August 2021

Rent vs. buy? Our #1 Simple Comparison Calculator Will Help You Decide

Rent vs. buy? Our #1 Simple Comparison Calculator Will Help You Decide

Should you rent vs. buy? The real estate market is hot, and interest rates are at historic lows. But you might still be wondering should I rent vs. buy? The decision isn’t an easy one. With mortgage payments, down payments, and closing costs, it can seem daunting to make the jump into homeownership. Although, it might make more sense financially. So, how do you know what to do? The Rent vs. Buy Calculator is a tool to help you decide whether or not it makes sense to keep on renting or to purchase a home. Here’s how it works. 

How to Use Rent vs. Buy Calculator

Since renting versus buying is not an apples-to-apples comparison, you would have to crunch many numbers (or higher an expert) to understand which one makes the most financial sense. But a Rent vs. Buy Calculator does all of that for you and simplifies the process by asking you to input just a few key numbers that you will know. Here’s how to do it.

Start With Your Current Renting Scenario

Before you can make a future move, you have to understand your current living situation and its costs. That’s why you’ll enter just three key numbers:

  • Current Monthly Rent: You could also input the proposed rent if trying to compare future scenarios.
  • Monthly Renters Insurance: Here, you will input the cost of your renter’s insurance monthly. So, even if you pay yearly or twice a year, break that number down to what it works out to monthly. 
  • Annual Rent Increase: Get A Rate uses the average 4% increase in its calculations, but you can adjust if you know your landlord’s yearly rent increase amount.

That’s it! Just those few numbers will set the foundation to run the comparison and answer the question of, “Should I rent vs. buy?”

Input New Home Purchase Scenario

So, you’ve got the rent part down. Now, it’s time to estimate the new home purchase scenario. That’s accomplished by inputting six data points. 

  • Purchase Price: What is the cost of the home you’re considering? Or, what is an estimated home price you can afford? If you need help determining this number, try the Affordability Calculator
  • Down Payment: How much can you put down upfront? This will determine the loan amount and monthly mortgage payment, which will then be compared to the cost of renting.
  • Zip Code: Towns have different tax rates, which is why you need to input where you are looking to buy a home. That will be a significant factor in determining the monthly costs of owning a home versus renting one. 
  • Years Before Selling: How long you plan to stay in your home will make a difference whether it makes sense to rent or buy. Get A Rate can calculate how much the home will appreciate in value and compare that to what’s left on your mortgage. For example, if you plan to be there for just a year, it might not make sense once you factor in what’s left to pay and additional closing costs. 
  • Military or Veteran: Members of the military and veterans can qualify for 0% down payments and get low-interest loans, both of which will determine monthly mortgage payments. That then gets factored into the rent versus buy comparison.
  • PMI: If you put down under 20% in a down payment, you will need mortgage insurance (PMI). So, check this box if you are putting down less than 20%.

Assumptions Determine Rent vs. Buy Comparison 

After inputting the key financial factors listed above and clicking “Ok, next,” you’ll be brought to a page with some more numbers. These will be filled in for you based on Get A Rate’s internal calculations. So, you don’t need to do anything in this section. But it gives you an idea of the additional costs that need to be considered when determining whether to rent or buy. These are often not considered when looking into purchasing a home and why many first-time homebuyers have sticker shock. These additional considerations include:

  • Closing Costs: You will have to shell out some more money upfront before even setting foot in that dream home.
  • Yearly Appreciation Rate: This is the average appreciation rate of a home after purchasing it. This is important when determining how long you plan to live in the house and what you will make selling it after that time.
  • Cost to Sell: Yes, before you even think about buying a home, you need to think about what it will cost you to sell it. That amount will be factored into whether it makes sense to keep renting or to buy.
  • Term of Home Loan: This is how many years you have to pay back the loan. The standard amount is 30 years, but you can choose 20, 15, or 10. Whichever you choose will affect your monthly mortgage payment and factor into whether you should rent or buy.
  • Yearly Property Taxes: This number is carried over from the zip code you entered. Since towns have different tax rates, this will affect your monthly mortgage payment and therefore answer the question, “Should I rent or buy?”
  • Yearly Homeowners Insurance: This is automatically calculated based on averages. Get A Rate overestimates this amount by 20% to ensure you’re fully prepared for that monthly cost of owning a home. Although, you can enter an exact amount if you have a separate quote.
  • Yearly Maintenance Cost: Get A Rate automatically calculates this number based on .5% of the purchase price. This is a good number you should always budget for because something inevitably needs to be fixed in the house. 

Should I Rent vs. Buy?

Once all of the financial information is entered, you will click “Compare.” The next screen will reveal whether or not it makes sense to rent or buy based on the home price and current rent amount. Not only will you get a simple rent or buy answer, but the calculator will also explain why the scenario works or doesn’t work. It will reveal:

  • Expected Selling Price
  • Down Payment and Closing Costs
  • Remaining Principal on Loan
  • Cost to Sell
  • Gain / Loss on Owning Home
  • Net Benefit

You can also choose the “Monthly Payment” tab to see exactly how the cost breaks down monthly with renting versus buying. 

Ultimately, the Rent vs. Buy Calculator helps you make the most informed decision. You might get nervous about all the money upfront and not understand how you could actually save money (and a lot of it) if you buy. Here the guesswork is taken away so that you can feel confident in your choice. 

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