Deciding to Rent or Own Rent vs. Buy Mortgage Calculator

What’s best for you - renting or buying a home?

The majority of Americans in this country own a home, but should you? That’s a question that everyone must ask themselves as they consider their first home purchase. There is no single answer for everyone - it depends on your special situation.

    Financial Impact: The two biggest financial benefits to buying a home are:

  • It’s an investment that historically has increased in value, building wealth for the homeowner. The U.S. average for real estate appreciation from 1963-2006 was 6.3%. (U.S. Census PDF) The chart below shows the positive impact a home can have on net worth.
  • You can save money on your taxes each year because the largest expenses that come with being a homeowner are usually tax deductible*, including property taxes, mortgage interest paid, and other miscellaneous expenses.

Average net worth of homeowners vs. renters

Annual Income Owners Renters
$80,000 and up $451,200 $87,400
$50,000 to $79,999 $194,610 $25,000
$30,000 to $49,999 $126,500 $10,600
$16,000 to $29,999 $112,600 $4,240
Under $16,000 $73,000 $500
Source: VIP Forum, Federal Reserve Board

As you can see from the chart, when you pay rent, it does very little to build your net worth - you are actually helping your landlord build his wealth! In addition, you have no control over rent increases or the whim of a landlord. When you own a home, you have the option of locking in your monthly payment for 15 or 30 years, making it much easier to plan a budget.

However, the truth is that homes can be expensive to own and maintain. You simply may not be able to afford the cost of owning a home: property taxes, homeowner’s insurance, private mortgage insurance (PMI) for those with less than a 20% down payment, and annual maintenance costs and repairs. The bottom line? As a long-term investment, buying a home has proven to improve your financial situation.

Flexibility and Freedom: Both renting and owning give you flexibility and freedom, but in completely different ways. Owning a property gives you the right to make changes to your home, including decorating, landscaping, and remodeling. As a renter, you are very limited in what you can do - after all, it’s not your home! On the flip side, when you rent, it’s easy to move without the worry of selling. You are not tied to a home or a mortgage.

*Please consult with a tax advisor for your specific situation.

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