Rent vs buy - what's right for you?
Should you rent or buy a home? Use our simple rent vs buy calculator to find out which option is best for you.
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:
- Stability (you, not the landlord, can choose when you’ll move)
- Financial predictability (a fixed-rate mortgage payment doesn’t change)
- Freedom to renovate
- Pride of ownership
- Growing home equity that you can borrow against
- Flexibility (renters are free to move and are exempt from home maintenance)
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 3% to 5% of the loan amount.
Costs of owning
You can’t put your wallet away once you’ve solved the buy or rent problem by buying a home. You’ll keep paying mortgage insurance (for a period of time, anyway), 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 crib.
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.