Buying or Renting:

MATH 1030
Final Project- Kent
Kayla Turley
Should I buy a house or rent a house? That statement goes through every persons head at
least once when they are thinking about moving somewhere. How do they come to a reasonable
conclusion about what is best for them? What kind of data needs to be looked over before they
make a decision? This should answer those questions and more. Starting off we will talk about the
advantages and disadvantages of renting or buying a house. Then, the different considerations you
need to think about that are need specific to only your situation. Next, we will run a mortgage
calculator on a typical house with three different types of loans. Lastly, we will run through an
actual example of two chosen houses in the Salt Lake Valley (one for buying and one for renting).
My hypothesis for these situations is that the advantages of renting a home will be greater
than those of buying a home because of all the things you have to consider when buying a home.
When you rent a house a lot of things will be covered by the landlord. I think that a lot of different
situations will make for different endings based on the specific needs of a person. For this situation
we will be assuming that we are working with a married couple that has two children, a flexible
budget, and is able to make a down payment of 20%. When we run the mortgage calculator I think
that at least the first 10 years they will be paying more interest than money to the actual mortgage.
The different advantages and disadvantages to buying and renting a home are numerous,
included here are just a few of the most important ones. The advantages of renting a house are:
You do not have to do much maintenance on the house. Most state codes require that a landlord
do maintenance to the house so that it is safely livable and up to states particular structural codes.
If your career moves you around a lot, or you have no set career, renting is a good option for you.
It comes with the advantage of being able to pack up and go as you want. The advantages of buying
a home are the disadvantages of renting and vice versa. The main advantage that most people think
about when they are weighing the pros and cons is that when you buy a house you have a set
monthly payment, which means that a budget will be easy to make and stick to. If you were renting
the landlord can give you thirty days notice that your rent is going up and you oblige or move. If
you are buying you also get the chance for a tax break on the interest you pay towards your loan.
You have the chance to build equity, your house is a type of investment.
As I stated in the previous paragraph the advantages of renting are the disadvantages of
buying and the other way around. One thing that you should think about if you are in the market
for a home is whether or not you have a down payment and if you do, how much of one. If you
have a down payment that is less than 7%, it would be considered insignificant. You would be
better off investing your down payment in an attempt to increase the amount, to a significant
amount, and renting for a while. If your down payment is more than 10% you would need to weigh
options. At that point the payment would be considered a significant down payment; however to
qualify for a FHA loan, a very good loan (requirements are easily met), you would need a 20%

down payment minimum. You would need to look around and based on your credit score find a
loan that allowed for the 10% down payment or invest the 10% for a few years in an attempt to
reach the 20% down payment needed for FHA loan.
The next step is looking at different considerations for your situation. We will be using the
married couple with two children, a flexible budget, and good credit. Are you looking to settle
down? Can you afford a home? What are your future plans? All of these questions need to be
thought through a lot before you come to the decision of buying a home. With the married couple
above we are going to assume that they want to stay at least eighteen years to get their kids through
high school and some college before the idea of moving is even brought up. This would make them
in favor of buying a home. They have a flexible budget with good credit meaning that if they have
a down payment they could receive a generous loan. We are going to assume that this couple has
a $40,000 down payment. This means that they should buy a home that makes this amount a 20%
down payment. This couple should be looking at around a $200,000 home. This will make them
eligible for an FHA loan or better.
However, you may want to look into interest rates over the past few years and predicted
interest rates for the future years. These values are going to be a huge indicator of whether or not
it is a good idea to buy a home now or wait until a future date. If interest rates are going up it may
be a good time to buy. If they are going down steadily it may be a good idea to wait. The two
graphs below are a comparison of the average interest rates of a 15 year fixed loan and a 30 year
fixed loan over the last five year period. They show the national interest rate averages and Utah
interest rate averages.

National

Utah

As you look at these graphs you notice that 05/2013 was the best month to buy a house in
Utah. The rates were the lowest then have been in five years. They were this was all over the
country. Some places higher than others but as a whole the states had their lowest rate that month.
When you look into highly populated areas you will generally see higher interest rates than those

of lowly populated areas. An example of this is Wyoming vs. New York. Their interest rates are
generally .2% off from each other. Wyoming has the lower interest rates.
When you are looking for a place to buy it may not be a bad idea to look around different
states and major cities for different ideas at how their interest rates differ from others. If you have
a set job looking for a home in a small town that is within a reasonable commute to your work may
not be a bad idea either. You have to take into consideration the different amounts you will save
on interest or on gas. Which way makes you spend the least amount of money? Is spending more
money for convenience something that you can afford? All of these things should be considered
when buying a home. Location and interest rates should be one of the main deciding factors of
your home.
I picked three different loans to work with in two different places. Zillow.com offers a
place to look at the average home prices in a specific area. I am going to find the average home
prices for a large city, New York NY, and a smaller city, Bailey CO. I am going to take their
average home prices and put them into a mortgage calculator with the three different interest rates
and time ranges. The mortgage calculator that I chose to use is from bankrate.com. The three loans
that I chose were a 30 year fixed loan at 3.5%, a 15 year fixed loan at 2.75%, and a 15 year FHA
loan at 2.67%.
The renting price for a house like this in New York would be around $2,500. That would
mean that you could live in that house renting for 30 years for $900,000. The first town is New
York, NY. The average home value for this town is $554,200 for a single family home. A 20%
down payment on his house would be $110,840 (for all three loans). We are going to put a down
payment of 20% on each loan before it is entered. $443,360 will be entered into the mortgage
calculator for all three loans. The start date of this loan was assumed to be April of 2015.
For a 30 year fixed loan mortgage the monthly payment would be $1990.88 a month. The
total amount of interest you would end up paying would be $273,358.43 (38.14% of the total paid).
In the end the total you would pay for this house would be $827,558.43. The first time you would
make a payment that was more principal paid than interest wouldnt be until August of 2025, ten
years and four months after the start date of the loan; however if you were to pay $100 extra a
month from start to finish you would save $24,635 in interest and end up paying only $802,922.78
for the house that would be paid off in November of 2042 instead of April of 2045. None of the
amounts above include tax, utilities, or insurance.
The second loan is a 15 year fixed loan mortgage with a monthly payment of $3014.44.
Unlike the thirty year loan a fifteen year loan pays an amount of much less towards interest so the
first payment the principal paid is more than the interest paid. The total amount of interest you
would pay for this loan would be $98,398.72 (18.13% of the total paid). In the end you would pay
a total of $653,438.72 for the house. If you were to pay $100 extra a month from the start of the
loan you would pay off the loan 7 months earlier in September of 2029 and save $4,093.99 in
interest. Making the total amount you paid for the home $649,344.73.
The third loan is a 15 year FHA loan, 2.67%. The monthly payment on this loan was
$2997.56. As the other fifteen year loan the payment at which the principal paid is greater than the
interest paid is the first payment. The total amount of interest you would pay on this loan would

be $95,360.17 (17.67% of the total payments). For the home you would end up paying a grand
total of $650,400.17. You could save yourself a bit of interest if you were to pay $100 more a
month. This would save you $3958.59 in interest and bring the total of the home down to $646,441
and pay it off 7 months earlier in September of 2029. The least amount from these loans that you
would pay for this house is $253,559 less than if you were to rent the house for thirty years at a
constant rate of $2,500.
Next we moved onto the loan in Bailey Colorado. The renting price for a home similar to
the one that we are running through the mortgage calculator will be $1,460. With a constant rate
of that you could live in a home for thirty years for an amount of $525,600. The average valued
home in Bailey CO is $267,100. This amount does not include taxes, utilities, or insurance. We
will be putting a down payment of 20% (or $53,429) down on all three of the loans that we will
run through. This amount will be added to the end amount for the homes. The loan amount needed
will be $213,689. The assumed start date of this loan in April of 2015.
The first loan is a 30 year fixed rate loan. You would have a monthly payment of $959.56.
The first payment that you make that the principle in more than the interest paid doesnt come until
August of 2025. The total amount of interest you would end up paying would be $131,752.28
(38.14% of the total paid amount). This would mean that you would end up paying $398,870.28
for the home. If you were to pay $100 extra a month you would not only save $22,642 but you
would pay of the house on September of 2040. You would end up paying a grand total of
$376,594.52 for the home.
The second loan is a 15 year fixed rate loan. You would end up with a monthly payment
of $1450.14. This is a fifteen year loan so you are always paying more towards the principal than
the interest total. The total amount of interest you would pay on a loan like this would be
$47,336.16 and a grand total on the house of $314,454.16. If you were to pay $100 extra a month
you would be able to pay off the house 14 months early in February of 2029. You would also save
an in interest $43,420.21. You would end up paying a grand total of $257,323.20 for the house.
The third loan is an FHA loan with a rate of 2.67%. With this loan you would pay a monthly
payment of $1442.02. The principle is always greater than the principle paid in this loan. The total
amount of interest you would pay would be $45,874.42. With this amount of interest the grand
total you would pay for the house would be $312,992.42. If you were to pay $100 extra a month
you would save $3,588.26. This would mean that you would only pay $309,404.16 for the house.
All of the above end totals have the down payment incorporated into the totals. They may also be
within 2 dollars either way.
The next thing that is an actual example of a home in the Salt Lake Valley. The first home
that is for rent in a monthly fee of $1325 a month. The landlord will make general repairs and is
flexible with the amount of people living there. The house is 1680 square feet meaning you would
pay about $0.79 per square foot. The home is three bedrooms and two bathrooms. This house is a
split level with wide open rooms. The back yard includes a large durable shed.
The house that is within two blocks of the rental we were looking at is $184,500. Having
looked at other houses with similar set ups in the neighborhood, this is an average price for the
area. This house is 1570 square feet. It has two complete bathrooms and three bedrooms. This

house is also very spacious and is completely floored in gorgeous hard wood. The house is updated
with new bathrooms and kitchen. There is a large mud room connected on the back and is closed
off from the rest of the house.
The mortgages available on the home to buy were generally the same percentages we talked
about in the problems above. Using a 15 year loan with 2.67% interest means you will end up
paying a total of $224,108 for the home. The monthly payment on this would be $1245.05. If you
take the $80 that would have been used to pay rent and put it towards the monthly payment you
could pay the loan off 14 months early. This however is not including insurance, taxes, and utilities.
Which when added up on an average of the houses in that neighborhood you get an amount of
around $6000 a year. With that added in on the fifteen year period you get an amount of $314,108.
This total amount doesnt include any maintenance on the home. The renters value including $70
a month for water, garbage, sewage and any other things that the landlord may not include. The
value you get for renting a home is $251,100. This amount is $63,008 less than the amount for
buying a home and that didnt include any maintenance.
In conclusion, buying a home can be a different outcome for many different people in
different situations. Buying a home should not only depend on your situation in life and your
income but whether or not you think you are able to maintain a home. When renting a home it is
cheaper and there is a lot more taken care of for you. I would say that the conclusion is always rent
a home; however that is not necessarily the only conclusion. For a person that is able to maintain
a home inside and out, for example a fix it all type of person, would be better off buying a home
because they wouldnt get as much benefit out of a rental as say a single mother would. The
conclusion is to make the decision to buy or rent a home that you can afford and that fits your
situation based on the knowledge you just gained.

Bibliography: Websites Used for Data:

http://www.moneycrashers.com/

http://files.zillowstatic.com/

http://www.zillow.com/

http://www.fhfa.gov/

http://www.getrichslowly.org/

http://money.cnn.com/

http://www.fha.com/full-disclosure

http://www.marketwatch.com/

http://www.bankrate.com/funnel/grap

http://money.cnn.com/

Home 1: Buy:

Home 2: Rental:

http://www.zillow.com/homes/for_sal
e/West-Valley-CityUT/fsba,fsbo_lt/12724272_zpid/4844
3_rid/3-_beds/40.781321,111.839619,40.575891,112.174702_rect/11_zm/0_mmm/

http://www.zillow.com/homes/for_ren
t/house,condo,apartment_duplex,town
house_type/69714693_zpid/360231360231_price/13251325_mp/days_sort/40.831996,111.486168,40.420815,112.156334_rect/10_zm/?view=map