Rent versus Buy a Home Calculator
- Last Updated: Sunday, 18 November 2018
If you’ve been thinking about buying a home, but you’re not sure if you’ll benefit over the long haul, then try our rent versus buy a home calculator. This free tool not only allows you to compare your monthly payments for renting, or buying, but offers additional analytics. The calculator provides an estimate of the home’s future value, as well as the tax savings you’ll realize when buying a home.
The variables used in our online calculator are defined in detail below, including how to interpret the results.
Renting a Home
In this first section, you will provide some information concerning the home you’re thinking about renting.
Monthly Rent ($ / Month)
This is the monthly rent you would expect to pay if you decided not to buy a home. To make the comparison more accurate, the rent should not include the payment of any utilities (such as electric or natural gas).
Renter’s Insurance ($ / Month)
If you rent a home, then the structure is usually insured by the owner of the home or building. Your personal property, which is contained within the structure, is covered by renters insurance. This is where you enter the amount of renters insurance paid each month.
Expected Annual Rent Increase (%)
Unless there is a rent freeze, or some other form of rent control, it is very likely that your cost to rent a home will increase each year. This is the place in the calculator where you would enter the expected annual increase in your monthly rent charges.
Buying a Home
In this second section, you are going to provide some information concerning the home you’re thinking about buying.
Purchase Price of Home ($)
This is the purchase price of the home you are considering. This is not the asking price of a home, which may be higher or lower than the actual price you expect to negotiate for the home.
Mortgage or Home Loan ($)
The total amount of money borrowed when buying a home, also referred to as the principal of a mortgage.
Interest Rate on Loan (%)
This is the annual interest rate on the mortgage. This is not the APR, which takes into account other costs associated with the mortgage.
Term of the Loan (Years)
The term of the loan is the number of years over which the mortgage will be repaid. The most common mortgage terms are 15, 20, and 30 years.
Homeowners Insurance ($ / Year)
This is the amount of homeowners insurance you expect to pay each year. There are a number of ways to get this information if you don’t already know it. One of the easier ways would be to speak with a real estate agent.
Property or Real Estate Taxes ($ / Year)
This is the amount of property taxes you expect to pay each year. This information is normally found in a home’s listing, which can be found online or at a local real estate agency.
Home Maintenance ($ / Year)
The amount of home maintenance you can expect to pay will vary greatly with the age and condition of the home. Even with homes in good condition, annual maintenance can be expected to run roughly 1% of the home’s value.
Home Ownership Assumptions
This third section of the calculator is where you would enter your home ownership assumptions. These are some of the more critical variables when evaluating a rent versus buy decision.
Years before Selling (Years)
This is the number of years you would expect to stay in the home before selling it. This number is used as the time variable for the rent vs. buy decision.
Home Appreciation Rate (% / Year)
One of the biggest benefits to buying a home is the fact that most homes have been appreciating in value in recent years. If you expect that trend to continue in the area you are looking to buy a home, then enter an annual rate here.
Cost to Sell Home (% of Selling Price)
If you sell your home through a real estate agency, then you can expect to pay anywhere from 2 to 6% of the home’s value in agency fees.
Federal / State Income Tax Rate (%)
When buying a home, there is usually a tax benefit to the owner. This includes interest charges on the mortgage and property taxes. You’re incremental tax rate, or tax bracket, is used to compute the tax benefit associated with buying a home.
Buy versus Rent Comparison
From this point forward, the results of the calculator are broken down into two columns of information: one for renting a home and one for buying a home.
Monthly Payment ($ / Month)
The monthly payment in the buy column is simply the monthly mortgage payment due on the home. For the rent column, the monthly payment is the monthly rent entered earlier.
Payment – End of Period ($ / Month)
The monthly payment when you buy a home will stay constant over the length of time you own a home. For renters, the monthly payment has been adjusted to reflect the expected annual rent increase rate you entered earlier.
Property Tax and Insurance ($ / Month)
This is the property taxes and insurance payments due each month for renting versus buying a home.
Maintenance ($ / Month)
The maintenance per month takes the annual maintenance amount you entered earlier and converts this value into a monthly amount.
Total Monthly Expenses ($ / Month)
This is the total monthly expenses associated with owning versus renting a home. As mentioned earlier, this does not include expenses such as the cost of electricity and heating fuel such as natural gas.
Total Cost Before Selling / Moving ($)
The total cost before selling / moving is the total monthly expense multiplied by the number of months you expect to live in the home. The value for renting has been adjusted for the expected annual rent increase.
Additional Ownership Adjustments
These next series of calculated values only apply to home ownership. They include the appreciation in the home’s value, and the tax benefit associated with owning a home.
Expected Selling Price ($)
This is the expected selling price of the home at the anticipated selling / moving date.
Original Down Payment ($)
This is the calculated down payment you would have made on the home based on the price paid and mortgage amount.
Remaining Principal on Loan ($)
This is the unpaid balance on the mortgage, or the remaining principal on the loan.
Cost to Sell ($)
This is the anticipated cost associated with selling the home. This value is calculated based on the home’s selling price and the cost to sell percentage you entered earlier.
Tax Benefit / Savings ($)
This is the total anticipated tax benefit you would derive in a situation where you decided to buy a home.
Gain / (Loss) on Owning Home ($)
This value is the total gain, or loss, you would experience by owning a home. It takes into consideration the appreciation in the home’s value, the pay down of the mortgage’s principal, and the tax benefits associated with owning a home.
Effective Cost of Buying or Renting ($)
The effective cost of buying versus renting a home appears here. For renters, this value is the same as the total cost described earlier. For buyers, this value also includes the gain / loss on owning a home.
Net Gain (Loss) by Buying a Home ($)
The net gain, or loss, associated with buying a home takes all of the previous variables into consideration. This value is the difference between the effective cost of buying and renting a home.
Rent vs. Buy a Home Calculator
Disclaimer: These online calculators are made available and meant to be used as a screening tool for the investor. The accuracy of these calculations is not guaranteed nor is its applicability to your individual circumstances. You should always obtain personal advice from qualified professionals.