Buy vs. Rent Calculator

Deciding whether to buy a home or to rent? Our buy vs. rent calculator can help you determine which makes more financial sense for your living situation.

Tips for using the buy vs. rent calculator

For best results when using our buy or rent calculator, have the following information:

  • Your expected new home purchase price, down payment, and mortgage rate
  • Your desired monthly rent payment

The buy vs. rent calculator will use a default estimate for other costs, such as homeowners insurance or renters insurance, taxes, rental deposit, utilities, and tax filing status. Your actual costs may be higher. Providing your own estimates for these figures will result in a more customized recommendation.

It also assumes you invest any money saved and includes an estimated rate of return on that investment into its calculation. Be sure to adjust this input based on your personal investment plans, financial savvy, risk tolerance, etc.

Pros and cons of renting and buying

Determining whether to buy or rent is about more than just crunching numbers. Each approach offers pros and cons that you should consider. Here are a few.

Pros of renting

  • You have less responsibility for upkeep and maintenance
  • Your monthly payments are stable based on your lease agreement
  • Your upfront costs are lower; a deposit of one months’ rent is most common.
  • You have greater flexibility in your living arrangements; it’s easier to accept a job in another state, for instance.

Cons of renting

  • You’re not building ownership equity nor are you gaining tax benefits with your monthly payments
  • You may be restricted in how you can decorate or customize your home
  • You’re at the mercy of your landlord, who can raise the rent or even sell the property — requiring you to move

Pros of homeownership

  • Your home is an investment, helping you build wealth as you make monthly mortgage payments
  • You can claim a deduction for your mortgage on your taxes and potentially enjoy other tax advantages
  • Your home is yours to decorate and improve as you see fit

Cons of homeownership

  • You’re responsible for all maintenance and repairs, which can be costly
  • You need to factor in the cost of property tax, homeowners insurance, association fees (if applicable), and maintenance; these can make homeownership much more expensive than renting
  • Selling a home is time-consuming and costly, so you have less flexibility to move

Factors to consider when deciding to rent or buy

As you ponder whether to buy or rent, consider these additional factors:

Your overall financial situation

Deciding whether to rent or buy is primarily driven by whether you can afford the up-front costs of purchasing a home (down payment, closing costs, etc.) and what you can afford to pay monthly. A mortgage lender will also consider your debt-to-income ratio, credit score, and credit history when deciding whether to offer you a mortgage and what terms that mortgage will have.

How long you plan to stay in your home

Typically, renting has lower up-front costs than buying: A rental deposit will likely cost much less than a mortgage down payment and closing costs. For this reason, renting is generally a cheaper option for the short term. Over time, however, the relative cost of owning a home becomes more favorable than renting. You build equity in the home, pay less in interest over the life of your mortgage, and can enjoy some tax savings.

Consider all of this in relation to how long you plan to stay in your home. If you expect to move within a few years — perhaps your job prospects involve frequently moving to new cities — then renting might be your best bet. If, however, you want to settle down in one spot, then buying and owning a home is likely the better approach. If you’re a first-time homebuyer, checkout our tips on finding a starter home in a competitive market.

If you’re prepared to maintain a home

One of the advantages of renting is that the landlord handles most, if not all, of your home’s maintenance. As a homeowner, maintenance and repairs are your sole responsibility. You need to ensure that the home’s core systems — heating, cooling, plumbing, electrical — are in working order. You may also need to consider significant upgrades, such as replacing the roof or windows. Even new homes will eventually need maintenance. If you’re not handy, expect to reserve a portion of your household budget for professional contractors to handle these tasks.

Where you want to live

The place where you want to live may also factor into your decision to buy or rent. Rental units may be more plentiful in a city than in a rural area, for instance. Having children may narrow your focus to communities with highly rated school systems. Your hobbies and interests may lead you to a community with specific recreational or entertainment options.

Factors to consider when setting a monthly budget

As a renter

  • Monthly rental payment
  • Renters insurance
  • Utilities and other living expenses (water, electrical, gas, sewer, phone/Internet); These may vary depending on your rental lease agreement
  • Emergency fund

As a homeowner

  • Monthly mortgage payment
  • Private mortgage insurance (if applicable)
  • Homeowners association fees (if applicable)
  • Property tax
  • Homeowners insurance
  • Utilities and other living expenses (water, electrical, gas, sewer, phone/Internet)
  • Home maintenance
  • Emergency fund

Buy or rent: frequently asked questions

Is a mortgage cheaper than renting?

In most cases, a mortgage will be more expensive up-front, requiring a down payment and closing costs. Over time, however, those costs are recovered as you build equity in your home. In the long run, a mortgage may be cheaper than renting.

What is a mortgage interest write-off?

Mortgage interest write-off refers to the deduction you can make on your federal tax return. It creates a tax benefit and allows homeowners to deduct mortgage interest paid in their mortgage payments, up to $75,000 worth of their loan principal. Consult with a professional tax preparer to better understand how you can benefit from the mortgage interest tax deduction.

By owning a home, am I saving for the future?

Buying a home can be an excellent investment. While the up-front costs are high, you build equity in the house as you pay off your mortgage and as property values rise. As the years pass, your home will become increasingly valuable financially.

This information is provided for general informational purposes. All transactions are subject to credit approval. Contact a loan officer for a custom quote.

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