There is no better way to decide between renting and buying a home than using the renting vs. buying calculator. Continue reading to find out how.
Individuals looking to settle down are often confused about renting or buying a house. Most people want to realize their American dream of owning a home. However, even when you can afford it, you should check the rent vs. buy calculator. The calculator accurately tells you which option would be cheaper based on your circumstances. Let’s look at how the rent vs. buy calculator works and the steps to calculate the cost of renting vs. buying a home.
The rent vs. buy calculator is an innovative tool for determining the best financial course of action between renting and purchasing a residential property. For example, if you are willing to buy a home for a short period, you are not allowing yourself to enjoy the appreciation of the house’s value. Hence, renting a house rather than buying one would be financially prudent.
The renting vs. buying calculator adds all the costs and return on investments to generate a graph and find a break-even point. It is essential to understand these results to choose between renting vs. buying. Nevertheless, the rent vs. buy calculator does not yield the most precise results because it is based on a few assumptions.
This is covered later in this blog, but first, let’s see how to get started and use the rent vs. buy calculator.
Learn More: Calculate Your Monthly Mortgage
Using a rent vs. buy calculator is easy, and one can approximate the comparative expenses between renting and buying a home by inputting the pertinent details into the calculator. We have listed three simple steps to using the calculator:
Before using a rent vs. buy calculator, ensure you have some information. For most parts, this information might be at the top of your head if you have already begun a house search. This encompasses an array of considerations, such as the cost of the residential property under consideration, the projected tenure of residency, the prevailing mortgage interest rate, and the rental outlay in your vicinity.
The following list includes all the factors and, consequently, all the information you should have on your hands before using renting vs. buying calculators:
| Buying | ||
|---|---|---|
| Location | Loan Term | Maintenance Costs |
| Home Price | Interest Rate | Property Taxes |
| Down Payment | Closing Costs | Home Appreciation |
| Renting | ||
|---|---|---|
| Monthly Rent | Security Deposit | Insurance |
| Annual Increment | Rent Deposit | Upfront/Additional Costs |
Once you have all the necessary information, enter it into the rent vs. buy calculator. But be sure to enter accurate information to ensure accurate results. One may procure this valuable information from the vast expanse of real estate websites. You may also seek the expert counsel of an expert real estate agent.
Nevertheless, this step ensures that your specific situation is accounted for in the calculator. You can change the down payment, maintenance costs, and of course, the home price. Every box is editable, making the renting vs. buying calculator estimate a cost that is as precise as possible.
After entering the information into the calculator, it will project the costs over a few years. Consequently, a graph will be generated that projects the cost of renting vs. buying a home. Further, If applicable, a breakeven point is highlighted on the graph.
The breakeven point is when the cost of renting vs. buying a home equals or closes in on the buying cost. Consider buying if you are going to live beyond the number of years it took to reach the breakeven point. For example, if the breakeven point is at 5 years, and you plan on living in your house for more, then buying will be cheaper.
Take some time to review the results and consider the factors involved.
You must wonder how the rent vs. buy calculator incorporates and is customized to your circumstance. To understand that, you must learn what happens at the tool's back end. Firstly, the calculator duly factors in many elements, including but not limited to the residential property's value, the anticipated duration of habitation, the applicable mortgage interest rate, and the prevailing rental rates in your region.
Some of these costs are one-time costs in the buying section of the calculator, for example, the upfront costs, agent costs, and closing fees, while others keep accumulating, much like the house appreciation or the monthly mortgage payments. In brief, to find out the cost of renting, the calculator factors in repeated costs, such as the rental payment, and the one-time cost, like a security deposit. Further, the Rent vs. Buy calculator also puts a specific percentage according to the current market rate to calculate the equity.
Nevertheless, if there are still any confusions, continue reading to see if frequently asked questions have covered them.
The 5% rule is a quick method to calculate the breakeven point between renting and buying a home. To use it, multiply the home's cost by 5% and then divide by 12. The result represents the monthly cost at which renting is financially advantageous. If the monthly rent for a similar property is lower than this calculated amount, it may be better to rent. If the rent is higher, buying might be the more cost-effective option.
The costliness of renting versus buying depends on various factors, including upfront costs, ongoing expenses, and the duration of ownership or rental. It's not as straightforward as one being universally more expensive than the other. Assess your financial situation and use a rent vs. buy calculator or the 5% rule to determine which option is more cost-effective for your specific circumstances.
As a rule of thumb, you can estimate a home's rent as around 1.1% to 1.3% of its value. However, this is a rough estimate, and actual rent can vary based on factors like the neighborhood, property upgrades, and local market conditions. The 5% rule can help you assess whether a specific rental cost is financially reasonable based on a home's value.
Subscribe to our monthly newsletter for up-to-date real estate industry trends, news, and insights.
Saved
