Should I Rent or Buy a Home?

Is it better to rent or buy a home?

Buying is better financially when you stay long enough for equity and appreciation to outweigh the costs of buying and selling; renting is better for shorter stays. The number of years where the two lines cross is called the break-even period, and finding it is the point of a rent vs. buy calculator.

The comparison is only fair if it counts everything. For buying, that means the down payment, closing costs, mortgage payments, property tax, insurance, maintenance and HOA dues, minus any tax savings and minus what you get back when you sell. For renting, it means rent, renter's insurance, fees and the security deposit. Both sides also carry an opportunity cost: money spent on housing is money that could have been invested.

How does a rent vs. buy calculation work?

Our calculator adds up the full cost of each choice for every length of stay from 1 to 30 years, then divides by the months stayed to get an average monthly cost. Each dollar you spend is grown at your after-tax investment return to the end of the stay, so spending early costs more than spending late, just as it does in real life.

On the buying side, the home is assumed to be sold at the end of the stay. The sale price, minus selling costs and the remaining loan balance, is subtracted from the total. That is why buying looks expensive in year 1 (you pay transaction costs on both the purchase and the sale and have built little equity) and cheaper later.

Tax savings count only above the standard deduction. For 2026 the standard deduction is $32,200 for married couples filing jointly and $16,100 for single filers. In our example, first-year mortgage interest of $20,695 plus $6,000 of property tax is $26,695, which is below the joint standard deduction, so a married couple gets no tax benefit from the mortgage at all. A single filer would itemize and save some tax.

When does buying become cheaper than renting? A worked example

Here is the base case run through the rent vs. buy calculator. Buying: a $400,000 home, 20% down, 6.5% 30-year fixed rate, 2% closing costs to buy, 1.5% property tax, $2,500 a year insurance, 1.5% a year maintenance, 3% yearly appreciation and cost growth, and 7% selling costs. Renting: $2,400 a month rising 3% a year, $15 a month renter's insurance, a $3,000 deposit and $100 in fees. Money not spent earns 5% before a 25% federal tax rate.

The result: buying is cheaper if you stay 5.4 years or longer. The table shows the average monthly cost of each choice for different stays. The buying average falls at first as one-time costs spread over more years, then both averages climb with rising rents, taxes and forgone investment growth. Buying pulls ahead after 5.4 years and the gap keeps widening.

What changes the rent vs. buy answer the most?

Appreciation, rent level and mortgage rate move the break-even point the most. Changing one assumption at a time from the base case above, the calculator returns these break-even stays:

What is the price-to-rent ratio and how do you use it?

The price-to-rent ratio is a home's price divided by a year's rent for a comparable home. It is a quick screen for whether a local market leans toward renting or buying. In our base case it is $400,000 ÷ ($2,400 × 12) = 13.9.

A lower ratio means rent is high relative to prices, which favors buying; a higher ratio favors renting. In the sensitivity table, the $2,800 rent case has a ratio of 11.9 and breaks even in 3.2 years, while the $2,000 rent case has a ratio of 16.7 and takes 12.8 years. The ratio ignores rates, taxes and how long you stay, so use it to decide whether to run the full calculation, not as the answer.

What costs do people forget when comparing renting and buying?

The costs most often left out are the ones that do not appear on a monthly bill. A quick mortgage-versus-rent comparison misses most of them:

• Closing costs to buy, often 2% to 5% of the price, and selling costs, which in our example are 7% including agent commissions.
• Maintenance and repairs. A planning figure of 1% to 2% of the home's value per year is common; 1.5% on $400,000 is $500 a month.
• Opportunity cost. An $80,000 down payment invested at 5% would grow, and that lost growth is a real cost of owning.
• Rising costs on both sides. Rent goes up, but so do property tax and insurance; only the principal and interest on a fixed-rate mortgage stay flat.
• Private mortgage insurance if you put down less than 20%, which our base case avoids.

Should I rent or buy if I might move in a few years?

If there is a real chance you will move within three to five years, renting is usually the safer financial choice. In the base case, buying costs about $5,068 a month on average if you sell after one year, more than double the $2,507 cost of renting, because closing and selling costs land in such a short window.

Beyond the numbers, owning ties up cash and makes moving slower, while renting leaves you exposed to rent increases and a landlord's decisions. If you are leaning toward buying, check what price fits your income in how much house can I afford, estimate the monthly payment with the mortgage calculator, and use the rent calculator to see what rent your income supports in the meantime.