Is It Better to Rent or Buy a Home? How to Compare

Published October 12, 2026

Free tool: Rent vs Buy Calculator→

Comparing your rent with a mortgage payment is the most common way to decide whether to buy, and it's misleading. Owning has costs beyond the mortgage, renting frees up cash you can invest, and a home's value changes over time. A fairer comparison is your net worth after several years each way. This guide shows how, using the free Rent vs Buy Calculator.

Owning costs more than the mortgage

For a $400,000 home with 20% down at 6.5%, the first month of owning costs about $2,848:

• Mortgage payment: $2,023
• Property tax at 1.1% a year: about $367
• Home insurance at $1,500 a year: $125
• Maintenance at 1% of the value a year: about $333

Renting a similar home for $2,200, plus $20 of renters insurance, costs $2,220. Buying also takes $92,000 up front (the down payment plus 3% closing costs), and selling later costs around 6% of the price.

Compare net worth, not monthly cost

The calculator follows both paths with the same spending:

• The buyer builds home equity as the loan is paid down and the home gains value, counted after selling costs.
• The renter invests the down payment and closing costs from day one, plus the difference each month that renting is cheaper.

With home prices and rent both rising 3.5% a year and investments earning 6%:

In this example, buying catches up with renting in year 7. Buying and selling costs make owning expensive in the short run; over longer periods, paying down the loan and price growth add up.

The assumptions that matter most

Small changes swing the answer. Over 10 years:

• Home prices grow 2% a year instead of 3.5%: renting wins by $35,384.
• Investments earn 8% instead of 6%: renting wins by $14,877.
• Rent is $2,600 instead of $2,200: buying wins by $102,815 and catches up in year 4.

Try cautious and optimistic values for price growth and investment returns to see how robust your answer is. As a rough first check, divide the price by a year's rent: here $400,000 ÷ $26,400 ≈ 15. The higher that ratio, the more renting tends to make sense.

Beyond the numbers

• How long you'll stay matters most; buying rarely pays off if you might move within a few years.
• Flexibility vs stability: renting makes moving easy, while owning lets you renovate and fixes your mortgage payment.
• Discipline: renting only comes out ahead if the savings are actually invested.

The calculator leaves out income taxes, PMI and moving costs. To see what you can borrow first, try How Much House Can I Afford?

How to use the Rent vs Buy Calculator

1. Open the Rent vs Buy Calculator.
2. Enter the home: the price, down payment, mortgage rate and term, property tax, insurance, maintenance, HOA fees, closing costs, selling costs and expected price growth.
3. Enter the rental: the monthly rent, expected rent increases and renters insurance.
4. Enter the investment return on money not spent on housing and the number of years to compare.
5. Read the results: which option wins and by how much, the net worth if you buy or rent, the first month's cost of owning and renting and the year buying catches up, with net worth and monthly cost charts and a year-by-year comparison.

Frequently asked questions

Is it cheaper to rent or buy?

Month to month, renting is often cheaper at first, while over long periods buying often wins as the loan is paid down. In the example, renting stays ahead for 6 years and buying is ahead from year 7.

How long do you need to stay to make buying worth it?

Long enough to recover the costs of buying and selling, often 5 years or more. With the example's assumptions, about 7 years.

Does the calculator include taxes?

No. It leaves out income taxes, PMI and moving costs, so treat the result as an estimate and adjust for your situation.