Rent vs Buy Analysis
Compare total costs of homeownership versus renting over time. Buying $300,000 home with $60,000 down at 6.5% costs $1,478/month mortgage. Over 5 years: buying costs $148,653 ($60,000 down + $88,653 payments) vs $90,000 renting at $1,500/month. However, buying builds equity and home may appreciate while rent is gone forever.
This simplified calculation doesn't include maintenance, property tax, insurance, HOA fees (add 1-2% of home value annually), closing costs (2-5% of price), or tax benefits of mortgage interest deduction. Also doesn't account for home appreciation, which historically averages 3-5% annually. Renting includes flexibility, no maintenance responsibility, and investing down payment elsewhere.
Buy if staying 5+ years, prices are reasonable relative to rents, you want stability and equity building. Rent if staying under 3 years, housing market is expensive, you value flexibility, or prefer investing capital elsewhere. Neither is universally better - depends on local market, personal finances, and lifestyle priorities.
Quick Tips
- Always compare APR, not just interest rates
- Use the Rule of 72 to estimate doubling time
- Extra payments dramatically reduce total interest
Frequently Asked Questions
Generally 5+ years to recoup closing costs and benefit from appreciation. Shorter stays risk loss from transaction costs (5-10% of home price to buy and sell). Longer ownership increases benefits of appreciation and equity building.
Rising prices favor buying sooner (lock in current price, benefit from future appreciation) but also increase risk if market corrects. Don't buy solely expecting appreciation - buy if monthly costs are manageable and you'll stay long enough.
Yes, mortgage interest and property taxes are deductible if you itemize. However, high standard deduction means fewer people benefit. Estimate actual tax savings based on your situation - it's significant for expensive homes and high earners.