Personal Finance Assignment - Essay Example

The Continuing Saga of Sam and Judy (Part 3 Discuss whether you think they should rent or buy. What are the factors they should consider? They think that they probably can find an apartment that would rent for $1500 a month. The decision to rent or buy a house is complex especially for young adults. Interestingly, the desire to own one remains high. It is, therefore, understandable that Sam and Judy are considering owning a house. A decision that requires careful consideration to ensure that the choice made offers more value.

Finances A person’s financial position is the main factor to consider when making a buying or renting decision. Buying requires not only down payment, but also the ability to foot monthly bills arising from mortgage payment. Behavioral patterns Persons who plan to settle at one place for a long time are suitable candidates for purchasing a house unlike those who like travelling a lot. Still, there are persons who cannot afford to stay in a place for a long time because they become easily jaded.

Occupational nature Some jobs involve much travelling and interstates movements. Such jobs make home owning quite expensive, which means that renting is the only option. In considering the above factors, the best choice for Sam and Judy is buying a house. Their earnings are considerable, and they are planning to settle down. Their families are also assisting by offering a down payment of $45,000 for purchasing a house. Most importantly, Judy is to continue working even if they have a family, which means their income will remain high.

While they can easily afford $1500 rent, they will eventually have nothing in the end, as they will only be assisting their property owner in paying mortgage. 2. Discuss of where you think they should live? What are the factors they should consider? Can they find an apartment in their price range in the areas where you think they should live? Judy works in Cambridge while Sam works in Boston. The couple owns one car. When deciding where they should live, they should consider the security in the area, accessibility, availability of social amenities such as schools, since they want to raise a family, property prices in the area, and most importantly, their ability to pay.

To cut the cost of purchasing another car, they should consider living in either Boston or Cambridge. This will ensure that only one partner travels to job with the available car. Apartments are relatively cheaper in Cambridge as compared to Boston. Therefore, Cambridge is a better choice. However, the cheapest available apartment in Cambridge cost $ 1680 (http://www.trulia.com/property). 3. Discussion of the costs of renting vs. buying. Using the techniques in the book on pages 299 & 300 decide how much can they afford to pay for a house?

In calculating the cost of buying vs. renting, many variable needs to be considered. They include home price, available down payment, mortgage rate, annual property taxes, annual renovation costs, homeowner’s insurance, and length of mortgage for home buying against, rent deposit, rental broker’s fee if any, and renter’s insurance rate for renting an apartment. Renting $ Rent deposit 1680 Monthly rent 1680 Total 3360 For buying Cost of house $349,000, the value of the cheapest house found in Cambridge Property taxes rate 1.

35% Mortgage rate 6% Repayment period of 30 years Monthly payments P = L[c (1 + c) n]/ [(1 + c) n - 1] =$1,822.63 Total monthly cost of buying (1,822.63+392) = $ 2214.63 4. Make up a new budget that reflects the changes in their expenses. Their new monthly budget Mortgage repayment $1822 Property taxes 1.35% $392 Property maintenance 0.5% $145 Utilities $200 Student loan $250 Car loan: $125 Car insurance $425 Gas $400 Food at home $300 Food and Entertainment $300 Dry Cleaning $ 40 Credit cards $139 Miscellaneous $200 Total $4738