We now return to our friends Sam and Judy. They are still living with Sam’s pare
ID: 2792655 • Letter: W
Question
We now return to our friends Sam and Judy. They are still living with Sam’s parents in Chelmsford, but are reaching the point where they think that it is time to strike out on their own. They are feeling confident in their jobs and both have gotten promotions and several pay increases. Sam is now earning $45,000 and Judy is earning $48,000. Their monthly take home $5037.50.
They still drive to work together, leaving the car near Judy’s job in Cambridge with Sam taking the subway into Boston where he works. They got a good deal leasing a second car and they pay $198 per month. They now have one credit each with an interest rate of 12.5%. . They have spent a total of $4500 buying some of their wish list and they now have a monthly payment of $139.75.
Their budget now looks like this:
Rent?????$400
Utilities????$200
Student loan????$250
Second car????$198
Car loan:????$125
Car insurance????$425
Gas?????$350
Subway????$ 60
Food at home????$300
Food and Entertainment ??$300
Dry Cleaning????$ 40
Credit cards????$139
Miscellaneous???$400?
Total?????$3187
Sam and Judy both want to own their own home. They had been planning to move into an apartment for a while when they left Chelmsford, but with their higher salaries they are now thinking of buying something right away. They had discussed this issue with both of their parents and have discovered that both families are able to help them out. Between Sam’s family and Judy’s they will have $45,000 available to buy a house. They know that they want to have a family relatively soon and that Judy intends to keep on working.
The need to decide a couple of things: First, should they change their plans and buy a home or should they rent an apartment? Second, where do they want to live? Third, what kind of dwelling unit should they buy?
You can find prices on renting and buying on the internet as we saw in class. If you have trouble finding a website let me know and I will find one for you.
Your assignment is to:
1.) 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.
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?
3.) Discuss the costs of renting vs. buying.
4.) Make up a new budget that reflects the changes in their expenses
Explanation / Answer
Sam's Salary - $45,000, Judy's Salary - $48,000, Monthly Take Home - $5037.5
Budget Total - $3,187 with option for rental of $400. Present savings - 5037.5 - 3187 = $1850
Answer to 1)
If they go for rent outside the rent would cost around $1,500. So, they have to pay additional $1,100. That will reduce their savings to 1,850.5 - 1,100 = $750.5
They should still able to manage savings if they plan to rent but since their planning to have a family so it will increase their monthly budget further up. Therefore, it is better they prefer to buy an apartment, since it will eventually be owned by them.
Answer to 2)
They should continue to stay at their present location and find a suitable apartment that suits their budget for purchase. Both of them are relatively young therefore, their income will go up over a period of time and they can afford to buy an apartment and continue to pay the EMI less or equal to the rent budget of $1,500 that they are planning now. Since, they can down payment $45,000 so they can get a good deal on mortgage loan and that will reduce their interest payment and EMI as well.
Answer to 3)
Cost of renting will be relatively less, as they need to maintain the property and pay the rent on time. They also need to pay gas and electricity bills. But for buying a house, in addition to cost of gas and electricity, one needs to pay the EMI on time and maintain as well as pay the state and federal taxes on the property. They should include these additional costs associated with these for their monthly budget to see if they can afford renting vs. buying.
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