Rent vs. Buy Calculator
Should I buy a house or keep renting?
This calculator is being provided for educational purposes only. The results are estimates based on information you provided and may not reflect CrossCountry Mortgage, LLC product terms. The information cannot be used by CrossCountry Mortgage, LLC to determine a customer’s eligibility for a specific product or service.
How to use the buy vs. rent a house calculator
As you’re using the calculator, keep in mind that you’ll need to make assumptions based on current information, and that things like rent, insurance costs, and mortgage interest rates can – and will – change over time. You may find it useful to run several calculations using different numbers to see how the results change.
For the rental portion of the calculator, you only need to supply two figures: monthly rent and annual rental insurance.
Under the purchase portion of the calculator, input:
- The purchase price of your home
- Your down payment amount
- Annual property taxes
- Annual home insurance premium
- The term of your mortgage in years
- Your mortgage interest rate (percentage)
- Any homeowners association (HOA) monthly fees. (If you have this as an annual figure, divide it by 12.)
There’s a lot to unpack in the data the calculator provides. You’ll see a total comparison of the cumulative costs of both renting and buying over the course of the loan, along with a look at how things like homeowner costs and home value appreciation can be expected to grow over time. You’ll also notice that the calculator assumes an average of about a 2% annual rental increase – which is a good example of a factor that can change more or less rapidly than anticipated.
What is the 5% rule?
You may have heard of the “5% rule,” which offers this guideline: Calculate 5% of the price of the home you’re considering and divide that figure by 12. If this figure is smaller than the monthly cost of renting, then you’re likely better off purchasing the home.
For example: You’re looking at a $250,000 house. Five percent of this ($250,000 x .05) is $12,500. Divide that figure by 12, and you get $1,041.67. Compare that to your monthly rent – or whether you could rent a similar home for the same cost per month – and that will help you decide which is the better option.
The 5% rule isn’t perfect, but it can make it easier to start thinking about what percent of your income should go to a mortgage, and how it shapes up compared to the costs of renting.
How mortgages work when buying a house
In some ways, mortgages function like other types of loans: A lender agrees to loan you an amount, and you agree to pay it back over time with interest. But there are differences: Your monthly auto loan payment, for instance, doesn’t include car insurance. Additionally, mortgage loan payoff periods are generally at least 10 years – often 20 or 30 – which far exceeds other types of loans. Our glossary of mortgage terms will help you understand concepts you’ll need to make the right decision.
How rental agreements work when renting a house
Rental agreements are typically revisited on a yearly basis, which can be ideal if you need to relocate frequently or haven’t decided where you’d like to settle down for a longer period of time. They also mean you don’t have to figure property taxes, landscaping, or maintenance costs into your budget.
Renting is also a great way to set yourself up for homeownership, since it helps your credit score when you pay your bills on time. It also gives you flexibility to accumulate funds for a larger down payment, or to establish your career in order to present a stable employment history when you apply for a mortgage.
What to keep in mind when deciding whether to buy or rent a house
This calculator is meant to be a starting point, not the final word. Other factors you should include when deciding whether it’s better to buy or rent include how much money you’ll need up front, whether you’re planning on moving in the next five years, how stable your job is, whether your potential new home needs renovations, and much more.
Additional mortgage calculators
Buying or refinancing a home can be confusing – we want to make beginning the journey as simple as possible. We’ve developed easy-to-use tools that will help you compare your options, calculate your payment, see how much mortgage you can afford, understand your debt-to-income ratio, and discover answers to many of your homebuying questions.
Use our free, interactive calculators to start getting answers and take the next financial steps toward your goals:
