- If they rent, the builder will require monthly rental payments of $1,100 and a security deposit equal to two months of rent. - Since they want to be protected against the possble loss of their possessions, they will purchase a fenters' policy of s200 every six months, while a more comprehensive homeowners' policy will cost 0.5% of the home's value per year. - Money used to fund the house's security deposit could otherwise be imvested to earn 5% per year after taxes. Funds expended for a home's down payment and closing costs also incur an opportunity cost. - If the house is purchased, it will cost $110,000 and will require a 20% down payment. The loan will carry an interest rate of 6%, a term of 30 years, and monthly payments of $528. The closing costs associated with the house's mortgage will be $3,500. - The property taxes and the maintenance and repair expenses on the house are estimated to be 3% and 1% of the houses total price. respectively. - Your ordinary income is taxed at the rate of 28%, and you'll be willing to itemize your tax deductions in the event that you purchase your new home. - Financial publications report that home values are expected to increase by 3% this year due to infiation, \begin{tabular}{l} RENT-OR-BUY ANALYSIS FOR HOUSING Amount \\ COST OF RENTING \\ Security deposit \\ Annual rental cost \\ Renter's insurance \\ Opportunity cost on security deposit \\ \hline \end{tabular} Total Annual Cost of Renting: RENT-OR-BUY ANALYSIS COST OF BUYING Monthly mortgage payment: Annual mortgage payments Property taxes Homeowner's insurance Maintenance expenses Opportunity cost of down payment and closing costs Total costs Less Reduction of loan principal Tax savings on mortgage interest deduction Tax saving on property tax deduction Total deductions Annual after-tax cost of homeownership Estimated annual appreciation in home value Total Annual Cost of Purchasing: Based on this analysis, Maria and her husband should: Rent the home, as its total cost is less than the total cost of purchasing. Purchase the home, as the total cost of purchasing is less than the cost of renting. Purchase the home, as the cost of purchasing is greater than the cost of renting. 11. Can I afford this home? - Part 1 Can Janet and Felix afford this home using the monthly income loan criterion? Next week, your friends Janet and Felix want to apply to the fith State Bank for a mortgage loan. They are considering the purchase of a home that is expected to cost $155,000. Given your knowiedge of personal finance, theye asked for your help in completing the Home Affordabirty Worktheet that follows. To assist in the preparation of the worksheet, Janet and felix also collected the following information: - Their financial records report a combined gross before-tax annual income of $125,000 and current (premortgage) instailment loan. credit eard, and car laan debt of $1,823 per month. - Their property taxes and homeowner's insurance policy are expected to cost $2,713 per year. - Their best estimate of the interest rate on their mortgage is 7.5%, and they are interested in obtaining a 15 -year loan. - They have accumulated savings of \$38,500 that can be used to satisfy the home's down payment and closing costs. - The lender requires a minimum 20% down payment, and an affordability ratio that ranges from a minimum of 25% to a maximum of 30% Siven these results, which statement regarding Janet and Felix's mortgage qualification peocess and the purchase of their $155,000 target home is ue? Janet and Felix do not qualify to purchase their $155,000 target home according to the Monthly Income Affordability Worksheet criterion. Janet and Felix qualify to purchase their $155,000 target hoeve according to the Monthly Income Affordability Worksheet criterion