Chapter 5 Financial Planning Exercise 4 Rent vs. buy home

Use Worksheet 5.2 and Exhibit 5.9. Denise Green is currently renting an apartment for $650 per month and paying $275 annually for renter's insurance. She just found a small townhouse she can buy for $175,000. She has enough cash for a $10,000 down payment and $4,100 in closing costs. Denise 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 25 percent tax bracket. Using Worksheet 5.2, calculate the cost of each alternative and recommend the least costly option - rent or buy - for Denise. Assume Denise's security deposit is equal to one month's rent of $650. Also assume a 4% after tax rate return on her savings, a 3% annual appreciation in home price, and a 6% mortgage interest rate for 30 years.

Cost of renting. Round the answer to the nearest dollar. $

Cost of buying. Round the answer to to the nearest dollar. $

Denise should the home.