Should I Rent or Buy? How to Run the Numbers • LeaseParser

“Should I rent or buy?” gets answered with slogans. Your parents say renting is throwing money away. Your friend who just paid for a new roof says buying is a money pit. Both are guessing.

Here’s the thing: this isn’t a question about values. It’s arithmetic, plus one number nobody can hand you, which is how long you’ll stay. Below is the method our free rent vs. buy calculator uses, walked through step by step with real numbers, so you can see why the answer comes out the way it does. And if you already own and you’re wondering whether to sell and rent, that’s covered too.

1. Rent Isn’t Throwing Money Away (and a Mortgage Isn’t All Savings)

Rent buys you a place to live. That’s not waste. And a mortgage payment isn’t a savings account, either. Only the principal part pays down the loan and becomes equity. The interest is gone, just like rent.

Early on, interest is most of the payment. The CFPB explains that at the start of a loan, most of each payment goes to interest. Say you borrow $320,000 at 6.5% for 30 years. The monthly principal and interest payment is about $2,022.62. The first month’s interest is $320,000 × 6.5% ÷ 12 = $1,733.33, which leaves just $289.29 for principal.

So the fair comparison isn’t rent against your whole mortgage payment. It’s what each choice costs you that you’ll never see again, plus what happens to the money each choice leaves free. That’s the whole method in one sentence. Now let’s run it.

2. Step 1: Start Both Paths With the Same Cash

We’ll use the calculator’s defaults: a $400,000 home, 20% down, a 6.5% fixed rate for 30 years, closing costs of 3%, and a comparable place renting for $2,200 a month.

To buy, you need the down payment ($400,000 × 20% = $80,000) plus closing costs ($400,000 × 3% = $12,000). That’s $92,000 of cash. The $12,000 is gone the day you close. You don’t get it back when you sell.

Is 3% realistic? Freddie Mac says buyers should typically be prepared to pay 2% to 5% of the purchase price in closing costs. You don’t have to guess for long, though. Once you apply for a mortgage, the lender has to send you a Loan Estimate within three business days, and it shows your estimated total closing costs.

Now the key move. If you rent instead, that same $92,000 doesn’t vanish. It stays invested and grows at whatever return you assume (the calculator’s default is 5% a year). Both paths start with the same money; they just put it in different places. Be honest with that return, by the way. As the SEC puts it, all investments involve some degree of risk, and you could lose some or all of your money. A cautious number beats a hopeful one.

3. Step 2: Add Up What Owning Really Costs Each Month

A listing that says “$2,023 a month” is only telling you about the loan. Owning also means property tax, homeowners insurance, upkeep, HOA dues if there’s an association, and mortgage insurance if you put down less than 20%. Here’s the first month with the calculator’s defaults (1.1% property tax, $1,800 a year for insurance, 1% upkeep, no HOA):

First month	How it’s figured	Amount
Mortgage principal (becomes equity)	$2,022.62 − $1,733.33	$289.29
Mortgage interest	$320,000 × 6.5% ÷ 12	$1,733.33
Property tax	$400,000 × 1.1% ÷ 12	$366.67
Homeowners insurance	$1,800 ÷ 12	$150.00
Upkeep	$400,000 × 1% ÷ 12	$333.33
HOA dues and PMI	No association; 20% down	$0.00
Total to own		$2,872.62
Rent plus renters insurance	$2,200 + $15	$2,215.00
Difference	Owning costs more	$657.62

A few of these deserve a closer look, because they’re where people fool themselves.

Upkeep. Renters call the landlord when the water heater dies. Owners pay for it. 1% of the home’s value a year is a common starting point, and Fannie Mae suggests budgeting 1% to 4%, with the higher end for homes 30 or more years old. Skip this line and buying will look better than it really is.

Property tax. Rates vary a lot by location, so 1.1% is just a placeholder. Ask the county assessor’s office or a local lender, and don’t simply copy the seller’s bill: in some states a sale can reset the taxable value (California, under Rev. & Tax. Code § 110.1, and Michigan, under MCL 211.27a(3), are two examples).

Mortgage insurance (PMI). With a conventional loan and less than 20% down, you might be required to pay private mortgage insurance, and the CFPB points out it protects the lender, not you. Put 10% down on the same home and you’d borrow $360,000. At the calculator’s default PMI rate of 0.5% a year, that’s $360,000 × 0.5% ÷ 12 = $150 a month. Freddie Mac says to expect $30 to $70 a month for every $100,000 borrowed, so on $360,000 that’s roughly $108 to $252. It doesn’t last forever, though. For most conventional loans on a single-family home you live in that closed on or after July 29, 1999, the federal Homeowners Protection Act (12 U.S.C. § 4902) lets you ask to cancel PMI when your balance is scheduled to reach 80% of the home’s original value, if you meet the conditions. It has to end automatically at a scheduled 78% if you’re current on payments, and no later than the month after the loan’s midpoint if you’re current. FHA and VA loans, lender-paid mortgage insurance and higher-risk loans have different rules, as the CFPB summary explains. The calculator keeps it simple: it charges PMI only under 20% down and stops it once the balance reaches 78% of the purchase price or the loan’s midpoint, whichever comes first.

4. Step 3: Whoever Pays Less Invests the Difference

In our example, owning costs $657.62 more than renting in the first month. If you rent, you don’t spend that money. You invest it. Next month, same thing. That way both paths spend exactly the same amount every month, and the only question left is who ends up with more.

The gap doesn’t stay put, though. On a fixed-rate mortgage, the rate is set when you take out the loan and doesn’t change, so principal and interest stay at $2,022.62. Rent, at the calculator’s default of 3% a year, keeps climbing. In year 2, the calculator raises rent and renters insurance to $2,281.45 ($2,215 × 1.03), and owning becomes $2,898.12 ($2,022.62 plus $875.50 of tax, insurance and upkeep on a home now worth $412,000). The gap shrinks to $616.67. Keep going and it eventually flips, and then the owner is the one investing the difference.

One honest caveat. This only works if the cheaper side really invests the savings. If that $657 would quietly get spent on takeout, renting looks better on paper than it would in your actual life.

5. Step 4: Find Your Break-Even Year (How Long You Need to Live There)

At the end of each year, ask a simple question: if I moved now, what would I walk away with? For the buyer, that’s the home’s value, minus selling costs, minus what’s left on the loan, plus anything they invested along the way. For the renter, it’s their investments. The break-even year is the first year the buyer matches or beats the renter.

After one year, buying is way behind

Say prices rise 3% and you sell after a year. The home is worth $412,000. Selling costs at the calculator’s default of 6% (agent commissions plus your own closing costs) take $24,720, and you still owe about $316,400. That leaves the buyer about $70,900.

The renter’s $92,000 grew 5% to $96,600, and the $657.62 they invested each month adds up to about $8,070 with growth. That’s about $104,700. Renting is ahead by roughly $33,800.

Why so far behind? The buyer paid $12,000 to get in and would pay $24,720 to get out, and a year of payments only knocked about $3,600 off the loan. Buying always starts in a hole. The question is how long it takes to climb out.

With these numbers, buying catches up in year 9

Keep running it year by year with the same defaults and buying catches up in year 9. By year 10, the picture looks like this:

Home value: about $537,600 ($400,000 grown 3% a year for 10 years)
Loan balance: about $271,300, so equity is about $266,300
If you sold: about $234,000 after 6% selling costs and paying off the loan
The renter’s investments: about $223,400

So after 10 years, buying is ahead by roughly $10,700. Not a landslide. And if you’d moved in year 5, renting would have won. That’s the honest answer to “how long do you need to live in a house to make buying worth it”: long enough to pass your own break-even year, and that year depends on your numbers, not a rule of thumb.

It also moves a lot. Prices don’t only go up: by the FHFA’s house price index, U.S. home prices in March 2011 were 19.8% below their April 2007 peak. Nobody knows what prices or rents will do next, so don’t trust a single run. Open the rent vs. buy calculator, put in your real price, rent and rate, then change one thing at a time (price growth, rent growth, investment return) and watch which ones push the break-even year around.

Equity you could borrow against

The calculator also shows how much equity you could borrow against. Home equity loans and lines of credit are generally limited to a percentage of the home’s appraised value, minus what you owe, and each lender sets its own percentage. At an 80% limit in year 10, that’s about $537,600 × 80% − $271,300, or roughly $158,800. But borrowing turns equity into debt secured by your house. The FTC warns that if you don’t repay, the lender can take your home, and the OCC notes a bank can freeze or cut a line of credit if your home’s value declines significantly. Equity isn’t cash in your pocket.

Run your own numbers in two minutes

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Open the Rent vs. Buy Calculator →

6. Already Own? Should You Sell Your House and Rent?

Maybe the economy has you nervous. Maybe you keep hearing that prices could drop and you’re wondering whether to cash out now and rent for a while. That’s a stressful spot, and it’s a different question from buying, because the cost of getting in is already behind you.

That’s what the calculator’s second mode is for. At the top, pick “Keep my home or sell and rent” and enter what your home would sell for today, what you still owe, your rate and the years left. We’ll use its defaults: a $450,000 home, a $250,000 balance at 3.5% with 25 years left, and the same $2,200 rent.

What selling today would actually leave you

$450,000, minus 6% selling costs ($27,000), minus the $250,000 loan, leaves $173,000. In the comparison, that cash gets invested while you rent. Selling costs aren’t fixed, by the way: under the NAR settlement, buyer agreements have to say that broker fees and commissions are fully negotiable and not set by law.

Keeping costs $1,251.56 a month in principal and interest, plus $412.50 of property tax, $150 of insurance and $375 of upkeep, for $2,189.06. Renting a similar place costs $2,215. So in this example, keeping is actually a little cheaper month to month, and that low rate is a big reason why.

What your low mortgage rate is worth

With a fixed rate, the combined principal and interest payment doesn’t change over the life of the loan. That $250,000 at 3.5% over 25 years costs about $1,252 a month. The same balance over 25 years at 6.5% would cost about $1,688, roughly $436 more every month. Sell, and that rate is gone for good. If you buy again later, you borrow at whatever rates are then.

Testing a price drop over the next 12 months

Here’s where the keep-or-sell mode earns its keep. Check the box to set a different price change for the next 12 months and enter −10%, leaving everything else at the defaults (3% a year after that, rent up 3% a year).

After one year, the home is worth $405,000. Keeping would leave you about $137,400 if you sold then ($405,000 minus 6% is $380,700, minus a loan balance of about $243,600, plus a few hundred dollars invested in months when owning was cheaper). Selling a year earlier would have left $173,000, grown 5% to $181,650. So with a 10% drop, selling and renting is ahead by about $44,300 after one year.

But it doesn’t last. Rent keeps rising, your payment doesn’t, and the home recovers at 3% a year. With these numbers, keeping pulls ahead again in year 5. Without the drop (steady 3% growth), keeping is already ahead after the first year, by roughly $10,700.

And the calculator is being generous to selling. It compares keeping with selling and renting for the whole period. It doesn’t include buying back in, which would mean closing costs again (2% to 5% of the price, per Freddie Mac), two moves, and a new mortgage at whatever rates are then. It also leaves out taxes on the sale. If you’ve owned and lived in the home as your main home for at least two of the last five years, you can generally exclude up to $250,000 of gain, or $500,000 on a joint return, if you meet the IRS conditions. Above that, or if you don’t qualify, part of your profit may be taxable.

Look, nobody can reliably tell you when, or whether, prices will fall. So don’t try to. Instead, try the keep-or-sell mode with a few drops, small and large. If selling only wins when prices fall further than you’d honestly bet on, that’s worth knowing before you list.

If you owe more than the home is worth

If selling wouldn’t cover your loan plus selling costs, you’d have to bring cash to closing, and the calculator starts the sell-and-rent side that far behind. If you can’t cover the gap, your lender may agree to a short sale, but in some states you could still owe the difference, and forgiven debt is generally taxable. If you’re struggling with payments, a HUD-approved housing counselor can help you sort through options, and the CFPB says foreclosure prevention counseling from these agencies is free.

7. What Any Rent vs. Buy Comparison Leaves Out

Every model simplifies. Here’s what ours doesn’t count, so you can adjust in your head.

Income taxes. Mortgage interest and property tax can lower your federal income tax, but only if you itemize instead of taking the standard deduction, and both come with limits (see IRS Publication 936 and Topic 503). On the other side, gains on investments you sell are generally taxable, which would trim the renter’s balance. Taxes can push the answer either way.

Everything else that costs money. Moving, utilities, renovations, refinancing, and one-time special assessments from an HOA. A bigger house usually means bigger utility bills, too.

The reasons that aren’t about money. Owning gives you control: paint the walls, get the dog, nobody can decline to renew your lease. Renting gives you flexibility: take the job across the country without selling a house first, and let someone else deal with the furnace. Neither one shows up in a spreadsheet, and either can matter more than $10,000.

And if the math says rent for now? Then the lease is the document that matters. Before you sign, figure out the real upfront cash with our move-in cost calculator, work through the first apartment checklist, and go in with our list of questions to ask before signing a lease. You can also upload the lease to LeaseParser for a free first check that pulls out basics like the rent and lease dates. If you want more, a paid renter report goes through the fees, rent increases and what it would cost to break the lease early.

8. Frequently Asked Questions

Is it better to rent or buy a house?

Neither one wins everywhere. It comes down to the price compared with the rent on a similar place, your mortgage rate, what your down payment could earn if you invested it, and above all how long you'd stay. Buying costs a lot to get into and out of, so it needs time to catch up. With the LeaseParser calculator's default numbers ($400,000 home, 20% down, 6.5% for 30 years, $2,200 rent), renting is ahead for the first eight years and buying catches up in year 9. Change one number at a time in the free rent vs. buy calculator to see which ones move your answer.

How long do you need to live in a house to make buying worth it?

Long enough to earn back the cost of buying and selling. Freddie Mac says to be ready for closing costs of 2% to 5% of the price, and selling means agent commissions (which are negotiable) plus your own closing costs. On a $400,000 home, 3% to buy is $12,000 and 6% to sell a year later at $412,000 is $24,720. There is no universal number of years: with the calculator's defaults it's year 9, but a lower rent, slower price growth or a higher investment return can push it out, and the opposite can pull it in.

Is paying rent throwing money away?

No. Rent buys you a place to live, and owning has costs you never get back too: mortgage interest, property tax, insurance, upkeep, mortgage insurance if you put down less than 20%, and the costs of buying and selling. Only the principal part of a mortgage payment becomes equity. On a $320,000 loan at 6.5% for 30 years, the first payment is about $2,023, and only about $289 of it is principal; about $1,733 is interest.

Should I sell my house and rent if I think prices will drop?

Only if the drop is big enough to pay for the round trip, and nobody can reliably tell you when, or whether, one is coming. Selling costs money now, and buying again later means closing costs again and a new mortgage at whatever rates are then. In the calculator's keep-or-sell mode with its defaults and a 10% drop over the next 12 months, selling and renting is ahead after one year, but keeping catches up in year 5. Try your own numbers and a few different drops before you list.

Should I give up a low mortgage rate to sell and rent?

Count what the rate is worth first. On a fixed-rate loan, your principal and interest payment doesn't change over the life of the loan. A $250,000 balance at 3.5% with 25 years left costs about $1,252 a month in principal and interest; the same balance over 25 years at 6.5% would cost about $1,688, roughly $436 more every month. If you sell, that low rate is gone.

When does PMI go away?

For most conventional loans on a single-family home you live in that closed on or after July 29, 1999, the federal Homeowners Protection Act lets you ask to cancel PMI once your balance is scheduled to reach 80% of the home's original value, if you meet the conditions. It must end automatically when the balance is scheduled to reach 78%, if you're current on payments, and no later than the month after the loan's midpoint if you're current. FHA and VA loans, lender-paid mortgage insurance and higher-risk loans follow different rules.

Does a rent vs. buy calculator include taxes?

LeaseParser's doesn't. It leaves out the mortgage interest and property tax deductions (which only help if you itemize, and both have limits), taxes on investment gains, and taxes on the profit from selling a home. When you sell a main home you've owned and lived in for at least two of the last five years, you can generally exclude up to $250,000 of gain, or $500,000 on a joint return, if you meet the IRS conditions. If taxes could change your decision, ask a tax professional.

Sources

Checked September 30, 2026. Dollar examples use the defaults and formulas of the LeaseParser rent vs. buy calculator; they are illustrations, not forecasts.

Should I Rent or Buy? How to Run the Numbers (and When to Sell and Rent)

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