Rent vs. buy calculator
Last updated: January 1
A rent vs. buy calculator can help you better understand the benefits of renting or buying a home, based on your specific circumstances.
While renting typically seems less expensive up front, buying a home and making monthly payments increases your equity, therefore increasing your net worth. Learn what your total cost or monthly payments would be in either scenario, and get an estimate of how much money you will save by doing one over the other.
How to use the rent vs. buy home calculator
To use the rent vs. buy calculator, you’ll need to input several numbers throughout the four tabs to generate an accurate projection on the right side of the calculator.
The info you’ll need includes your monthly rent amount, expected monthly mortgage payment, interest rate, and other expenses related to homeownership or renting. Once you input all the data, the calculator should provide you with an estimated total cost of both options, renting and buying.
Keep in mind that the calculator should only be used for guidance and estimation, and you should always speak to a professional before making a financial decision as important as renting or buying a home.
Key definitions & calculator inputs
Familiarizing yourself with these factors can help you assess your options more clearly, allowing you to make a more informed, financially sound decision:
Monthly rent refers to the rental payments that you’ll make every month according to your lease agreement, explains Law Insider.
Monthly renter’s insurance
This is the amount you pay for renters insurance each month. Renters insurance, also called tenants insurance, is a comprehensive policy that helps cover unexpected events, like theft, a break-in, or a visitor's injury.
Yearly rent increase/decrease
There is no federal cap on how much landlords can increase rent, though some states, such as New York, do. In the first half of 2022, the average percentage change in rent was 12.2 percent for new tenants and 3.5 percent for existing tenants, according to the U.S. Bureau of Labor Statistics (BLS).
The purchase price is the amount paid for a property, covering the cost of acquisition fees and any outstanding liens and mortgages on the property, explains Law Insider.
When purchasing a home, a down payment is an initial expense you may need to cover. Typically, it amounts to 5%, 10%, or 20% of the home's overall price, according to the Consumer Financial Protection Bureau (CFPB).
Property taxes are a major source of revenue for state and local governments in the U.S. They are primarily imposed on immovable property such as land and buildings. These taxes play a vital role in funding essential services such as schools, roads, police, and more, according to Tax Foundation.
Homeowner's insurance covers losses and damage caused by unforeseen events such as fires or burglaries. If you have a mortgage, your lender may require proof of insurance to ensure the safety of your property, according to the CFPB.
Maintenance on a home can include things like repairs to appliances and HVAC systems, landscaping, and much more. Nationally, the average annual maintenance cost of single-family homes during the first quarter of 2023 was $6,409, according to a study done by The New York Times. This cost can greatly vary depending on your specific location, the age and size of your home, and other factors. You may want to talk with a general contractor to get a broad estimate of how much annual maintenance could cost for your specific home.
The loan term is the repayment period of the loan. The term affects your monthly payments, including the principal and interest, your interest rate, and how much interest you will pay over the life of the loan, according to the CFPB.
Interest is the additional cost you incur for borrowing money. Lenders make their profit from the interest paid on top of the original loan. This means that interest rates have a direct impact on the total amount you pay for your home. The specific interest rate that applies depends on the type of loan you're seeking, according to Credit.org.
An origination fee, charged by the lender, is a percentage of your loan amount that covers the processing of your loan, according to the Legal Information Institute (LII).
Discount points, also referred to as points, can decrease your interest rate when you agree to pay an upfront fee, explains the CFPB.
Other settlement services
This category is made up of home purchase fees that are not included in the lender or broker compensation, including but not limited to, title searches and examinations, attorney services, and more, according to the LLI.
Other numbers to consider
The yearly percentage rate that an asset increases in value.
Expected years in the home
How long you expect to own the home before selling.
Costs associated with selling your home. This may include agent commissions, legal fees, and any other fees you may incur when selling a home, according to Realtylink.org.
Your state and federal tax rate
The percentage of your taxable income owed to state and federal governments, according to Rensselaer Polytechnic Institute.
Your savings rate
The yearly interest rate you earn on your savings.
Renting a home
Renting a home can be one of the most important decisions you make. It comes with unique benefits, such as flexibility and convenience when it comes to location, but there are also drawbacks you should consider.
Let’s look at the pros and cons of renting so you can make an informed decision.
Benefits of renting
One of the significant advantages of renting is the flexibility it offers. You can move easily without the hassles of selling your home or worrying about the housing market.
If you are new in a particular area, renting may be a good option because it allows you to familiarize yourself with the neighborhood before committing to a long-term investment.
Drawbacks of renting
One of the main downsides of renting is that it lacks the equity benefit that comes with homeownership.
Renting does not build your equity, meaning you cannot use your home as an asset to obtain other loans or lines of credit, according to the CFPB. While renting, you’re also subject to the landlord's rules which may afford you less freedom to make changes or improvements to the property.
Buying a home
Buying a home can be exciting, but homeownership isn't for everyone. There are benefits and drawbacks to consider before making the jump to become a homeowner. Here's a breakdown.
Benefits of buying a home
For many, buying a home is a long-term investment that can provide stable housing and financial security. Houses generally increase in value over time, and once you've paid off your mortgage, your monthly housing expenses drop substantially.
Homeownership also provides greater freedom and privacy compared to renting.
Drawbacks of buying a home
One of the most significant drawbacks of owning a home is that you are entirely responsible for all maintenance and any repairs needed.
You may also need to secure a mortgage, which comes with upfront costs, including closing costs like property taxes, origination fees, and appraisal fees, among others.
Deciding on renting or buying your next home
Comparing renting to buying using the calculator may help you effectively assess which option is right for you.
Buying a home may mean more equity and control over the property, but if you're not sure if you want to stay in one area for long, it may be better to rent. Renting isn’t necessarily an investment in your future, but it eliminates worry about long-term maintenance and repairs. It's still important to consider any fees associated with either option, such as closing costs with buying and deposits when renting.
Whichever path you decide upon, make sure you weigh all options to find the best fit.