Rent vs Buy Calculator: Should I Rent or Buy?

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How to use the Rent vs. Buy Calculator

The renting-vs.-buying question is not something that people usually ask and answer just once. This is a decision with many moving parts, and things change: Your down payment savings grow, you consider moving to a cheaper or more expensive area, you’re curious what happens if you spend less on a home, or more.

You’ll need just seven pieces of information to use our Rent vs. Buy Calculator, things you may already know or have been tossing around in your mind:

To make things easy, we made a number of assumptions about other typical costs that factor into this calculation. They’re visible and you can easily change those numbers for a more customized result. You can see, for example, that we assume your security deposit for renting is equal to one month’s rent, and that you’re making a 20% down payment. But again, you can adjust these figures to exactly what applies to you.

Behind the scenes (Methodology)

The Rent vs. Buy Calculator uses the everyday costs of renting and buying to compute and refine results.

We included ongoing payments for rent and renter’s insurance and a one-time security deposit.

For home buying, the Rent vs. Buy Calculator considers one-time costs — closing costs and the down payment — and ongoing expenses, like property taxes, an HOA fee, home insurance, and private mortgage insurance, or PMI, which you pay if your down payment is less than 20% on a conventional mortgage. It takes into account typical spending on home renovations and maintenance. Your result assumes you’ll deduct on your taxes the costs for mortgage interest, PMI and property tax, and that your marginal income tax is 25%. You can adjust all of those pre-filled areas.

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The Rent vs. Buy Calculator also accounts for the accumulation of equity from mortgage payments and the effect of growth or decline in home prices. It factors in any long-term capital gains and also bakes in the opportunity cost of using savings for a rental deposit and a down payment instead of investing the money.

What factors should you consider when deciding whether to rent or buy?

Location counts. Where you choose to live may decide the buy vs. rent question for you. In high-priced real estate markets like San Francisco, renting could be the only affordable option. In addition to home prices and monthly rents, important factors when deciding where to live include safe neighborhoods, good schools, proximity to public transportation, walkability, drive times to work, shopping and recreation. Also consider the supply of rentals or newly built homes: Are they appealing, plentiful and affordable? Style — of a home, an apartment, a town or a neighborhood — plays a role, too.

Some pieces of our decision are not easily quantifiable, but they could be the most important, such as:

The upfront cost of buying a home is the biggest barrier for many would-be buyers. In addition to a down payment, you’ll need to save for closing costs, which will run you about 3% to 5% of the loan amount.

Is renting always cheaper?

There’s no single answer to the question “Should I rent or buy?” Your solution depends on where you live, whether renting or buying an equivalent home is cheaper, and on additional assumptions you can include in your analysis. A handful of shifting factors can also influence your answer, many of them out of your control, like the direction of the housing market, interest rates and returns on investment.

When comparing the two options, renting can often come out ahead, at least compared to the early years of a home purchase. But like the tortoise racing the hare, owning a home is more “slow and steady,” a marathon instead of a sprint. The virtues of buying grow when you stay in a home for a while. As the years pass and your home’s equity and value have a chance to build, less of each mortgage payment is used to pay off interest and more goes toward your principal.

Whether renting is cheaper also depends on whether renters invest what they would have spent on a down payment and any savings they accrue from renting each month. Home buying costs more upfront, but you can get some of that back (and potentially more) when you sell the home. To match or exceed a home buyer’s return on investment, renters must invest, not spend, those savings.

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