Cost of Owning

Rent vs. Buy: How to Compare the Real Costs

By Aritz Boveda · Published October 21, 2026
Fact-checked against primary sources on October 21, 2026

Buying beats renting only after you’ve stayed long enough for equity and appreciation to cover the one-time costs of getting in and out of a home. In our default example, a $400,000 home with 20% down against a $2,400 apartment, renting is cheaper for the first five years and buying comes out ahead in year six. Over seven years, buying costs about $17,462 less. Change the rent, the appreciation rate or how long you stay and the answer can flip.

How the calculator compares the two

Comparing a mortgage payment with a rent check misses most of the picture. Part of each mortgage payment builds equity you get back when you sell, and some costs of owning never show up in the payment at all. The calculator adds up everything that leaves your pocket on each side over the same period, then credits the buyer for what they get back at the end.

Net cost of buying =

1. Cash at closing (down payment plus closing costs)
2. plus every principal-and-interest payment
3. plus property tax, insurance, maintenance and HOA dues
4. minus what you’d walk away with after selling: the sale price, less selling costs, less the loan balance you pay off
5. plus the investment earnings you gave up by putting the cash at closing into the house instead of an investment account

Net cost of renting = every rent payment over the same period.

Whichever total is lower is the cheaper option. Property tax and maintenance are figured each year as a percentage of the home’s value at the start of that year, so they rise as the home appreciates. Insurance and HOA dues stay flat to keep the inputs simple. Rent rises by the percentage you enter once a year.

Worked example: a $400,000 home vs. $2,400 rent

These are the calculator’s default inputs. They’re illustrative, not a forecast, and the interest rate isn’t a current market quote.

• Home price $400,000, 20% down, 30-year loan at 6.5%
• Property tax 1.1% a year, insurance $1,800 a year, maintenance 1% a year, no HOA
• Closing costs 3% of the price, selling costs 6% of the sale price
• Appreciation 3% a year
• Rent $2,400 a month, rising 3% a year
• Investment return 5% a year, compared over 7 years

The buyer brings $80,000 down plus $12,000 in closing costs, so $92,000 at closing. The $320,000 loan costs $2,023 a month in principal and interest.

The sale line works like this. At 3% a year, the home is worth about $491,950 after seven years. Selling costs of 6% take $29,517, and paying off the remaining loan balance takes $289,332, leaving $173,101 in cash.

The forgone earnings line is what $92,000 would have grown by at 5% a year compounded for seven years: $92,000 × (1.05^7 − 1) = $37,453.

On the renting side, rent starts at $28,800 a year and reaches about $2,866 a month in year seven. Total rent over the seven years is $220,679.

Buying costs $203,217 and renting costs $220,679, so buying wins by $17,462 over seven years.

Why time in the home matters most

Closing costs and selling costs are fixed hits that only pay off over time. Early in the loan, most of each payment goes to interest, so equity builds slowly. Using the same inputs, here’s how the result changes with the length of stay:

HUD’s homebuyer guidance makes the same point: the benefits of owning generally start to outweigh renting if you stay in the home for about four to five years. Our example breaks even a little later, in year six, because it includes selling costs and the investment return on the down payment.

The assumptions that swing the answer

Keeping the seven-year period and changing one input at a time:

Appreciation does the most work, and it’s the input nobody can know in advance. Try a low figure as well as the one you expect. If buying only wins under optimistic appreciation, that’s worth knowing before you commit.

Rent matters just as much. A quick screen is the price-to-rent ratio: price divided by a year of rent for a comparable home. In the example it’s $400,000 ÷ $28,800, about 13.9. The higher that number, the more expensive owning is compared with renting the same kind of place, and the longer you need to stay to come out ahead.

What the comparison leaves out

• Income taxes. The calculator ignores the mortgage interest and property tax deductions, which only help if you itemize (and state and local tax deductions are capped), and any tax on investment gains.
• Renters insurance and utilities. Renters often pay less for utilities in smaller units, and many landlords cover some of them.
• Repairs that don’t fit a percentage. Fannie Mae suggests budgeting 1% to 4% of a home’s value each year for maintenance and repairs, with older homes at the higher end. Our 1% default is the low end. See how to budget for home maintenance.
• The monthly cash gap. In year one the buyer pays about $2,873 a month for principal, interest, tax, insurance and maintenance against $2,400 in rent. The calculator doesn’t assume the renter invests that difference, which slightly favors buying.
• Flexibility and risk. Renting is more flexible and needs far less cash upfront. Owners carry the risk of a falling market, but with a fixed-rate loan they also lock in a principal-and-interest payment, something rent can’t match.

Before you decide

1. Price a comparable rental, not just your current one. Compare like with like.
2. Get your likely property tax, insurance and HOA figures for the specific home. Our true monthly cost of owning guide lists every line.
3. Run the calculator at your realistic length of stay, then at half that.
4. Try appreciation at 0% to 1% as a stress test.
5. Check that you can afford the full monthly cost, not just the payment, using how much house can I afford.

If buying only wins when everything goes right, renting a few more years while you save is a reasonable answer.