Rent vs Buy: The True Comparison
Both renting and buying have real financial merit. The right answer depends on how long you plan to stay, your local price-to-rent ratio, and what else you could do with your down payment. This calculator makes all those variables explicit.
The Hidden Costs of Buying
A mortgage payment is only part of the cost of ownership. Property taxes (~1.2% annually), homeowners insurance (~0.5%), maintenance (~1%), and closing costs (3% at purchase, 6-8% when selling) add up fast. On a $400,000 home these extras can exceed $1,000 per month — money that simply does not appear on a rent bill.
The Opportunity Cost of a Down Payment
A $80,000 down payment invested in a broad index fund at 7% annual return becomes $157,000 in 10 years. That opportunity cost is real. Buying beats renting financially when appreciation + equity buildup + tax benefits exceed that foregone return over your holding period.
Frequently Asked Questions
Is renting always throwing money away?
No. Rent pays for housing, flexibility, and freedom from maintenance costs. In markets where homes cost 25× annual rent or more, renting and investing the difference often beats buying. The “throwing money away” framing ignores the real cost of interest, taxes, and maintenance that homeowners pay.
What is the 5-year rule for buying?
Transaction costs (closing, agent fees, moving) typically run 3-10% of the purchase price. You generally need to stay at least 5 years for appreciation and equity to recover those costs. Shorter stays usually favor renting.
How much down payment do I need?
20% avoids PMI and gives you the best mortgage rate. Programs like FHA (3.5%), VA (0%), and Fannie Mae HomeReady (3%) allow lower down payments. Run the numbers: a higher monthly payment with PMI may still beat renting in your local market.
What hidden costs does buying include?
Property taxes average 1.2% of home value per year. Homeowners insurance runs 0.5%. Maintenance averages 1% (more for older homes). Plus HOA fees, PMI if <20% down, and closing costs of 3% at purchase. These can add $12,000–$20,000 per year on a $500,000 home.
Does home appreciation always favor buying?
Not automatically. Home values have appreciated ~4% annually on average since 1965, but with wide local variation. If you invest your down payment in equities instead, the comparison is closer than people expect. This calculator includes home appreciation so you can model your specific market.