Buying a home isn't always a good financial move. And renting isn't necessarily a waste of money. Our simple rent versus buy calculator can help you decide whether it makes more sense for you to rent or buy a home.

The rent versus buy debate can get exceptionally heated. For some, renting for any longer than you have to is akin to setting fire to your hard-earned cash.

Others see home ownership not as the fulfillment of the American Dream but as a financial prison, limiting your mobility and liquidity, and sucking up money for interest, repairs, and taxes.

Neither of these views is entirely correct.

Whether you rent or buy is a personal decision.

Renting can be the right move for people in the right circumstances — for instance, those who don’t plan to stay where they are for very long, or who live in an expensive city where home prices are simply out of reach.

Buying a home, on the other hand, is great for someone who plans to settle down for the long haul, who doesn’t want to be beholden to the whims of a landlord, and who doesn’t mind doing standard repairs.

There are a lot of variables in every individual’s personal rent versus buy calculation. It’s easy to look at a mortgage payment on Zillow and think, “Oh man, buying would be so much cheaper!” And, in the long term, it just might be. But in the shorter term, there are fees, taxes, and mortgage interest to take into account.

Use Our Rent vs. Buy Calculator to Visualize Your Long-Term Costs

That’s where our rent versus buy calculator comes in.

It tells you, in the simplest terms, how long you need to stay in your home to break even, and how long you’ll need to stay before buying it becomes a serious money-saving decision.


Rent vs. Buy Calculator: Our Assumptions

For most of the numbers, we looked at national averages over the past 15 years.

Rental Market

For rent, we found a national average of 3% yearly increases, so we assumed rent prices would keep going up at that same rate into the future.

Real Estate Values

For year-over-year increases in home value, we found a national average of 3.5% (according to the Case-Shiller Home Price Index). Yes, you could make a fortune on a house whose value might shoot skyward. But the vast majority of home prices in the U.S. increase only a little faster than inflation.

Inflation

For the past 15 years, inflation was low — 2.2% yearly. We used this number to calculate future costs like home maintenance.

Property Taxes

For property taxes, we assumed taxes equal to 1.5% of the home’s value, which is the national average.

Mortgage Interest, Insurance, and Tax Deductions

In calculating “costs,” we included the interest on your mortgage, but not the principal. For taxes, we included any mortgage tax deduction that exceeded the standard deduction. We also assumed that your tax filing status was “single” (no offense!).

We also factored in private mortgage insurance. If you’re unfamiliar, private mortgage insurance (PMI) is a special type of insurance that your mortgage lender requires you to get if you make a down payment of less than 20%. It tends to cost in the realm of $100 to $250 a month, and once you reach 20% equity of your home you no longer have to pay for it.

Read more: 

Factors to Consider Before Buying or Renting

Overall Cost (Advantage: Tie)

There was a time when people would rent pretty much indefinitely because it was always cheaper than buying.

Boy, how times have changed.

Today, the national average rent for a two-bedroom apartment is $2,054. But looking at our Simple Mortgage Calculator, if you were able to secure a mortgage at 5% on a $300,000 house, your monthly payment plus PMI would be just $1,949.42.

Cost of a down payment aside, buying is more affordable than renting in roughly two-thirds of housing markets.

The drawback to buying, of course, is that you’ll have to make a sizable down payment to win an offer in a competitive market. Plus, you’ll be on the hook for all of your own maintenance.

But the advantage is that you’ll be building equity. That $30,000 down payment doesn’t just disappear into some banker’s coffers — it’s your own investment in your house, which is an appreciating asset.

So, when it comes down to monthly payments alone, buying and renting are essentially neck-in-neck. That’s why you’ll want to consider other factors to find the solution that best fits your finances and your lifestyle.

Maintenance (Advantage: Renting)

Maintenance is one of the biggest advantages renters have over buyers.

Simply put, renters have to budget approximately $0 per year for repairs and maintenance. That’s because landlords — not renters — are legally responsible for keeping the property in good condition.

Of course, renters may still have to pay for maintenance if:

  • You or your guests damage the property;
  • You damage your own stuff (curtains, appliances, etc.); or
  • Your landlord refuses or drags their feet on repairs.

In the case of no. 3, some states like Georgia have laws that let you deduct maintenance costs from your rent check. I’d recommend reading up on your state’s Tenant Rights so you know what to do if a tough situation arises.

But overall, renters shouldn’t have to worry about routine maintenance costs.

If you buy, however, 100% of all regular maintenance is on you. Not even your mortgage lender cares if your oven or A/C breaks. Overall, new homeowners should budget at least $1 per square foot in routine annual maintenance.

You can save a few grand and even add value to your home by teaching yourself some easy DIY, but the bottom line is this:

If you buy a home, you will pay at least a couple grand a year in regular maintenance. So, if you’d prefer the peace of mind of letting someone else foot the bill, continuing to rent may be the move.

Stability and Feeling Rooted (Advantage: Buying)

Homeownership may be pricey, but it still carries one priceless advantage: as long as you pay your mortgage on time, nobody can ever kick you out. Your house is yours. Heck, you never even have to let anyone inside if you don’t want to (unless they have a warrant).

By contrast, renters aren’t guaranteed that their place will be available next year. Even if you’re a model tenant who always pays rent on time, your landlord may simply want their property back next year to sell or to personally occupy.

So, if you like the idea of planting your roots, hammering things in the wall, and never having to move involuntarily again, buying takes the cake.

Flexibility (Advantage: Renting)

On the flip side of things, maybe you see having a permanent address as a downside.

If you rent, you can always terminate your lease, sell 90% of your stuff, and travel the world on a shoestring. That’s what I did; I studied happiness worldwide and wrote a book about it.

If you buy, however, you’ll be more tied down. You can still travel if you’d like, but you still have to pay the mortgage and upkeep each month for as long as you own the house.

Travel plans aside, owning a house is also harder when you don’t have a steady job. Heck, buying a house is harder since your lender will want to see consistent, steady income. And even if you do, buying still might not be ideal if you aren’t sure you like your job/city.

In summary, renting is better while you’re still in the “exploration” stage of life.

Fixed Payments (Advantage: Buying)

The other advantage of purchasing a home with a traditional fixed-rate mortgage is just that: your monthly payments are fixed. You’ll have the same mortgage payment every single month for 30 years. You’ll pay $1,846.17 in March 2023 and in March 2053.

If you think about it, your monthly payments on a fixed-rate mortgage actually go down over time. The number itself won’t go down, but the payments will get easier due to inflation and your rising income.

Unfortunately, renters worldwide know all too well that rent doesn’t stay the same. Quite the contrary, rent prices in most major cities increased by 30% or more this year. In Austin, Texas, the average price of a one-bedroom increased by 108.2%.

So if the thought of having a fixed, inflation-proof housing payment appeals to you, buying is definitely the way to go — especially while rent inflation is so high.

Capital Required Upfront (Advantage: Renting)

Perhaps the chief drawback to buying is that you have to make a total chonk of a down payment.

Stavros Halkias jokes that older generations’ lives were so easy, “you could just win a house at a carnival back then.” Back in 2000, the median home price was $119,600, or triple the $42,418 median national income.

Today, the median home value is $348,079 while the median income hasn’t changed.

Thankfully, special mortgages like a Federal Housing Administration (FHA) loan let first-time homebuyers put down as little as 3.5% as long as they have a decent credit score in the 600s. If approved for an FHA loan you also don’t have to pay PMI, which is nice.

But two things:

  • 5% of a $300,000 home is still $10,500 cash
  • Offers with FHA loans aren’t as attractive to some sellers

Don’t get me wrong; if our Home Affordability Calculator says you can afford the house you want, a house is a great investment that’ll appreciate in the long term and save you beaucoup money on rising rent.

But you’ll still have to put up used car money to make it happen!

Mental Health (Advantage: Up to You)

Finally, when choosing between renting or buying, it’s important to let your brain have a say. Because even if one option makes more financial sense, you can’t put a price on joy, low stress, and peace of mind.

For example, maybe buying makes sense on paper but you just don’t have the mental space to find a good REALTOR and view homes right now. Or maybe you’re just not sure what you’ll be doing — or where — next year.

Sure, making the right choice between renting and buying is mostly about saving money. But saving money is about living a higher quality of life. So if one option costs a little more but provides better quality of life, that’s the better option.

When Is It Better to Rent?

When You’re Still Saving for a Big Down Payment

Even FHA loans require a minimum down payment of 3.5%, which on a median-priced home is $12,250.

So if you’re still saving up for a down payment, your best option may be to keep renting and keep saving as much as you can.

When You’re Not Sure What You’ll Be Doing Next Year (or Where)

One advantage of renting is that it’s a one-year commitment at most. After your lease is up you can rent anywhere or nowhere at all, and just keep exploring jobs, careers, and even other countries.

When Is It Better to Buy?

When You Can Afford a Down Payment on a Home You Like

Once you’ve saved enough to afford a good home in a safe part of town, the time might be right to pull the trigger. After all, homes are appreciating assets and with every mortgage payment, you’ll be paying yourself back in equity.

When You’re Tired of Renting

In addition to being financially ready, you may also feel emotionally ready to buy a home. After all, renting can be both expensive and stressful. When you buy a place and sign your mortgage papers, you’ll never have to worry about landlords or rising rent again.

When You Start Feeling “Settled” in Other Aspects of Life

Finally, if you start feeling relaxed and planted with your job, city, and/or relationship, it might be time for your housing situation to match.

Don’t get me wrong; buying a house can be pretty stressful for at least seven months (three months searching, one month closing, three months unpacking).

But once the final box is unpacked and your favorite art starts appearing on the walls, your shoulders relax in a way like never before.

The Bottom Line

No one can make the decision to buy a home for you. But taking a good, hard look at the numbers can help you decide what’s right for you.

Read more:

About the author

Total Articles: 179
Chris helps people under 30 prosper - both financially and emotionally. In addition to publishing personal finance advice, Chris speaks on the topics of positive psychology and leadership. For speaking inquiries, check out his CAMPUSPEAK page, connect with him on Instagram, or watch his TEDx talk.