Steps for Making a Big Purchase

Medical students and residents may want or need to purchase a house, a car, or other expensive items before their education or training is complete. With large purchases come valid concerns about student loan indebtedness and limited residency salaries. If large purchases are approached wisely, concerns about affording the purchase can be mitigated and may possibly be more affordable in the long run.
young couple meeting real-estate agent to buy property, presentation tablet

Preparing to Buy

Step #1: Understand and Protect your Credit Score – Your FICO score (credit score) will determine the interest rate of your loan. To get the lowest interest rate possible, try to raise your credit score prior to making any large purchase. This can be done, but it will take time, so plan accordingly. Some tips that may help you improve your credit score include:

  • Always pay bills on time.
  • Pay down credit cards and other revolving debt.
  • Limit borrowing and avoid opening additional lines of credit.
  • Don't close accounts that have been open for a long time; those accounts show your long-standing history.
  • Decrease the possibility of identity theft by reviewing your credit report for accuracy.

Note: You can review your credit report from each of the credit bureaus once per year at www.annualcreditreport.com.

Step #2: Know How Much You Can Afford – Knowing what you really can afford hinges on having a current and accurate budget. Once you determine the amount of a comfortable monthly payment that you can afford, then it’s time to move to the next step.

The Buying Process

Step #3: Start Shopping for a Loan – Yes, it seems backwards, but it makes most sense to shop for a loan before you shop for the item. By comparing lenders and their loan products, not only will you be able to find the best deal, but you will also have a clear understanding of the total cost (fees, points, rates, etc.) associated with the big purchase. If a pre-approval letter is needed during your purchase, any of these lenders can now provide it. (Note: Limit shopping for a loan to a short span of time to avoid unnecessarily hurting your credit.)

Step #4: Start Shopping for your Big Purchase – Depending on the item, professional assistance may be required during this step. For a home purchase, a licensed real estate agent may be needed (especially if you are unfamiliar with the area). For a car purchase, a trusted mechanic may be called upon to inspect your potential choice. When a final selection has been made, there will be negotiations, paperwork, additional inspections, etc. Often, the most stressful time will come at the tail-end of the transaction.

Things to Avoid:

  • feeling pushed into a monthly payment that makes you feel uncomfortable
  • alternative loans with options like interest-only payments - these could end up costing you more in the long run

Final Tips:

  • When buying a car, try to buy a used car. As soon as you leave the dealership in a new car, it becomes a used car and the value significantly decreases.

  • Reducing your monthly debt payments can increase eligibility for loans. This means forbearance on student loans may help you qualify for a more expensive house or car. But, be wise -- when your residency ends, the house, car, and student loan bills will all need to be paid, so budget and spend accordingly.

  • Consider your future and be sure you are taking retirement savings into consideration when planning and budgeting for major purchases.

Other Resources

Buying a House: www.hud.gov/buying/ or www.consumerfinance.gov/owning-a-home/
Buying a Car: www.edmunds.com/cars or www.kbb.com 

Financial Information, Resources, Services, and Tools (FIRST)

MedLoans® Organizer and Calculator (MLOC)

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The MedLoans® Organizer and Calculator was developed to assist medical students and residents with managing their education debt.

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