Exercises: Renting Versus Buying a Home

Define these terms: down payment, mortgage, and closing costs. Write one sentence for each.

Olivia wants to buy a home that costs $\$250{,}000$ and plans to make a down payment of $20\%$. Find the amount of her down payment and the amount she must borrow with a mortgage.

List two advantages and two disadvantages of renting compared with buying a home. Then say whether each one mainly affects flexibility, cost, or risk.

Liam can rent an apartment for $\$1{,}500$ per month. To buy a similar home, he would pay a mortgage of $\$1{,}350$, property taxes of $\$300$, homeowners insurance of $\$100$, and maintenance of about $\$250$, all per month. Find the monthly cost of owning and the yearly difference between owning and renting.

Isabella is buying a $\$300{,}000$ home with a 30-year fixed-rate mortgage at $6.5\%$. With $10\%$ down, the loan is $\$270{,}000$, the monthly mortgage payment is about $\$1{,}707$, and she must also pay private mortgage insurance (PMI) of $\$150$ per month. With $20\%$ down, the loan is $\$240{,}000$, the payment is about $\$1{,}517$, and there is no PMI. Find each down payment and each total monthly cost. How many months of lower payments does it take for the extra down payment to be repaid in savings?

Ethan will buy a $\$220{,}000$ home. He plans to put $5\%$ down, and closing costs are $3\%$ of the home price. Find the cash he needs at closing. Then explain why many first-time buyers are surprised by this total.

Aaliyah is comparing buying a $\$280{,}000$ home with renting for 5 years. If she buys, she pays $10\%$ down plus closing costs of $3\%$ of the price. Her total monthly owner costs (mortgage, taxes, insurance, maintenance) are $\$2{,}000$. After 5 years she would sell the home for about $\$324{,}600$, pay selling costs of $6\%$ of that price, and still owe about $\$238{,}000$ on the loan. If she rents, she pays $\$1{,}600$ per month for 5 years. Find her net cost of buying and her cost of renting. Then discuss two factors this simple comparison leaves out and say when renting is the better choice.

Mateo earns $\$70{,}000$ per year before taxes. A common lender guideline says housing costs should be at most $28\%$ of gross monthly income, and total monthly debt payments at most $36\%$. Mateo wants a home with a total monthly housing cost of $\$2{,}000$, and he also pays $\$450$ per month on a car loan and student loan. Find his gross monthly income, both limits, and whether he meets each guideline. Recommend what he should do and justify it.