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Rent vs buy calculator: Should I rent or buy a home?

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Deciding whether to rent or buy a piece of property is one of the biggest financial decisions anyone can make. Consider several factors when making this decision. Your decision to rent or buy a home may depend on how fast prices and rents increase and how long you stay in your home. In certain circumstances, renting rather than buying may be more advantageous. It’s best to compare the cost of renting to the cost of buying a home by adding up all the required expenses for each option. 

You’ll need to factor in the cost of rent, a security deposit and expected rent increases versus all the expenses that go into buying a home, including your monthly mortgage payment, purchase price of the home, property value appreciation, the interest rate you will pay on your loan, your marginal tax rate and the yield you might receive on savings. When looking at these factors, consider each option's present and potential future value. The better financial choice is the one with the lower present value and the best long-term potential.

Use our Rent vs. buy calculator to compare the cost of renting and buying in your area based on various factors. The results will show you how much you will pay over the years to own a piece of property compared to how much you will have to spend over the same period to rent a home or apartment. Enter the following information to see your results:

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Comparison period

This is how long you plan on renting or owning the property. Please enter the number of years you are looking to compare.

Rental information

Monthly rent

This is how much you pay in rent every month to live in the home or apartment. Look at the lease or the advertised price on the listing to see how much you will need to pay. 

The security deposit is typically one month’s rent and will be repaid when you leave the apartment, assuming it is in good condition.

Annual rent insurance

You may be asked to pay for rental insurance when renting. This will protect your property in case of theft or disaster. The cost of rental insurance varies depending on the company and where you live. The average cost of rental insurance in the U.S. is $179 per year or $15 per month. Enter the annual amount you will have to pay in premiums.

Home purchase information

Home purchase price

This is how much the home sells for. You can look at home listings in your area to better understand how much it costs to buy a home.

Interest rate

The interest rate is an annual percentage rate applied to the loan balance every 12 months. The interest accrued is then added to the principal amount owed. A portion of your monthly mortgage payment will go toward the principal amount and interest. The more you reduce the principal amount, the less you will owe in interest.

The interest rate varies based on your credit history and federal funds rate, which is set by the Federal Reserve. You can get pre-approved for a mortgage loan to compare interest rates.

Loan term (years)

This is the number of years it will take you to pay off your mortgage. Most mortgages in the U.S. are 30 years, but you can always pay off the mortgage sooner to save interest.

Down payment

This is the percentage of the home purchase price that you plan to pay upfront in cash. The down payment depends on how much you can afford and the minimum down payment requirements. An FHA loan allows you to put down as little as 3.5 percent of the purchase price, but other lenders may require up to 10 percent or more.

Annual home insurance

This is how much you will need to pay to insure your home every month. You must have homeowner’s insurance to protect your property, which is one of your biggest assets. Enter the annual cost of your insurance premiums.

Annual property tax

This is how much you will have to pay in property taxes. The tax rate varies based on the state.

Monthly HOA fees

If you are buying a home that belongs to a HOA (Home Ownership Association), you must pay monthly dues to live in the community.

Mortgage insurance

Mortgage insurance is typically required if your down payment is less than 20 percent of the property value. Enter the cost of your annual insurance premiums.

Home Rent vs. Buy Calculator FAQs

The decision to rent or buy a house depends on various factors, including your financial situation, the difference between the monthly mortgage and rent payments, rent increases, interest rate on savings and long-term goals. While renting may offer more flexibility and fewer upfront costs, buying a home can provide a stable investment, potential tax benefits and the opportunity to build equity over time.

When deciding to rent or buy a home, you must consider various factors, including flexibility, financial situation, freedom to renovate, the local real estate market and long-term goals. Assess the upfront costs of home ownership, including down payment and closing costs as well as ongoing expenses such as property taxes, monthly homeowners association fees, maintenance and insurance, in relation to the potential benefits, such as building equity and tax deductions. The Home Rent vs. Buy Calculator will assist you with inputting all the costs under each option—renting or buying—to get an accurate cost comparison over a selected period.

The 5% rule is a guideline that suggests you should only consider buying a home if the total annual unrecoverable costs of ownership (including property taxes 1%, maintenance 1% and cost of capital or the mortgage interest rate 3%) are less than 5% of the home's value. In practice, the assumption is that rent is unrecoverable; thus, to compare the unrecoverable costs of owning versus renting, you multiply the home price by 5%, then divide by twelve to get a monthly breakeven point. If you can rent for less than the breakeven number, then renting is the better financial decision.

It depends on several factors, including the local real estate market, the cost of living, the individual's financial situation and long-term goals. In some areas, renting may be more affordable than owning, especially if the individual has an uncertain income and limited savings for a down payment or maintenance. According to this LendingTree study, renting is cheaper than buying in most U.S. metro areas. Real estate in cities like San Francisco and New York City can be prohibitively expensive compared to those in less urban environments. However, owning a home may be more cost-effective in the long run due to potential tax benefits and the opportunity to build equity over time.

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