Rent Vs. Buy Calculator

The age-old question of whether to rent vs. buy doesn't have a simple answer. In reality, many factors come into the equation: your finances, family and job goals, the local housing market — to name just the major ones. To see which strategy makes the most sense for you, answer the questions below.

Questions to consider

Think of using a rent vs. buy calculator as a warm-up exercise. The questions you’ll walk through will make you think carefully about each option. Our recommendation to rent or buy can help you think critically about questions such as:

• What is my monthly budget?
• Can I afford the monthly mortgage payments for a median-priced home in my area?
• How long will I stay in my home?
• Do I have enough money saved for a down payment and closing costs?
• Do I want to deal with the added cost and effort of maintaining a home?
• Are there affordable, safe housing options within a reasonable commuting distance to work?
• Do I want to live near good schools, recreation, shopping, dining or other amenities?
• What are the up-front costs of renting vs. buying in my area?

Financial considerations of renting vs. buying

Before you make the move into homeownership, you need to examine your financial situation. How much home can you afford, based on your income, home prices and current mortgage rates? How much do you have for a down payment, and what sort of mortgages would you qualify for? And do you make enough to cover insurance, property taxes and maintenance on a home?

Upfront costs

This expense is obvious: To buy a home, you’ll probably need to come up with cash to cover a down payment. While some loan programs let you buy with nothing down, a 3 percent down payment is the minimum for most mortgage types. You might also be on the hook for closing costs, although those often can be rolled into the mortgage balance.

Ongoing costs

You need to make enough to afford the monthly mortgage payments that will begin soon after you move in. Along with the costs of the mortgage loan itself — the principal and interest — those payments typically include homeowners insurance and property taxes. But other things are your responsibility, too:  utilities (energy and water), security system, HOA fees and possibly garbage collection/sewage system. So is pest control and yard and lawn care. These hidden costs add up quickly – expect to spend thousands of dollars a year on repairs and maintenance.

Personal considerations of renting vs. buying

Everyone’s needs are different, and in addition to financial questions, you’ll need to examine your personal preferences. Questions to consider: 

• Lifestyle: This includes a wide array of factors. Do you want your kids stay in the same school from one year to the next? Do you have pets that need room to roam? Do you love to garden or tinker with cars? Answering yes to any of those questions might make buying a no-brainer.
• Location: Affordability challenges mean that buyers often have to sacrifice location. If living in a more expensive neighborhood is important to you, renting might be the better option.
• Long-term plans: Do you expect to be in the same job and neighborhood for the next three to five years? In that case, buying makes sense. But if you plan to move to another state in a year or two, buying might not be the best move.

Pros and cons of renting

Pros and cons of homeownership

Is renting always cheaper? 

For now, it’s cheaper to rent than to buy in every major metro area in the U.S. However, that’s not always the case. Home prices and mortgage rates are always changing, and that means the rent-vs.-buy-calculation is constantly shifting. When mortgage rates were below 4 percent, for instance, buying was cheaper than renting in many parts of the country. With rates above 7 percent, the situation has changed. That’s not to say renting is a better or worse deal. Ownership could create equity that would outweigh the savings of renting rather than buying.

Rent vs. buy? Here’s how to decide

Are you ready to commit to living in the same place for years?

Having flexibility is one of the top considerations to make when you’re deciding whether to rent vs. buy. Renting allows for more mobility to change jobs and travel without being tied down by homeownership responsibilities and costs. Rental lease agreements come in shorter terms — ideal if you know you won’t be in a city for more than a year, or you can lock in a longer term of one or two years.

If you buy a home and decide soon after to move, you could lose money on your purchase if you haven’t stayed long enough to recoup the initial costs. And, depending on market conditions, your home may not sell quickly or for as much as you paid for it. Before buying a home, ask yourself how long you plan to live there. If it’s less than a few years, renting may be the better option -- both financially and logistically.

Can you afford the extra costs that come with owning a house? Can you handle the credit checks? 

Renting comes with fewer up-front costs than buying a home, and approval is less cumbersome. A rental application is straightforward and may require a credit and/or background check.

If approved, expect to put down a security deposit, along with the first and last month’s rental payment in some cases. You may also have to pay a pet fee if a furry friend will live with you. You’ll also sign a contract that outlines the lease length, monthly rent amount, additional fees or costs you might be responsible for, rules for renewing or terminating a lease and other guidelines. That’s it.

On the other hand, homebuyers have to undergo a more rigorous process when they apply for a mortgage. It involves substantial paperwork, and borrowers have to submit numerous documents to verify their credit, income, assets, liabilities, employment and finances. If they get any help from a friend or relative for a down payment, they have to provide a gift letter and additional documentation showing how and when the money changed hands.

Unless you have a zero-down mortgage, you’ll need anywhere from 3 percent to 20 percent for a down payment, as well as additional funds to pay closing costs. These amounts can vary depending on your loan type and purchase price.

Are you willing to take on the cost of maintenance and repairs, or would you rather have a landlord to take care of it for you?

A landlord may expect you to do small maintenance tasks while you’re a tenant, but larger (read: more expensive) repairs typically fall on them. That usually means you’re off the hook if a dishwasher breaks or the heater stops working. Landlords typically hire a superintendent or have a full-time maintenance professional handle these issues as they pop up.

When you own a home, though, it’s all on you. In addition to maintaining your home (think mowing the lawn, cleaning gutters, etc.), you also foot bills for upgrades and repairs. If you don’t have extra cushion in your budget for these items, or if you don’t want the burden of keeping up a home, renting may be the better fit. However, if you’re game for putting in some sweat equity and you have room in your budget to save for unexpected repairs, homeownership may be up your alley.

Would you like to build equity?

One of the key benefits homeownership has over renting is the ability to build equity as a wealth asset. Home equity is the current value of your home, less the mortgage amount you owe. You gain home equity over time by paying down your loan principal and when home values increase. You typically need to stay in your home for several years or more to gain a decent amount of equity.

When you rent vs. buy, you get a roof over your head but the payments go toward building your landlord’s equity. In affordable housing markets, it can be less expensive to buy than rent in the long term. But in costlier markets like New York City or San Francisco, many residents rent by default because home prices are simply out of reach.