Rent vs Buy Calculator: Should I Rent or Buy? (2024)

How to use the Rent vs. Buy Calculator

If you’re deciding between renting and buying a home, the choice isn’t just about money. But either way, you’ll have to start with some math.

To use our Rent vs. Buy Calculator, you’ll need a few pieces of basic information. If you don’t know a specific number, we can help you estimate. Start by filling in:

To make things easy, we pre-filled a number of assumptions. These are typical costs that factor in to the rent versus buy question. For example, we assume:

You can use our assumptions as a ballpark, or adjust the numbers to exactly what applies to you.

Methodology

The Rent vs. Buy Calculator factors in the upfront and recurring costs of renting and buying to compute and refine results. (These costs are detailed below.)

Renting

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

Buying

To calculate the cost of owning a home, we included the two biggest upfront costs: closing costs and the down payment.

For recurring costs, we included:

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%. It also assumes you’ll allocate 0.5% of your home’s value annually for home repairs, and another 0.5% of your home’s value annually for renovations. (NerdWallet recommends setting aside 1% to 2% of your home’s value per year to budget for home repairs and renovations.) You can adjust all of those pre-filled areas.

The Rent vs. Buy Calculator 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. The calculator 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

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.

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:

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.

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.