Shelby and Mark Lawrence were married a year ago and are planning to purchase a condo as their first home together. Rent for a two-bedroom apartment costs them around $800. They want to stay as close to this amount as possible, since they are preparing to open Shelby's pet salon within the next year. They need help in evaluating all of the elements of home ownership.

Life situation: Young married couple, Shelby, age 26; Mark, age 27.

Financial data: Monthly gross income $3,600 Living expenses 3,100 Assets 25,000 Liabilities 3,000

Questions:

Lets assume the Lawrences will qualify for a 6%, 30-year loan and will make a down payment of 10%. They are currently paying $300 on a used car auto loan for Shelby and will pay $220 per month for property taxes and homeowners insurance. Using the Housing affordability and mortgage qualification amounts exhibit within the chapter, calculate the following:

a. the amount of their affordable monthly mortgage payment

Gross monthly income = $3,600 Downpayment ($3,600 x .38) = $1,368 Other debts = $520= affordable monthly payment of $848. b. the amount of their affordable mortgage loan amount $848/6 x 1000 = $141,333

c. the amount they can afford to pay for a home. $141,133/(1-.1) $157,037.

What are the tax advantages for the Lawrences of owning a home rather than renting?

Explain how Shelby and Cameron might use the following Personal Financial Planner sheets when deciding to purchase a home. a. Renting versus Buying Housing planner will allow them to compare the financial aspects of renting and buying their housing. b. Housing Affordability and Mortgage Qualification planner will help them determine the amount they can afford for buying a home and obtaining a mortgage.