Rent or Buy?

The choice between buying a home and renting one is among the biggest financial decisions that many adults make. But the costs of buying are more varied and complicated than for renting, making it hard to tell which is a better deal. To help you answer this question, our calculator takes the most important costs associated with buying a house and computes the equivalent monthly rent.

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Cost Comparison Over Time

Cost of Buying Over years Cost of Renting Over years
Home Equity Rent
Home Value Renter's Insurance
Mortgage Balance
Upfront Expenses
Down Payment
Mortgage Fees
Other Closing Costs
Ongoing Expenses
Mortgage Payment
Mortgage Insurance
Property Taxes
Homeowner's Insurance
Maintenance & Other Expenses
Selling Expenses
Closing Costs
Capital Gains Tax
Proceeds From Home Sale
Tax Savings
Lost Interest Income
Total Total

Buying a Home

One of the biggest advantages of buying a home is that you can build equity. There is no guarantee for home appreciation, since the unique qualities of the property and the neighborhood and city where it is located will have a big influence on its value, but most real estate experts agree that the average rate of appreciation is about 3 to 4 percent per year.

You could be one of the unlucky ones whose property nosedives in value, but on average, you can expect your home to only increase in value over the years.

If you decide you want to add on to your home or knock down a wall, owning the property allows you to customize the home to better fit your needs and wants.

Another advantage of buying a home is that you can deduct your home mortgage interest. Since you are likely to pay several thousand dollars in mortgage interest over the course of the year, this can add up to a significant savings at the end of the year.

Finally, buying a home offers you the advantage of a fixed monthly payment (assuming you chose a fixed-rate mortgage rather than an adjustable-rate mortgage). When you rent a place, your landlord could increase your monthly rent each year.

Renting a House

To make buying real estate worth it, you need to be somewhat stable in both your finances and your life. If you know that you don't plan to stay in the area for at least five or six years, buying may end up costing you much more in the long run. If you try to sell your home before five or six years (or more, depending on the terms of your loan), you may not recoup all your expenses, including your down payment, closing costs and Realtor commission fees.

Owning a home can also be unpredictable. The roof may spring a leak. The water heater may break. The heating system may need to be replaced. Termites may infect the wood. The septic tank may fail. These are all costly repairs. And then there are acts of nature which require insurance to protect against.

When you rent, your landlord is responsible for making repairs & insuring the property. When you own a home, you have to make them, and they can occur at any time and without any warning. You could find yourself thousands of dollars in debt — or living in a cold, damp house. When buying a condo the homeowner is still responsible for most of these types of repairs & must pay HOA dues.

Your property taxes and insurance could also increase from year to year with little notice.

Finally, the real estate market itself can be unpredictable. When you buy your home, it may be a boom year. However, by the time you are ready to sell, home prices may have dropped dramatically, making it difficult, if not impossible, for you to sell or to sell at a profit.

Making the Choice

Ultimately, only you can decide whether renting or buying is the right choice for you. However, the above calculator can help you run the numbers to get a strictly economical analysis to help you decide. You'll have to decide the value of being the owner of your own space and having the freedom to make the home your own.


Calculator Disclaimer

This calculator is intended for illustrative purposes only and are hypothetical. We do not guarantee the accuracy of any calculation results scenarios. The figures displayed do not constitute an offer, quote, or solicitation of a product or service by AmWest Funding Corp or its affiliates.
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