Is Renting Cheaper Than Buying a Home?

If you're renting right now and thinking about buying a home, you've probably asked yourself:

Wouldn't it be cheaper just to keep renting?

Maybe.

And if you were expecting a REALTOR® and mortgage loan officer to automatically tell you that buying is better, I'm probably going to disappoint you.

Sometimes renting is the smarter financial decision.

But comparing a $2,000 rent payment to a $2,000 mortgage payment doesn't tell you which one is actually cheaper.

There are costs and benefits on both sides of the equation.

So instead of asking:

“Is renting cheaper than buying?”

I think there's a better question:

“What does it actually cost me to rent versus own, and what do I get in return for each?”

That's the calculation that matters.

$2,000 in Rent Is Not the Same as a $2,000 Mortgage Payment

Let's start with something that sounds obvious but gets overlooked all the time.

If your rent is $2,000 per month and a mortgage calculator shows a $2,000 payment, that does not mean owning and renting cost the same amount.

Your rent may include some utilities, maintenance, property taxes and building expenses.

When you own, those responsibilities become yours.

A homeowner may need to account for:

• Mortgage principal and interest

• Property taxes

• Homeowners insurance

• Mortgage insurance, when applicable

• HOA or condo fees, when applicable

• Utilities

• Maintenance and repairs

The Consumer Financial Protection Bureau specifically recommends looking beyond principal and interest when comparing renting with owning because these additional expenses can substantially change the real monthly cost of homeownership.

So no, I don't want to convince you that:

$2,000 rent = $2,000 mortgage.

It doesn't.

I want to know what both actually cost you.

But the Monthly Cost Isn't the Whole Story Either

This is where the conversation gets more interesting.

Let's say renting costs less per month.

That doesn't automatically mean renting is the better financial choice.

And if owning costs less per month, that doesn't automatically mean buying is the better choice either.

Why?

Because we also need to ask:

What are you getting in exchange for the money?

Rent provides something extremely valuable: a place to live.

It can also provide flexibility.

If the water heater breaks, you're probably calling the landlord.

If your job might relocate you next year, a lease may make much more sense than buying a home.

And you aren't taking on the financial risk of owning the property.

Those things have value.

Homeownership offers something different.

Part of your mortgage payment may reduce the principal balance you owe. Over time, that can help you build equity.

If the property appreciates, your equity may grow further, although appreciation is never guaranteed.

And eventually, a homeowner can own an asset outright.

That's why simply comparing two monthly payments doesn't answer the question.

About My “Rent Feels Like Paying 100% Interest” Line

If you've talked to me about buying a home, you may have heard me say:

“Rent feels a lot like paying 100% interest.”

I know that's a provocative way to say it, so let me explain what I mean.

It is not a literal financial calculation. Rent and mortgage interest are not the same thing.

When you pay rent, you're purchasing housing, flexibility and freedom from many of the responsibilities of ownership.

But at the end of your lease, none of those rent payments reduced the balance on an asset you own.

If you paid $2,000 a month for a year, that's $24,000 spent on housing.

You received something valuable, housing for a year, but you don't own part of the apartment because you paid the rent.

With a mortgage, part of the payment can reduce the balance you owe on an asset you own.

That's the distinction I'm trying to make.

When Renting May Be the Smarter Decision

Let's get this out of the way because I don't think enough real estate marketing says it:

Sometimes you should rent.

If you're likely to move again in a year or two, buying may not make sense.

If purchasing would empty your savings account and leave you without emergency reserves, we may need to wait.

If your employment or income is unstable, renting may give you flexibility you need right now.

If the only homes you can afford require a commute or lifestyle you're going to hate, I'd rather help you create a plan than convince you to buy the wrong house.

And if the true cost of owning substantially exceeds renting in your situation, that's something we need to see in the numbers.

CFPB specifically notes that renting may make more sense when employment is unstable or there's a reasonable chance you'll move within the next few years. 

I don't think everyone should buy a house.

I think everyone who wants to own a home should understand whether buying makes sense for them.

So How Do We Actually Compare Renting and Buying?

I like to start with five questions.

1. What Are You Really Paying to Rent?

Not just the number on the lease.

Let's look at:

Rent.

Parking.

Pet rent.

Utilities that aren't included.

Renters insurance.

Amenity fees.

And anticipated rent increases.

Then let's calculate what housing is actually costing you over the next several years.

2. What Would Owning Really Cost?

Now we do the same thing on the ownership side.

We don't just plug a price into a calculator and look at principal and interest.

We estimate the complete monthly housing expense.

3. What Would It Cost to Get Into the Home?

The amount needed to purchase isn't necessarily coming from one giant savings account.

Depending on the buyer and property, we may be looking at some combination of:

• Your savings

• Down payment assistance

• Employer homebuying benefits

• Builder incentives

• Seller contributions

• Gift funds

• Other eligible resources

So before deciding that renting is your only affordable option, let's find out what opportunities might actually be available.

SEE WHAT HOME BUYING OPPORTUNITIES MAY BE AVAILABLE TO YOU →

4. What Could You Actually Buy?

This is where I want to get out of hypothetical numbers.

If we calculate that a certain monthly payment is comfortable, what does that actually buy in Baltimore? Prince George's County? Washington, DC? Northern Virginia? Pennsylvania?

Don't guess.

Look.

SEE HOMES IN YOUR PRICE RANGE →

Opportunity Spotlight: Baltimore

Baltimore is a great example of why a national “rent vs. buy” calculator can only tell you so much.

A calculator doesn't necessarily know that a particular buyer may qualify for local homeownership incentives.

It doesn't know whether an employer might provide homebuying assistance.

It doesn't know whether a seller is willing to contribute toward closing costs.

And it doesn't know the difference between buying a condo with a substantial monthly fee and a rowhome without one.

That's why I want buyers to use calculators as a starting point, not an answer.

For someone renting in Baltimore, the real question isn't:

“Is renting cheaper than buying nationally?”

It's:

“What does renting cost me, what could I realistically buy here, and what opportunities could change my numbers?”

That's a much more useful conversation.

The Part People Forget: Time

There's one more variable that can completely change the answer.

How long are you going to stay?

Buying and selling real estate involves transaction costs.

Homeownership also tends to build equity gradually, particularly in the early years of a mortgage.

If you're buying a home you expect to sell 12 months from now, the math can look very different from buying a home you expect to own for seven, ten or twenty years.

That's one reason I'm reluctant to make blanket statements like:

“Buying is always better than renting.”

It isn't.

Your timeline matters.

What About Appreciation?

This is another place where I want to be careful.

Real estate can appreciate over time.

Historically, homeownership has helped many American households build wealth.

But I am never going to build your entire homebuying strategy around:

“Don't worry; the house will go up in value.”

We don't know that.

Markets change.  Individual properties perform differently.  Your home can increase or decrease in value.  I want the purchase to make sense based on what we reasonably know today.

Potential appreciation is an opportunity.

It isn't a guarantee.

What If Buying Costs More Than Renting?

Then we need to understand how much more and what you're getting for it.

Suppose renting costs $2,000 a month and owning the home you actually want would cost $2,350 after we've accounted for the full payment.

That $350 difference matters.

But so do these questions:

How much of the mortgage payment is reducing principal?  How much might your rent increase over the next several years?  How long do you expect to stay?  Do you value being able to renovate, have pets without landlord restrictions, or create more stability for your family?  Could assistance reduce the upfront cost of buying?  Could a seller contribution change your cash-to-close?

Would that additional $350 make your monthly budget uncomfortable?

There isn't one universal answer.

There's your answer.

Stop Asking Which One Is Cheaper

This is the biggest thing I want you to take away from this article.

Don't ask:

“Is renting cheaper than buying?”

Ask:

“Which option makes more sense for my finances, my lifestyle and my future?”

Those aren't the same question.  

Renting may give you flexibility and lower short-term costs.

Owning may give you stability, control over your home and the opportunity to build equity over time.

Both have costs.  Both have benefits.  And neither is automatically right for everyone.

Let's Run Your Numbers

If you're wondering whether renting or buying makes more sense for you, don't start with a sales pitch.

Start with numbers.

First, use our:

MORTGAGE CALCULATOR →

Then take a look at:

HOMES CURRENTLY FOR SALE →

If the numbers start looking interesting, the next question becomes:

WHAT HOME BUYING ASSISTANCE OR OPPORTUNITIES MIGHT I QUALIFY FOR? →

And if you've run through all of that and you're thinking:

“Okay Jane, I need someone to actually help me put these pieces together.”

LET'S BUILD YOUR HOME BUYING STRATEGY →

Frequently Asked Questions

Is it cheaper to rent or buy a home?

It depends on the property, location, financing, length of ownership and your individual finances. Compare the complete cost of renting with the complete cost of owning rather than comparing rent with only the mortgage principal and interest payment.

Is renting throwing money away?

No. Rent pays for housing and often provides flexibility and freedom from many maintenance responsibilities. However, rent payments generally don't build ownership in the property you're renting.

How long should I live in a home for buying to make sense?

There isn't one number that works for everyone. Transaction costs, market conditions, financing and potential changes in property value all affect the calculation. If you're likely to move again within only a few years, renting may deserve serious consideration.

Should I buy if my mortgage payment would be higher than my rent?

Not necessarily, and not necessarily not. Compare the complete costs and benefits of both choices, determine whether the ownership payment fits comfortably within your budget, and consider how long you expect to remain in the home.