Emma Jones is planning to move to Oxford, MS to start her new job at a real estate firm. She has not yet decided whether she wants to rent or buy a property in Oxford. Emma is not from Mississippi and is asking your team to help her make this financial decision. Her monthly housing budget is $1,600. This budget must cover housing expenses including rent or owners costs (example: mortgage, hazard insurance, property taxes, and Home Owner Association fees, if any). A good start of the analysis is to apply financial concepts such as the time value of money.

Emmas contract is for three years and is renewable for three more. Her plan is to stay in the Oxford area for no more than 8 years. Even if her job continues to work out well, she will try to move from the location she selects to a different house.

Emma has money saved for this transaction and plans to make a 20% down payment on any house that she purchases.

Emma will make this decision purely based on financial motives. She is not worried about arguments such as you are throwing away your money when renting or it is better to be flexible and rent rather than buy.

Total points for the case: 100 points

Questions:

1. Estimate the maximum house value Emma can afford to buy. Assume the mortgage that terms that Emma will have are based on a fixed-rate, 30-year maturity, 80% LTV, with no points. The interest rate that she was quoted is 3.5% with monthly payments. Assume that property tax rate in the city of Oxford is 0.7% per year based on property value; assume the hazard insurance premium is 0.5% per year based on property value, and assume that on average you should consider $50 per month for maintenance. Determine the required monthly payment for the mortgage and the maximum house value she can afford if she buys. (15 points)

After determining the maximum house value for Emmas budget, select a house that Emma can afford and follow the instruction for the case.

Instructions for the case:

• Go to an online site that offers real estate for sale and rent. Examples of these are Zillow.com, Trulia.com, Redfin.com or Realtor.com.
• Select one property (it could be a condo, townhouse, or house) that is for sale. The maximum value that Emma can afford depends on the mortgage, taxes, Home Owners Association (HOA) fees and insurance. Please provide the link and images (2 pictures maximum) for the property selected.
• Special Note: You may use the taxes, insurance, and HOA fees included in the information on Zillow, Trulia, etc., but you must use the mortgage information that is provided in this case study to calculate the costs associated with this decision.
• Find a comparable rental property near the property that is for sale that you/your team selected. Select comparable property based on square footage, lot size, type of property, number of bedrooms and number of bathrooms.) Please provide the links and images (2 pictures maximum per house) for the comparable property selected.