Rent vs. Buy: The Numbers to Compare Before You Decide

Comparing your rent with a mortgage payment is tempting but misleading. A fair comparison counts every cost of owning and what your money could earn elsewhere.

The monthly cost of owning

Start with the mortgage payment (principal and interest), then add:

• Property tax and homeowner's insurance
• Maintenance: a common rule of thumb is to budget 1% of the home's value each year
• HOA or service charges, if any

On a $350,000 home, that rule of thumb means about $290 a month for maintenance alone.

Unrecoverable costs

Some money you never get back. For renters, that's the rent. For owners, it's mainly:

• Interest on the mortgage (the principal part of each payment builds equity)
• Property tax and insurance
• Maintenance
• Opportunity cost: the return your down payment could have earned if it were invested instead

Compare your rent with this total, not with the full mortgage payment.

Upfront and exit costs

Buying comes with closing costs, and selling often costs several percent of the sale price in agent and legal fees. These one-off costs are why buying usually only makes sense if you'll stay put for several years.

The break-even time

Add up the upfront and selling costs, then divide by how much less owning costs each month than renting, after counting everything above. If owning saves $300 a month and the one-off costs come to $27,000, it takes 90 months, about 7.5 years, to come out ahead, before any change in the home's value.

Things the math can't settle

Home prices can fall as well as rise, and rents and incomes change with inflation. Flexibility, stability and the freedom to renovate are real factors too. Run the numbers with a few different assumptions rather than a single best guess.

This guide is general information, not financial advice.