How the comparison works
Buying: you pay the down payment, closing costs, the mortgage and the costs of owning (property tax, insurance, upkeep). At the end, your wealth is the home value minus what you still owe, plus anything you invested when renting would have cost more.
Renting: you invest the down payment and closing costs, pay rent and invest the monthly difference when owning would cost more.
Example
A $400,000 home with $80,000 down at 6.5% for 30 years, versus $2,200 rent. With 3.5% home appreciation, 3% rent increases and 6% investment returns, after 10 years buying comes out about $77,000 ahead. Stay only 3 or 4 years and renting often wins, because closing costs have no time to pay off.
Frequently asked questions
What return should I use?
Use what you would realistically earn after taxes on a diversified portfolio. A higher return favors renting.
See also
Results are estimates for information only and are not financial, legal or medical advice. Rates, taxes and fees vary — confirm with a professional or your lender.