Fred B. and Kadine P. and are the parent of two children, aged 7 and 9-years old.  They have been living in a 2-bedroom apartment for the past 10-years and are planning on purchasing a house because Kadine is expecting a third child.    Their combine salaries totaled $110,000 and have estimated monthly debt payment of $6,500 (rent, utilities, streaming services, car lease, etc.).  Estimated monthly taxes + Insurance is $900. 

             

Fred and Kadine had contacted your group of financial advisors, to get information on purchasing a house.  Your group had conducted a due diligence on their financial position and learned they can acquire the required 20% down payment through savings and down-payment assistance programs. They also want to have a 30-year fixed interest rate (6.5%) loan (mortgage factor of 6.2 per $1,000).  They are however confused on what the house buying process is about and are debating if they should rent a larger apartment or make the commitment to purchase a house.

Task

1. Please explain the advantages and disadvantages of renting. 
2. Please explain the advantages and disadvantages of owning. 
3. Please calculate the affordable house purchase price their combined salaries can afford. 
4. Please explain the dangers of defaulting on their mortgage payment.