Rent vs Buy Calculator

How to use our updated Rent vs. Buy Calculator

NerdWallet’s Rent vs. Buy calculator has been around for several years — and to make sure you’re getting the most relevant answers, a team of Nerds recently re-reviewed every input for accuracy in today’s changing market. This updated calculator reflects the latest national averages (such as insurance costs), as well as current economic forecasts (such as rent and home price growth).

To use our calculator you’ll need a few pieces of basic information. If you don’t know a specific number, use our existing assumptions as a ballpark. Costs may vary based on your budget and where you live, so we’ve included suggestions to create a more accurate estimate.

Start by filling in:

• The monthly cost of renting in the area where you’re looking to buy.

• The home’s purchase price. (Use NerdWallet’s Home Affordability Calculator to see how much house you can afford.)

• Your down payment. (Use our down payment calculator to find an affordable amount for your budget.) 

• The length of your mortgage term in years. (A 30-year fixed-rate mortgage is most common.)

Next, under “My info,” add some details about your financial situation:

• Annual income

• Tax filing status

• Marginal income tax rate (see the latest tax brackets to find yours)

Once you fill in all available details, you can compare the cost of renting vs. buying on the chart. See if and when you’ll break even from the upfront costs of buying and how your monthly costs compare over time.

» MORE: Is it a good time to buy a house?

Methodology and assumptions

This Rent vs. Buy Calculator factors in the upfront and recurring costs of renting and buying to compute which choice saves you the most money in the long run. You can change any of the inputs to personalize for your situation.

Renting

We include ongoing payments for rent and renter’s insurance, as well as a one-time security deposit. This calculator assumes that the full deposit amount is returned to you, which is denoted in your net proceeds for rent. We also assume that the cost of rent will increase every year.

» MORE: How much should I spend on rent?

Buying

This calculator assumes the home is your primary residence, and it accounts for the accumulation of equity from mortgage payments as well as estimated growth in home prices.

We include typical amounts for the two biggest upfront expenses — the down payment and closing costs — but you can adjust based on your circumstances.

For recurring costs of buying, we include:

• Property taxes

• Homeowners insurance

• Private mortgage insurance, or PMI, which you pay if your down payment is less than 20% on a conventional mortgage. (Our calculator assumes you’ll pay PMI with a down payment below 20%, and automatically removes PMI when you achieve 20% of home equity).

• Home repairs and maintenance. (NerdWallet recommends setting aside 1%-2% of the value of your home each year. Our pre-filled estimate is 1.5%.)

• Extra utility bills. (While this calculator doesn’t itemize all utilities, we assume buyers pay at least $100 more in utilities per month vs. renters. This factors in the added cost of heating and cooling a larger space, as well as paying new bills — like water or trash — that your landlord may have covered when you rented.)

• Homeowners association (HOA) fees, which may or may not apply.

Finally, we assume a couple things about buyers’ taxes and plans to sell in the future:

• We assume buyers can save on taxes by itemizing federal tax deductions for both property tax and mortgage interest. 

• This calculator factors in the proceeds you will earn from selling your home. The total proceeds change from year to year based on the home equity you've built. Your net proceeds are subtracted from your total cost at the end of each year.

• We also subtract selling closing costs and factor in any capital gains tax to calculate your net proceeds.  Since we assume this is your primary residence, capital gains tax exemptions from selling a primary residence are included.

» MORE: How much money do you need to buy a house?

General assumptions

Some economic assumptions to note:

• The calculator factors in the effect of inflation on all ongoing costs over time, for both renting and buying.

• Monthly and total costs in your results are shown in today's dollars, discounted by the inflation rate.

• All growth rates (such as inflation, rent increase and home value appreciation) kick in at year two of the calculation.

• The calculator also bakes in the opportunity cost for any cash spent renting or buying that could have otherwise been invested at the annual rate of return.

• The calculator factors in any long-term capital gains and associated taxes in both renting and buying scenarios.

» MORE: How much does it cost to sell a house?

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

Location

Home prices and monthly rent vary depending on an area’s overall cost of living. Where you choose to live may decide the buy versus rent question for you. For example, in high-priced real estate markets like San Francisco, renting might be your only affordable option. (If you’re deciding between cities, NerdWallet’s Cost of Living Calculator can help you compare.)

Other important factors when deciding where to live include safe neighborhoods, good schools, proximity to public transportation, walkability, and drive times to work, shopping and recreation.

Also consider the supply of rentals or homes in your desired area: Are they appealing, plentiful and affordable? Style — of a home, an apartment, a town or a neighborhood — plays a role, too.

» MORE: What to look for when buying a house

Lifestyle factors

Some pieces of the rent versus buy decision are not easily quantifiable, but they could be the most important. When weighing your choices, consider which of these factors matter most in your life right now:

• Where you want to live: Buying a house means putting down roots and committing to staying in one place for a while. If you have your heart set on living in a big city, though,  buying might be financially out of reach. Renting presents a more affordable way to get you there. 

• Flexibility: Renters can simply relocate at the end of a lease term, whereas homeowners have to budget time and money to sell a house. 

• Financial predictability: If you decide to renew a lease, your landlord could raise the rent. With a fixed-rate mortgage, your monthly payment remains the same. You’ll also grow home equity that you can borrow against. 

• How you want to spend time and money: There’s a deep sense of pride that comes with maintaining your own home, but it comes at a cost: Your free time and cash. Renters don’t have to arrange or pay for repairs or renovations; that’s the landlord’s job. Renters also don’t have to pay property taxes and typically have lower insurance and utility bills.

• Personalizing your space: When you own a home, you have freedom to renovate and design to suit your taste. That’s still sometimes possible when you rent, but it depends on the terms of your lease.

Costs of a home purchase

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 2% to 6% of the loan amount.

» MORE: Try NerdWallet’s closing costs calculator

Costs of owning

You can’t put your wallet away once you’ve bought your new home. You’ll keep paying mortgage insurance (if it applies), property taxes, homeowners insurance and HOA dues (if they apply). And then there are repairs, upkeep and the cost of furnishing and upgrading your new place.

Is renting always cheaper?

There’s no single answer to the question “Should I rent or buy?” Some cost factors are out of your control, like the direction of the housing market, interest rates, property tax increases and returns on investment. Either way, you have to think about how you want to build strong, healthy finances for the long haul.

Whether renting is cheaper depends on whether renters invest what they would have spent on a down payment and any savings they accrue from renting each month. Homebuying 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.

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 value and home equity have a chance to build, less of each mortgage payment is used to pay off interest and more goes toward your principal.

» MORE: Should I buy a house? How to tell if you’re ready