage and realtors will often show a doctor larger and more expensive homes. While the large, expensive home in the exclusive neighborhood may be the right fit for you, make sure the mortgage, property taxes and/or neighborhood fees won’t put you in a situation where you may feel or literally be house poor.
  • Is the home in an area that may impact resale value? I have a client who bought a home in an area of Houston that was impacted by a hurricane and subsequent flooding. While the client’s home did not take on water, the garage flooded and many of the homes in the area are now boarded up, making the neighborhood even less appealing, so the client is unable to sell the home and is moving to another area of the country. A hurricane is definitely an extreme; however, there are other factors that could impact your ability to sell. Is your home too close to a freeway, a waste treatment facility, etc.? Before you buy, visit the home at different times of the day and drive around the neighborhood to make sure there is nothing that stands out as a possible detractor to a future sale.

Buying a home isn’t a decision to be taken lightly. Be sure about your employer, the terms of the mortgage and the location of the home before you decide to dive in.

Is a new home on your radar? Let’s talk through the best course of action for your unique situation.

Advisory Services offered through Larson Financial Group, LLC, a Registered Investment Advisor. Securities offered through Larson Financial Securities, LLC, Member FINRA/SIPC.

Larson Financial Group, LLC, Larson Financial Securities, LLC and their representatives do not provide legal or tax advice or services. Please consult the appropriate professional regarding your legal or tax planning needs.

The views and opinions expressed in this article are those of the author, are for educational purposes only and do not necessarily reflect the official policy or position of Larson Financial Group, LLC or any of its affiliates.

Refinancing Medical School Student Loans Can Save Money in the Long Run

The following article is written and provided by Brandon Barfield, Co-Founder and Regional Director of Doctors Without Quarters, LLC. Student loan related services are provided by Doctors Without Quarters, LLC, an affiliate of Larson Financial Group, LLC.

 

You’re probably aware that Student Loan Refinancing is a hot topic for medical graduates right now. It has been in the news, lenders are broadly marketing and many physicians have done it over the past few years. Indeed, available rates can be much lower than the federal loan rates physicians borrowed at over the past decade. Even for a doctor who has taken little if any college level mathematics courses, the prospect of refinancing to lower the interest costs on student loans sounds like a no-brainer. However, only certain borrowers will qualify and there are several angles you should carefully consider. Below are some important considerations every borrower should understand before moving forward.

How Does Refinancing Work

Student loan refinancing is when a private lender buys out your existing federal and/or private student loans and issues you a new loan with a different interest rate determined by the market conditions at the time. The payment schedule for this new loan can range from 5 to 20 years depending on the lender. For borrowers with high balances and high interest rates, refinancing can result in saving tens of thousands of dollars in total payments.1

Medical School Loan Repayment

Suitability

Let’s start by talking about what you give up when you refinance, namely your federal benefits. By paying off your federal loans with a private loan, you lose your status as a federal borrower and forfeit all federal loan benefits. The Federal Income Driven Repayment plans (IBR, PAYE, REPAYE) offer significant savings to many early career physicians. They offer low payments, interest subsidies and reductions and no interest capitalization while debt-to-income (DTI) is high.

PSLF is available to those who are directly employed by government affiliated institutions (including state teaching hospitals) as well as 501(c)3 non-profits. If you are working in this capacity, or considering it, you’ll want to learn more about this opportunity before you refinance. This includes most residents and fellows, and we will tell you how to assess those options at the end of the article. If you are already practicing in a for-profit environment, then PSLF is likely off the table at this point and refinancing is a good alternative to lock in some savings.2

Interest Rates

To benefit from refinancing, you’ll need to receive a lower interest rate on your new loans than you have on your existing loan. You may also benefit by refinancing a variable rate loan over to a fixed, even if the current interest rates are similar. The rates offered by the lenders will be driven by your credit profile which is ultimately summed up by your FICO score and DTI ratio. At the bare minimum, you’ll need a FICO credit score of at least 620 to even be considered. For the “top tier” rates, 720 is often the magic number you need to surpass. You will also need a stable job, a steady income and a degree from an accepted college or university.3

Each lender has different criteria, so it’s best to shop around for a provider that will offer you the best rate and support for your needs. That gets tricky, however, as most lenders advertise the same range of rates for student loan refinance, and you can’t see an actual rate offer until you submit an application and they pull a “hard” inquiry on your credit report. Too many inquires will actually begin to lower your FICO score. Getting a co-signer can sometimes improve your profile, but not always. Many professionals outside of the medical sector (such as parents) may not have the necessary income to make payments on large medical school loan portfolios, even if they have a high FICO. So adding them to the profile may not help. Late payment history on your credit report can also impact your approval and offer.4

Choosing a Lender

Though refinancing private student loans has been possible for years, institutions only began refinancing federal student loans for physicians in the last few years. When researching potential refinancing opportunities, you’ll want to look for lenders who understand the medical profession and have designed their products with key benefits. One such benefit is the ability to discharge your loan in the event of death or permanent disability. This is a federal loan benefit that most physicians highly value, and some private lenders offer it as well.5

The ability to not make payments during times of economic hardship is also a useful feature. Fees are probably the greatest concern. Various fees, particularly origination fees, can really diminish your savings. But you will be happy to know that some lenders, those who are serious about working with physicians, offer to refinance with no fees whatsoever.

Fixed Vs. Variable

Most lenders offer both fixed and variable rate loans. Fixed rate loans allow you to lock in a rate for the life of the loan. On variable rate loans, the effective interest rate will rise and fall with market conditions. Should rates rise dramatically, you risk potentially ending up with a higher rate than you had on the federal loans.3

Given the historically low rates that we are currently experiencing, locking in a low fixed rate is probably the best opportunity for most borrowers at this time. That said, variable rates can benefit borrowers with shorter time horizons to pay down debt, where the risk of rising rates is lower. Borrowers looking to pay off their loans in less than three years may want to explore variable rate options in order to maximize their savings potential.

The Bottom Line

Medical school debt lends itself particularly well to restructuring for a better deal. However, there are several caveats to consider which is why it is highly recommended that you speak to an advisor with knowledge of your individual circumstances before refinancing.

The ultimate objective is to reduce the overall cost of repaying your loans, while maintaining a payment that you can afford without sacrificing your other financial priorities. Exploring refinance opportunities on a proactive basis can afford you the opportunity to get a head start on paying down your medical school debt and planning for your financial future.

How We Can Help

Doctors Without Quarters (DWOQ) specializes in helping physicians and other healthcare professionals manage their debt. They have helped hundreds of Larson Financial Group clients reduce their cost of debt over the last few years. As an advocate to borrowers, and beholden to no one lender or servicer, DWOQ intimately understands the refinancing marketplace for doctors. They offer a free refinancing suitability analysis to physicians who are interested in pursuing this opportunity. Their expert team of loan advisors will consider your career path, financial goals, loan portfolio and credit profile to help you determine if refinancing is a good fit. If so, they will serve as your advocate to help you shop the marketplace, streamline the application process, broker the best deal and lock in a refinance that meets your needs and maximizes your savings potential. There is no charge for this service. If you are interested in the federal repayment and forgiveness programs, they can also assist in this area by offering thorough loan consultations during which a loan advisor will explain the programs in-depth and conduct a detailed analysis to show exactly what payments and savings would look like. To learn more, contact your LFG Advisor, or visit DWOQ’s website at www.DWOQ.com .

Have Questions?

References:

  1. Ashley Eneriz, “Student Loan Refinancing: The Pros and Cons” (May 2017). http://www.investopedia.com/articles/personal-finance/011916/student-loan-refinancing-pros-and-cons.asp
  2. Bill Nelson, “Here’s What You Need to Know About PSLF” (December 2016) http://www.investopedia.com/advisor-network/articles/122816/heres-what-you-need-know-about-pslf/
  3. LendKey Technologies, Inc, “Student Loan Refinancing: Variable vs Fixed Rate” http://www.lendkey.com/resources/student-loan-refinancing-variable-vs-fixed-rate/
  4. Divya Raghavan, “How Student Loans Affect Your Credit Score” (July 2014). http://money.usnews.com/money/blogs/my-money/2014/07/07/how-student-loans-affectyour-credit-score
  5. National Consumer Law Center, Inc, “Disability and Death Discharges” http://www.studentloanborrowerassistance.org/loan-cancellation/disability-and-death/

Loan repayment advice and services provided through Doctors Without Quarters, LLC, an affiliate of Larson Financial Group, LLC. Additional advisory services offered through Larson Financial Group, LLC, a Registered Investment Advisor. Securities offered through Larson Financial Securities, LLC, Member FINRA/SIPC.

Larson Financial Group, LLC, Larson Financial Securities, LLC and their representatives do not provide tax advice or services. The information set forth in this writing is not intended to be investment or tax advice. Please consult the appropriate professional regarding your tax planning needs.