Renting vs. Buying a Home: How to Run the Numbers

Whether it is cheaper to rent or buy depends mostly on one variable that no calculator can know for you: how long you will stay. Buying carries large one-time costs at both ends, so ownership usually pays off only after several years. Rent costs more per year in some markets and less in others, but it leaves you free to leave.

This guide shows how to compare the two on equal terms. You will list the full cost of owning, run a worked example with a break-even point, see how the answer shifts if home prices grow faster or slower, and weigh the factors that do not fit in a spreadsheet.

What owning really costs

The monthly mortgage payment is only part of it. The CFPB notes that mortgage calculators often show only principal and interest, and that you should add homeowners insurance, property taxes, mortgage insurance if it applies, homeowners association (HOA) or condo fees, and maintenance. Property taxes and condo fees alone can add hundreds of dollars a month.

Owners also take on risks a landlord would otherwise carry. The CFPB lists declining home value and unexpected repairs, such as a failed furnace or a leaking roof, which must be paid for promptly.

There are one-time costs at each end. When you buy, you pay closing costs. When you sell, agent commissions, taxes and other fees apply. If you move within the first few years, the CFPB warns, these can leave you with no more equity than you started with.

Equity grows slowly at first because early payments go mostly to interest. The details of how a loan is structured, including fixed and adjustable options, are covered in our explainer on fixed-rate vs. adjustable-rate mortgages.

What renting really costs

Rent is simpler, but not free of surprises. Rent usually rises over time, and you build no equity. You also need renters insurance, which is inexpensive relative to homeowner's insurance, and you may pay deposits and move-in fees when you change units.

The financial advantage of renting is that your down payment and closing money stay available. If you invest or save it, the growth belongs in the comparison. This is called the opportunity cost of buying: the return you give up by tying cash up in a house.

A step-by-step method

1. Choose a time horizon. Pick a realistic number of years you would stay, then test a shorter and longer one.
2. Total the owner's monthly cost. Principal and interest, property tax, insurance, HOA fees, and a maintenance allowance.
3. Add upfront and exit costs. Down payment, closing costs on the way in, and selling costs on the way out.
4. Estimate what you would get back. Sale price minus selling costs minus the remaining loan balance.
5. Account for opportunity cost. Estimate what the cash you would put into the home could earn elsewhere.
6. Compare to rent over the same period, including expected rent increases.
7. Stress-test. Change home price growth, rent growth and your time horizon and see whether the answer flips.

The CFPB points out that rent-versus-buy calculators rely on assumptions, such as home price growth, that can change the results significantly, and recommends testing several scenarios. The worked example below follows these steps.

A worked example

The following is hypothetical and uses assumptions chosen for illustration, not forecasts for any market.

• Home: $400,000, with 20% down ($80,000) and a $320,000 30-year loan at 6.5%, giving principal and interest of about $2,023 a month.
• Other owner costs: property tax of 1.1% of value a year, homeowner's insurance of $1,800 a year, and maintenance of 1% of value a year. Taxes and maintenance rise with the home's value, and insurance rises 3% a year.
• Transaction costs: closing costs of 3% of the price when buying, and 6% of the sale price when selling.
• Renting: $2,400 a month for a comparable home, rising 3% a year.
• Opportunity cost: the $92,000 in down payment and closing costs would otherwise earn 4% a year.

In month one, owning costs about $2,873 (principal and interest $2,023, taxes $367, insurance $150, maintenance $333) against $2,400 for rent. Owning costs more every month at the start, so it has to make up the gap through equity.

The table shows the net cost of each path after counting what you would recover on sale, assuming the home rises 3% a year.

Under these assumptions, the break-even horizon is about five years. Now change only the rate of price growth and see how the break-even moves.

At 1.5% growth the break-even is close to ten years, and at 0% owning still trails renting after 12 years in this model. The conclusion depends heavily on assumptions you cannot know in advance, which is why a range of scenarios is more useful than a single answer. Swap in your local rent, tax rate and insurance quote to see your own picture.

Tax effects to check

Two federal rules matter. First, the mortgage interest deduction helps only if you itemize. For 2026 the IRS lists the standard deduction at $16,100 for single filers and $32,200 for married couples filing jointly, and the amounts are adjusted yearly, so many owners may not benefit from itemizing. Check the current figure and your own situation, or ask a tax professional.

Second, when you sell your main home at a gain, the IRS says you may be able to exclude up to $250,000 of the gain, or up to $500,000 if you file jointly. You generally must have owned the home and lived in it as your main home for at least two of the five years before the sale. State rules on property tax and capital gains differ, so check your state revenue department.

The non-financial side

Some factors resist a formula, but they are real.

• Flexibility. The CFPB says it can be risky and expensive to buy if you need to move again within a few years. Job stability matters: if your income or location is uncertain, renting may make more sense.
• Control. Owners can renovate, paint, and keep pets without asking a landlord. Renters can't, though they also skip the work.
• Space and location. Buying may let you choose a school district or get more room, which the CFPB lists among reasons people buy.
• Risk tolerance. Owning concentrates a large share of your net worth in one asset in one place.
• Maintenance capacity. Some people welcome upkeep, others do not have the time or money for it.

If you decide to buy, make sure the numbers work after you build a cushion for repairs. Our guide to building an emergency fund on a tight budget explains how to start, and the first-time homebuyer guide covers the steps from pre-approval to closing.

Common mistakes

• Comparing rent to the mortgage payment alone. Taxes, insurance, maintenance and fees can add a large amount on top.
• Ignoring selling costs. They are a major reason short stays favor renting.
• Assuming prices always rise. The CFPB notes you could lose some or all of your equity if values drop.
• Forgetting that rent also rises. Use a growth rate for rent, not a flat figure.
• Buying at the top of your budget. A payment that leaves no room for repairs turns a minor problem into a crisis.

Frequently asked questions

Is renting just throwing money away?

No. Rent pays for housing, repairs, and flexibility, just as ownership costs such as interest, taxes and maintenance pay for housing and do not build equity either. Only the principal portion of a mortgage payment builds equity.

How long do I need to stay for buying to make sense?

There is no universal number. In the example above it was about five years at 3% growth and around ten at 1.5%. Your answer depends on local prices, rent, your loan rate and your costs.

Does a bigger down payment change the answer?

It reduces your loan and monthly payment, but it also ties up more cash that could earn a return elsewhere. Test it as a scenario in your calculation.

Can I rent first and buy later?

Yes, and many people do. Renting while you save, build credit and learn what you need from a home can improve your odds of buying well.

Next steps

1. Decide how many years you could realistically stay in the next home, and test a shorter and longer horizon.
2. Get real local figures for rent, property tax rate, insurance quotes, and any HOA fees.
3. Run the comparison with at least three price-growth assumptions, using a spreadsheet or a reputable rent-versus-buy calculator.
4. If buying looks better, talk to a HUD-approved housing counselor or a few lenders before you start house hunting.