Rent vs. Buy Calculator

Is it better to rent or buy a home? This is a big decision that most people face at some point in life. Our Rent vs. Buy Calculator helps you look at this choice from a financial perspective. The tool uses a number of key assumptions—such as consistent increases in home value and rent—to estimate which option might make more financial sense for you. It’s designed with the assumption that users can afford either option and is intended for use by U.S. residents.

Keep in mind that this calculator provides estimates based solely on your inputs. While it aims to be as accurate as possible, it cannot account for future changes or every personal situation. It also doesn’t capture the emotional or lifestyle factors involved, such as the pride of homeownership or the flexibility of renting.

Understanding the Rent vs. Buy Decision

While finances play a major role, other considerations—like stability, freedom, and convenience—are just as important. For example, homeowners may enjoy decorating their space freely or owning pets without restrictions. Renters, on the other hand, may prefer the lower upfront costs and the ability to move more easily.

What to Expect When Buying a Home

Homeownership in the U.S. became widely accessible around the mid-20th century. Today, it’s often seen as part of the American Dream. Government incentives and tax benefits make buying attractive, and many view it as a long-term investment in personal wealth and stability.

However, the financial return on a home isn’t always guaranteed. Economist Robert Shiller found that, after adjusting for inflation, average home price gains in the 20th century were only around 0.2% annually. Once you factor in maintenance, repairs, and property taxes, the financial gains from owning may simply break even.

Appreciation varies by location—a house in California may appreciate more than one in the Midwest. But for many, buying a home is less about profit and more about building a life and sense of permanence.

Costs of Homeownership

Buying a home involves both upfront and ongoing costs. These include:

One-Time Expenses:

• Down payment

• Closing costs

• Agent commissions and other transaction fees
  These can total up to 10% or more of the home’s value.

Ongoing Costs (PITI):

• P – Principal: The original loan amount, which helps build equity over time.

• I – Interest: The cost of borrowing, typically expressed as an APR. Often tax-deductible.

• T – Taxes: Annual property taxes, usually 1–3% of the home’s value.

• I – Insurance: Includes homeowners insurance and possibly private mortgage insurance (PMI) if your down payment is under 20%.

Some owners also invest in home warranties to cover repair costs.

To help with the home-buying journey, we also offer these helpful tools:

• Mortgage Calculator

• Mortgage Payoff Calculator

• House Affordability Calculator

• Down Payment Calculator

• FHA Loan Calculator

• VA Mortgage Calculator

• APR Calculator

Renting: What to Know

Renting involves paying a monthly fee to a landlord in exchange for housing. It’s generally considered a short- to medium-term living solution, ideal for those who value flexibility.

Besides rent, costs may include:

• Security deposit

• Application or administrative fees

• Renter’s insurance

Short-term leases, typically ranging from a few months to a year, offer freedom for those with uncertain plans. To estimate your ideal rent budget, check out our Rent Calculator.

Tips for Renters

Before signing a lease, consider the following:

• Negotiate when possible. Just like buying a car, there may be room to adjust the price or terms.

• Get everything in writing. This protects you in case of disputes.

• Document the property’s condition when moving in by taking photos.

• Know your rights. Discrimination based on race, gender, religion, or disability is illegal. Some states also protect against discrimination based on age, marital status, or sexual orientation.

• Understand rent rules. Most landlords can’t raise rent during a fixed-term lease.

Should You Rent or Buy?

From a financial standpoint, this decision often comes down to two questions:

1. Do you have enough savings to buy?
Buying a home requires a significant upfront investment. Use our House Affordability Calculator to determine if you’re financially ready.

2. How long do you plan to stay?
Generally, the longer you plan to live in a home, the more it makes financial sense to buy. That’s because the initial costs of buying are high, but the monthly costs can be lower than renting over time. If you plan to move within a few years, renting might be the better option.

Our Rent vs. Buy Calculator helps estimate the minimum number of years you should stay in a home for buying to be financially beneficial. If your expected stay is shorter, renting may save you money.

Key Financial Factors That Influence the Decision

Major Factors:

• Average Investment Return (AIR):
  This represents the opportunity cost of investing your money elsewhere (like the stock market). Historically, investments often yield higher returns than home equity growth. Customize this value to fit your financial situation—for example, someone nearing retirement might assume a lower AIR.

• Home Appreciation Rate:
  Home values typically grow by 3–5% annually. You can estimate appreciation by researching recent home sales in your desired neighborhood.

• Mortgage Interest Rate:
  Even with low rates, interest makes up a significant portion of mortgage payments. You can input the rate from your loan offer to calculate true costs.

Minor Factors:

Other costs that influence the rent vs. buy equation include:

For Homebuyers:

• Property taxes

• Homeowners insurance

• Maintenance and repairs

• HOA or condo fees

• Closing and selling costs

For Renters:

• Application fees

• Security deposit

• Renter’s insurance

• Potential rent increases