Rent vs Buy Calculator
The Honest Comparison
The Real Cost of Buying vs Renting
The rent vs buy decision is more nuanced than most people think. Buying builds equity, but it also comes with significant costs that renters avoid: property taxes, maintenance, insurance, closing costs, and the opportunity cost of tying up a large down payment.
This calculator estimates the total cost of each option over your planned timeframe, factoring in the equity you'd build as a homeowner. The "true cost" of buying is your total housing costs minus the equity you build.
When Buying Wins
- You'll stay at least 5 years (amortizes closing costs)
- Local rents are high relative to home prices (price-to-rent ratio below 15)
- You have a stable income and emergency fund
- You value control over your living space
When Renting Wins
- You might move within 3 years
- The local market is overpriced (price-to-rent ratio above 20)
- You'd invest the down payment for higher returns
- You value flexibility and zero maintenance responsibility
Frequently Asked Questions
Is it better to rent or buy a home?
It depends on how long you'll stay, local market conditions, and your financial situation. The general rule: if you'll stay 5+ years, buying usually wins due to equity building and fixed costs. If less than 3 years, renting is typically better since closing costs and transaction fees eat into any equity gains.
What is the 5% rule for rent vs buy?
The 5% rule states: multiply the home's value by 5%, divide by 12 to get the monthly breakeven cost of homeownership. If you can rent for less than this amount, renting may be the better financial choice. For a $400,000 home: $400,000 × 5% = $20,000 ÷ 12 = $1,667/month breakeven.
What costs does buying include beyond the mortgage?
Homeownership costs beyond the mortgage include: property taxes (0.5-2.5% of value/year), homeowners insurance ($100-$300/month), maintenance (1-2% of home value/year), HOA fees ($200-$500/month if applicable), and PMI if less than 20% down. These can add $500-$1,500/month to your costs.
How much should I save for a down payment?
Ideally 20% to avoid PMI, but many programs allow 3-5% down. FHA loans require 3.5%. VA loans require 0%. Beyond the down payment, budget 2-5% of the purchase price for closing costs and keep 3-6 months of the new housing payment as an emergency fund.