Rent vs Buy Calculator United States

Most people start by comparing rent with a mortgage payment, which leaves out most of the costs. Buying costs a down payment, thousands in closing costs, and property tax and upkeep a renter never pays, and it returns equity when you sell. Renting costs rent, which rises, and returns nothing. This calculator runs both plans over the same period and reports the net cost of each after the money you get back is subtracted.

How the two plans are scored

Your first-year rent runs for twelve months, then increases by the annual rate you enter, and so on for as long as you stay. None of it comes back.

Buying has five components: the down payment, a monthly payment of principal and interest for every month you live there, property tax estimated as a percentage of the home's value, maintenance estimated the same way, and equity at the end, which is the appreciated value less the outstanding loan balance. The net cost of buying is the first four added together, minus the equity.

Use your local property tax rate

Many people enter a national average for property tax, and for this input a national average is a poor guide.

Effective property tax rates vary by a factor of six across the states. New Jersey and Illinois both sit near 1.88 percent of home value, Connecticut around 1.54 percent, Texas near 1.40 percent, New York around 1.30 percent. At the other end, Hawaii is roughly 0.29 percent, Alabama 0.37 percent, Arizona and Utah about 0.48 percent, and California around 0.70 percent because assessed value there is tied to the purchase price instead of being reset to market every year.

On a $300,000 home, the gap between New Jersey and Hawaii is about $4,770 a year for as long as you own it. That is far larger than the effect of a quarter-point difference in mortgage rate, and it is the main reason two identical homes in two states can give opposite answers. Use your county's actual effective rate.

Closing costs and loan type

Closing costs on a US purchase include loan origination, appraisal, title search and lender's title insurance, recording fees, and prepaid escrow for tax and insurance. Title insurance has no equivalent in most other countries; it is a one-time charge that protects against defects in the chain of ownership, not against future events.

The loan type adds its own costs. A conventional loan with less than twenty percent down usually carries private mortgage insurance until you reach enough equity. An FHA loan charges 1.75 percent of the loan amount upfront plus 0.55 percent a year. A USDA loan charges one percent upfront and 0.35 percent annually. A VA loan charges a funding fee instead, 2.15 percent on a first use with less than five percent down. None of these is in the model, and on a low-down-payment purchase they are not small.

The US thirty-year fixed-rate mortgage has no prepayment penalty, and the rate you sign is the rate for the life of the loan unless you refinance. That makes the calculator's constant-rate assumption more realistic here than in markets built on short fixed periods.

What the tax code gives an owner

Mortgage interest is deductible on acquisition debt up to $750,000, halved to $375,000 for married filing separately, with loans predating the current limit grandfathered at $1,000,000. State and local taxes, property tax included, are deductible up to $40,400. All of this helps only if your itemized total exceeds the standard deduction, which is $16,100 single and $32,200 married filing jointly. For many owners, particularly those with a modest loan in a low-tax county, the standard deduction is larger and the mortgage interest deduction is worth nothing. The calculator assumes no deduction benefit, which is the conservative position and usually the correct one.

Section 121 helps more reliably. On the sale of a primary residence you can exclude $250,000 of gain, or $500,000 filing jointly, subject to ownership and use tests. The tool reports equity before any tax, so as long as your gain stays within the exclusion, that figure is what you keep.

How equity builds

Principal reduction shrinks what you owe with every payment, and appreciation lifts what the house is worth. The tool amortizes the loan to the end of your stay, grows the purchase price at your appreciation rate, and treats the difference as equity recovered on sale.

Both are slow at the start. Mortgage interest is front-loaded, so the first years of payments barely reduce the balance, and appreciation has had little time to compound. That is why short stays usually favor renting, even before closing costs, which are not in the model but would add to the cost of a short stay in real life.

A five-year example

Take a $300,000 home, $60,000 down, a 6.5 percent rate on a thirty-year term, and a five-year stay. Assume three percent appreciation, property tax at 1.1 percent, maintenance at one percent, and rent starting at $2,000 a month and rising three percent a year.

The model amortizes the $240,000 loan, totals sixty payments, adds five years of tax and maintenance, works out the remaining balance and the appreciated value, and subtracts the equity. Compare that with five years of rising rent. Then change the property tax rate to 1.88 percent and run it again: on a $300,000 home that one change adds roughly $12,000 to the cost of buying over five years, often enough to reverse the result.

Which assumptions matter most

Years staying comes first, because the longer you stay, the more equity you build against the costs. Appreciation has the most leverage, since it compounds on $300,000, not on your $60,000. Property tax comes next and is the input people most often get wrong, followed by the mortgage rate and the annual rent increase. Change one at a time and within a few runs you will see which assumption decides your result.

What is left out

The model has no private mortgage insurance, homeowners insurance, HOA dues, closing costs on either the purchase or the sale, or agent commission. It has no mortgage interest or property tax deduction and no tax on the gain. It does not credit renting with the investment return the down payment could have earned elsewhere. The mortgage rate is held constant, which suits a thirty-year fixed but not an adjustable-rate loan. Equity depends on an appreciation rate that can be negative, so treat every figure as a planning estimate, run several scenarios, and weigh the results alongside the things a calculator cannot price.

About This Rent vs Buy Calculator

Use this rent vs buy calculator to get an instant estimate based on the figures you enter. Adjust the inputs above to match your situation, or browse all our calculators to plan your next step.