Is it cheaper to rent or buy this year?
A five-year cost check: annual rent versus purchase price, closing costs, and what you give up by tying cash in a down payment.
If yearly rent is under 5% of the home price, renting is often cheaper in the first five years after closing costs — about $1,667 a month on a $400,000 home.
Cheaper in year one is not cheaper in year ten
Buying looks expensive on day one because of the down payment and closing costs. Renting looks expensive in year ten if rent rises and you still have no equity. The question is it cheaper to rent or buy only has an answer once you pick a time window.
Use five years unless you already know you will stay longer. Most people who “buy to save” move before the closing costs are spread thin.
The 5% check you can do in a minute
If yearly rent is under 5% of the home price, renting is often cheaper in the first five years after closing costs — about $1,667 a month on a $400,000 home. That is a screen, not a verdict. A 7% mortgage and 2% property tax can wipe a “cheap” purchase even when rent looks high.
Put your rent, the asking price, the rate from a best mortgage calculator, and a stay length into the rent vs buy calculator. Then look at the cash you would otherwise invest — the opportunity cost of a large down payment.
When buying still wins
Buying wins when you will stay, the rate is fixed, and you were going to save the down payment anyway. It also wins if rent is already above the 5% line and landlords in your zip code raise every year.
If the calculator says renting is cheaper and you still want to buy, you are paying for stability, not for a bargain. That can be rational. It is not the same as “buying is always cheaper.” For the rest of the offer checklist, use best calculators before you buy a house.
Frequently asked questions
Is it cheaper to rent or buy a house right now?
It depends on rent, price, rate, how long you stay, and closing costs. If yearly rent is under about 5% of the purchase price, renting often wins the first five years.
What is the 5% rent vs buy rule?
Compare annual rent to 5% of the home’s price. On a $400,000 home, 5% is $20,000 a year, or about $1,667 a month. Below that, renting is often the cheaper cash cost early on.
Is it cheaper to rent or buy this year? is part of the Finance cluster on Qalculators. Use the related tools below to run the numbers instead of estimating by hand.
Results depend on the values you enter. Treat them as planning estimates and confirm important decisions with a professional when needed.