Rent versus buy home. Use Worksheet 5.2.

Emma Sanchez is currently renting an apartment for $725 per month and paying $275 annually for renter’s insurance. She just found a small townhouse she can buy for $185,000. She has enough cash for a $10,000 down payment and

$4,000 in closing costs. Her bank is offering 30-year mortgages at 5 percent per year. Emma estimated the following costs as a percentage of the home’s price: property taxes, 2.5 percent; homeowner’s insurance, 0.5 percent; and maintenance, 0.7 percent. She is in the 22 percent tax bracket and does not plan to itemize deductions on her taxes. Emma estimates that the value of the home will appreciate 2 percent per year.

Using Worksheet 5.2, calculate the cost of each alternative and recommend the least costly option—rent or buy—for Emma. L01