The usual comparison is rent against a mortgage payment, and it leaves out most of the math. Owning costs more than the payment each month, and you get some of it back when you sell. Renting costs only the rent and keeps your down payment free. This guide puts the pieces side by side for one home so you can weigh them against your own rent, savings and plans.
The monthly gap
Start with the first month. Our guide to what you’ll really pay each month and at closing adds it up for a $400,000 home bought with 10% down: $3,309 a month once PMI and upkeep are in, and $52,000 in cash to close. Set that beside your rent and the gap is usually wide.
Two things make the comparison less lopsided than it looks. Part of each mortgage payment repays the loan, which is money you keep, and your rent pays your landlord’s taxes, insurance and repairs as well as their mortgage.
What building equity takes
Equity is what you would walk away with if you sold: the home’s value, minus the loan, minus the costs of selling. Three things decide how much you build.
- Time. Buying costs ($12,000 at closing in our example) and selling costs (about 7% of the sale price in the calculator’s default) are paid once, so the longer you stay, the more months they spread across. Early payments are mostly interest, so principal builds slowly at first.
- Appreciation. A home that gains value adds to your equity without any payment from you. Nobody knows the rate in advance, so test more than one.
- Selling costs. Agent commissions, transfer taxes and closing costs come out of the sale. On our example home with flat prices, they come to $28,000.
The table below shows how those three play out. It takes the same $400,000 home and asks what owning costs a month on average once you sell and get back what the sale leaves you, for different holds and appreciation rates.
| 2 years | $4,629/mo | $3,695/mo | $3,056/mo |
|---|---|---|---|
| 3 years | $4,062/mo | $3,118/mo | $2,458/mo |
| 5 years | $3,592/mo | $2,630/mo | $1,923/mo |
| 7 years | $3,374/mo | $2,393/mo | $1,635/mo |
| 10 years | $3,172/mo | $2,160/mo | $1,318/mo |
Down each column, a longer hold costs less: with prices flat, owning averages $4,629 a month over 2 years and $3,172 over 10. Across each row, appreciation lowers the cost: over 10 years, $3,172 a month with flat prices, $2,160 at 3% a year and $1,318 at 5%. Over 2 years the average runs above the month-one budget of $3,309, because the buying and selling costs fall on only 24 months. A short hold in a flat market is the costliest corner of the table, and a long hold with steady appreciation is the cheapest.
When renting comes out ahead, and when buying does
Put your rent next to the table. Renting tends to come out ahead when:
- you may move within a few years, so buying and selling costs have little time to spread;
- your rent sits well below what owning costs over the hold you expect;
- the down payment and closing cash would empty your savings, or you would invest that money elsewhere instead;
- you value the freedom to move for a job, a relationship or a better neighborhood.
Buying tends to come out ahead when you expect to stay for many years, your rent keeps rising while a fixed-rate mortgage payment stays put, and you want the stability of a home you control. Most people land somewhere between, which is why the answer depends on your numbers. Deciding to keep renting while you save, or while you watch a market, is a sound result of doing this math.
The calculator leaves a few things out, and they can move the answer: what your down payment would earn if you kept it invested, rent increases, tax deductions, and moving costs. Weigh them in whichever direction they apply to you.
Run it with your numbers
The free ownership-cost calculator needs no account. Enter the price, your down payment, rate, monthly costs and how many years you might stay, and it shows the average net cost of owning after the sale, the same figure as the table above. Set it beside your rent, then try a lower appreciation rate and a shorter stay to see how much room you have.
When you have a specific home in mind, look it up. The free check shows its estimated monthly payment (mortgage, taxes and insurance), the asking price beside the home’s estimated value, and a score out of 10 for how the home is positioned to appreciate in its market, with its confidence. Your first home is free.
For that home, Cost to Own carries the comparison further. Its Compare with renting input takes the rent you would otherwise pay and shows an estimated annual return that counts the rent you no longer pay, with the home growing at its own estimated appreciation rate, its market’s long-run rate plus its market edge. Cost to Own opens with a credit on that home or with a plan.