A potential buyer has visited a brokerage to talk to an agent about the pros and cons

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Question:

A potential buyer has visited a brokerage to talk to an agent about the pros and cons of buying a home vs. renting one. The agent asks the potential buyer questions about the buyer's income, price range, down payment ability, and current rent costs.

Estimated Net Cost of Renting and Buying Worksheet

Current monthly rent: $1,300
Income tax bracket: 28%
Proposed purchase price: $250,000
Proposed down payment: 10%
Loan term: 30 years
Interest rate: 7%
Closing costs: $7,500
Estimated appreciation rate: 3%
Yield on money not spent on a down payment: 4%
Property taxes: $3,800
Homeowner's insurance: $900
PMI: $78/month

Pretend you are the agent working with the buyer and fill out the "Renting vs. Buying" worksheet using the information below to help determine whether renting or buying makes more sense for the potential buyer at this time. Once you've completed the worksheet, save as a Word doc or pdf and attach to your post along with your analysis. Share whether this particular buyer should continue renting or purchase a home.

Calculations: Determining the principal and interest payment requires a financial calculator (P&I= $1,497). Many of the other figures, such as the loan amount and down payment, can be determined with straightforward arithmetic. Here's how to calculate the less familiar figures that the worksheet requires. Round figures to the nearest dollar amount:

• Average monthly principal amortization:

loan amount ÷ 30 yr term (# of months) = _________________

• Average interest portion of payment:

monthly payment × 30 yr term (# of months) = _____________ (total P & I)
total P& I - principal = ___________ (total interest)
total interest ÷ 30 yr term (# of months) = ________________ (average interest)
• Monthly value of tax deduction:

deductible items × 28% tax bracket = __________________

• Average monthly appreciation:

Price paid × estimated appreciation rate = __________÷ 12 = ____________

• Interest from savings not used for purchase:

$32,500 × 4% return ÷ 12 = _________________