rent buy calculator
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How to use Credit Karma’s rent vs. buy calculator
Our rent vs. buy calculator can help you decide whether it’s more affordable to rent or buy a home. It can help you figure out which option may make the most financial sense for your situation. Of course, it’s important to keep in mind that the answer this calculator gives you is based on the information you provide.
The list below is the information you’ll need to include in the calculation to determine if it’s better for you to rent or buy.
- Gross annual income
- Tax filing status
- General inflation rate
- Investment rate of return
- Utilities (monthly)
- How long do you plan to live there?
- Desired home price
- Down payment
- Loan amount
- Estimated interest rate
- Loan term
- Estimated credit score range
- Property tax
- Homeowners insurance (monthly)
- HOA fees (monthly)
- Income tax rate
- Estimated maintenance/renovations (monthly)
- Buying closing costs
- Selling closing costs
- Home value appreciation
- Capital gains exclusion
- Desired monthly rent
- Rent security deposit
- Renters insurance amount (monthly)
- Broker’s fee (if applicable)
- Rent appreciation (if applicable)
Gross annual income
Your gross annual income is your total income before any taxes or deductions are taken out. If you’re considering buying a home with someone else, make sure you include their income too.
Tax filing status
Select your federal income tax filing status as single, head of household, married filing jointly, married filing separately or as a qualifying widow(er).
General inflation rate
This is a percentage that represents future annual inflation. Inflation is the increase of the cost of goods and services over time. The U.S. Bureau of Statistics’ inflation calculator can give you an idea of general inflation by comparing the past and present buying power of a specific sum of money. The average annual inflation rate each year from 2012 to 2020 was between 1.7% and 2.2%.
Investment rate of return
The investment rate of return is a percentage that shows the profit or loss from an investment. Remember that buying a home is a form of investing. But in this case the investment rate of return represents what you might have earned from your down payment funds if you’d invested them instead of using them as the down payment.
Utilities (monthly)
This represents how much you’d pay every month for essential utilities if you buy a home. Utilities may include electricity, heating and cooling, water, sewer, gas and internet. You may need to speak to a utility provider and real estate agent to get this number.
How long do you plan to live there?
This is how many years you intend to stay at a property if you buy it. Depending on your long-term goals, your input may be anywhere from a few years to decades. Are you planning to sell the home long before the loan is paid off? Do you anticipate life changes like starting a family or career relocations that might make your stay in the home more temporary? Renting may be a better option to consider, depending on circumstances.
Desired home price
Desired home price is how much money you expect to spend on a home. If you don’t have a specific home in mind, check out the prices of homes you may like in neighborhoods that interest you.
Down payment
The down payment is the amount of a home’s purchase price you’ll pay upfront. While putting down 20% comes with many benefits, there are mortgages that allow for lower down payments. Remember, the less you put down, the more you’ll typically pay for your home in the long run.
Loan amount
This is how much money you’ll borrow to buy a home. It’s your home price minus your down payment.
Estimated interest rate
The estimated interest rate is how much you might pay to borrow money for a home. Factors like your credit score, home price, loan type and down payment will all play a role in the rate you receive.
Loan term
Also known as the term, the life of the loan is how long you have to pay off your mortgage. Loan terms are typically 15 years or 30 years. Generally speaking, the longer the loan term, the more it’ll cost you in interest.
Estimated credit score range
You can use the scores listed in your credit reports from consumer credit bureaus, which include Equifax, Experian and TransUnion.
Property tax
If you buy a home, you’ll be on the hook for property taxes. These taxes will be based on the value of your property and may change over time. You can contact your local tax office to find out about property taxes in the area you’d like to buy a home.
Homeowners insurance (monthly)
Most lenders require homeowners insurance if you take out a mortgage. It can protect against any covered property damage or losses during an unexpected event — like a fire or burglary — listed in your insurance policy. The exact coverages will depend on your policy.
HOA fees (monthly)
Homeowners association fees are payments you may be required to make if you buy a home in a neighborhood with an HOA. These aren’t usually included in your mortgage payment and can range from a couple of hundred dollars a month to thousands of dollars per month. You can get an idea about these fees by contacting the HOA directly.
Income tax rate
Your marginal income tax rate, which is determined by the highest tax bracket that applies to your income, is the amount of additional tax paid for each additional dollar that you earned as income. You can find information on marginal rates for tax year 2022 at the IRS website. It’s a good idea to review last year’s tax returns to see which bracket applied to you.
Estimated maintenance/renovations (monthly)
When you buy a home, you’re responsible for maintaining and renovating it. This is how much you plan to spend a month on doing so.
Buying closing costs
Closing costs are the fees you’ll have to pay when you close on your home loan as a buyer. These are expressed as a percentage of your mortgage and may include appraisal fees, title insurance and taxes. Homebuyers will typically pay between 2% and 5% of the purchase price of their home in closing fees.
Selling closing costs
If you own a home that you plan to sell, you may need to cover some of the closing costs. Closing costs typically include taxes, appraisal fees as well as real estate commissions to the buyer’s agent and to your agent. Buyers and sellers can negotiate who pays certain closing costs, but the seller’s closing cost contribution is typically between 3% and 6% of the sale price.
Home value appreciation
Home value appreciation is the increase in the value of a home over time, expressed as a percentage. The housing market, age of the home, location and any improvements you make may affect your appreciation rate. You can determine the appreciation of a specific housing market by using the Federal Housing Finance Agency’s House Price Index Calculator.
Capital gains exclusion
If you sell your home, you may not have to pay capital gains taxes on up to $250,000 of that gain if you’re single and up to $500,000 of that gain if you’re married filing jointly. Tax laws are subject to change, so consult a tax professional or the IRS for the most current guidance.
Desired monthly rent
This is how much you’d pay every month to rent a home instead of buy.
Rent security deposit
A security deposit is what you pay a landlord one time when you rent a property. As long as there’s no damage and you don’t move out before your lease ends, you’re likely to get your deposit back when you move out.
Renters insurance amount (monthly)
Renters insurance is what you pay every month to protect your belongings in the event of theft, damage caused by others or a natural disaster. It typically costs $350 a year for a $50,000 policy, according to the U.S. Department of Housing and Urban Development.
Broker’s fee (if applicable)
If you use a broker to help you find a property to rent, you may be responsible for a broker’s fee. The broker should tell you how much they’ll charge you upfront.
Rent appreciation (if applicable)
Rent appreciation is the increase in a property’s rent over time. You may experience it if market rates, property taxes, and/or insurance premiums go up. If you live in an area with rent control, there may be restrictions on how much rent can increase every year.
Is it better to rent or to buy?
Your specific circumstances and preferences will determine whether you’d be better off as a renter or homebuyer. If you’d like the freedom to renovate or decorate a home and truly make it your own, buying may be a good option, as long as you don’t mind being responsible for maintenance and repairs.
It might also be smart to own a home if you have a family and would like some sense of stability. You and other family members like your spouse and children can be a part of a community and develop long-term friendships and connections.
But if you prefer that someone else be responsible for home repairs and that you can move more easily, renting is likely the way to go. This may be particularly true if you lead a busy lifestyle or are a single homebuyer who has the freedom and desire to hop around from place to place.
Is it cheaper to rent or buy?
Your finances will help you decide whether you’ll save more money renting or buying. If you don’t have the best credit scores, you may want to rent until you improve them and are likely to qualify for a lower interest rate on a mortgage. A lower interest rate can save you thousands of dollars over the life of your loan.
You’ll also want to consider your budget and how much money you have to allocate toward housing every month. If you buy a home, you may have more upfront costs because you’ll have to pay for a down payment and closing costs as well as things like home improvements, furniture and utility hookups. It may make more sense to rent until you’ve saved up enough for all of them.
Additionally, if you plan to stay in a home for a long period of time, buying may allow you to build equity. The longer you remain in the home, the more of your mortgage payment will go toward your principal. If you move within the first few years of owning your home, you may have no equity or even less equity than what you started with.