Whether renting or buying costs less depends on how long you stay, what the home does in value, your rate, and what each option costs beyond the monthly payment. There is no universal answer, and it is easy to underestimate ownership costs. Here is a simplified model with every assumption shown.
The assumptions
| Item | Assumption |
|---|---|
| Home price | $350,000 |
| Down payment | 20% ($70,000) |
| Mortgage | 30 years at 6.5% |
| Property tax | 1.1% of price a year |
| Insurance | 0.4% of price a year |
| Maintenance | 1% of price a year (planning rule of thumb) |
| Closing costs | 3% of price |
| Selling costs | 6% of sale price |
| Comparable rent | $2,000 a month, held constant |
Monthly cost of owning versus renting
Principal and interest is $1,769.79. Add tax ($321), insurance ($117) and maintenance ($292), and the monthly cost of owning is about $2,499, compared with $2,000 in rent. Part of the mortgage payment builds equity: after 5 years you have repaid about $17,889 of principal and paid about $88,298 in interest.
Five-year comparison by home price growth
The "net cost of buying" counts your down payment, closing costs and all monthly ownership costs for 5 years, then subtracts what you would keep after selling and paying off the loan:
| Home value growth per year | Value after 5 years | Cash left after selling and payoff | Net cost of buying | Cost of renting (5 years) | Lower cost |
|---|---|---|---|---|---|
| 0% | $350,000 | $66,889 | $163,548 | $120,000 | Renting |
| 2% | $386,428 | $101,132 | $129,306 | $120,000 | Renting |
| 4% | $425,829 | $138,168 | $92,269 | $120,000 | Buying |
This model leaves out the investment return you might earn on the down payment if you rented, rent increases, tax effects and the personal value of owning. Those factors can change the outcome in either direction. Use the table to see how sensitive the result is to home price growth and how long you stay.
Non-financial factors
- Flexibility: renting makes moving easier.
- Stability: owning protects you from rent increases but exposes you to repair bills and market swings.
- Savings cushion: make sure buying does not drain your emergency fund. See how much you need.
Test your own numbers
Use the Mortgage Calculator for your payment, the Mortgage Affordability Calculator for a price range, and the Rent Affordability Calculator for the rent side.
Common questions
Is it cheaper to rent or buy?
It depends on how long you stay, your rate, home price growth and ownership costs. Buying usually needs several years to recover upfront and selling costs.
What costs do buyers forget?
Property tax, insurance, maintenance, closing costs and selling costs, which are all in addition to the mortgage payment.
How long should I plan to stay if I buy?
Many guides suggest several years, often five or more, so that equity and appreciation can offset transaction costs. The right number depends on your situation.
Does this account for investing the down payment?
No. The simplified model leaves out the return you could earn on the cash if you rented. Include it in your own analysis.