Should I buy a house or keep renting?
It's a big decision, so here's a little help. Use this calculator to help figure out how buying or renting may affect your budget today, and more importantly, how it may impact your bottom line down the road.
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OR
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WHAT'S YOUR ANNUAL
HOUSEHOLD INCOME?
Before taxes and deductions
How much are you currently
paying per month in rent?
How much are you currently paying per month in rent?
how much would you be
willing to spend on a house?
how much would you be willing to spend on a house?
How much have you saved
for a house so far?
We'll use this information to figure out
your down payment and the
house's closing costs.
How long will you keep the house?
We've captured the basics.
But if you're curious, here are some other
factors that can affect your results.
But if you're curious, here are some other factors that can affect your results.
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INVESTMENT RETURN
If you invested your rent money, this is the average return you could earn every year.
MORTGAGE INTEREST RATE
The interest your lender may charge on your mortgage. Find current mortgage interest rates here.
HOME APPRECIATION
How much you hope your home increases in value every year.
Don't have these numbers on hand? No problem.
The default numbers provided represent reasonable historical return, home appreciation, and interest rate. You can keep them as is, just know that your results may not be as accurate.
Don't have these numbers on hand? No problem. The default numbers provided represent reasonable historical return, home appreciation, and interest rate. You can keep them as is, just know that your results may not be as accurate.
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your results
A lot of calculators out there are designed to help you figure out the monthly costs of buying a home. But we're also concerned with your financial wellbeing down the road. Here's a breakdown of how buying or renting could affect your overall wealth.
SHORT TERM: your costs
These numbers are intended to represent your estimated short-term costs, or how much you might pay per month in rent or mortgage based on the information you just gave us.
These numbers are intended to represent your estimated short-term costs, or how much you might pay per month in rent or mortgage based on the information you just gave us.
ResultSmallHomeIcon
buying
per month
ResultSmallBuildingIcon
renting
per month
LONG TERM: your WEALTH
Short-term costs matter, but it's also important
to take a long-term view and consider your overall wealth. To do this, compare the equity you could potentially build in your home overtime (buying) with the money you could potentially make if you were to invest your savings (renting).
Short-term costs matter, but it's also important to take a long-term view and consider your overall wealth. To do this, compare the equity you could potentially build in your home overtime (buying) with the money you could potentially make if you were to invest your savings (renting).
ResultSmallHomeIcon
buying
total wealth
ResultSmallBuildingIcon
renting
total wealth

The Math, Demystified

To compare your long-term wealth, we simply subtracted your monthly rent payments from your monthly mortgage payments. The difference represents the money you could be saving monthly if you decided to :

Here's what you have saved for the house so far:

Here's the difference in your monthly costs:

DIFFERENCE

As you can see comparing the long-term costs of renting and buying can make a difference in your overall potential wealth in the long run.

Hmm, seems like one of your wealth estimates is very low.

That could be the case if the selected value for one of these inputs is low or even negative - investment return, mortgage interest rate, home appreciation or length of stay. Adjust your numbers to try different scenarios.

Based on the information you just gave us, here is what we've estimated of how much it may cost you to rent versus buy.
monthly costs
RENTING
This includes your rent payment.
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BUYING
This includes mortgage payments, taxes, property insurance,
and Private Mortgage Insurance, if applicable.
This includes mortgage payments, taxes, property insurance, and Private Mortgage Insurance, if applicable.
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your wealth
RENTING
How much your current savings and any other housing costs
you save could be worth if you invested them.
How much your current savings and any other housing costs you save could be worth if you invested them.
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BUYING
The money leftover from selling the home, paying the
remaining loan and all applicable taxes and closing costs.
The money leftover from selling the home, paying the remaining loan and all applicable taxes and closing costs.
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annual tax savings
BUYING
Good news: interest you pay on your mortgage and
property taxes may be tax deductible.
Good news: Interest you pay on your mortgage and property taxes may be tax deductible.
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RENTING
Based on the state that you live in, you may be able to
qualify for tax deductions related to the cost of renting.
Based on the state that you live in, you may be able to qualify for tax deductions to the cost of renting.
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Assumptions and other considerations

Assumptions and other considerations.

This calculator provides a rough comparison between buying and renting, from a financial perspective. Your personal experience may differ from the calculator results due to difference in investment return, home appreciation, interest rates, your credit score, PMI rates and the specific income requirements by the lender, among other inputs and assumptions built into this calculator. Results may vary with each use and over time.

No record of this interaction or its results will be maintained.

The tool estimates, compares and outputs your wealth under two options:

Buying:

Current savings are used to cover down payment and buying costs. The home assumed to be purchased via a down payment and a mortgage (home value minus down payment). The home value grows at the specified constant rate per year and is assumed to be sold at the end of the specified period of stay in the home. When the home is sold, the outstanding loan on the home, all closing costs and taxes are taken out of the selling price and the net home value is calculated.

Housing costs for that scenario include: mortgage payments, property taxes, property insurance, maintenance, PMI payments, minus any tax savings. If housing costs under the "buying" scenario are lower than the monthly costs in the "rent" scenario, each year the difference is assumed to be deposited into a taxable account. The account balance grows with the chosen constant investment return and is taxed correspondingly (see Taxes). At the end of the stay in the home, the account is assumed to be liquidated, all corresponding taxes are paid and the net value is recorded. The reported wealth equals the sum of the net house value and net account value.

Renting:

Current house savings are instead invested in a taxable account. The account balance grows with the chosen constant investment return and is taxed correspondingly. Housing costs for that scenario include: rent payments. The rent grows at the constant rate of inflation of 2%. If housing costs under the "rent" scenario are lower than the monthly costs in the "buy" scenario, each year the difference is assumed to be deposited into the same taxable account and taxed accordingly (see Taxes). At the end of the stay in the home, the account is assumed to be liquidated, all corresponding taxes are paid and the net value is recorded. The reported net wealth equals the net account value.

comparison:

The tool compares the wealth (value of your house or portfolio after selling and paying taxes) under the two scenarios and determines a numerical winner based on the estimated results. If the difference between the two results is less than 10%, the two options are considered equivalent.

This tool uses a set of assumptions for the estimations. All calculations are on an annual basis and all output is rounded.

1. Taxes

Income in the current year is taxed at the marginal federal rate based on 2015 IRS tax brackets assuming "married filing jointly" filing status. All income in subsequent years is taxed at the same rate.

State taxes are assumed to be constant 5% of income.

All investment income (dividends and interest) is taxed at the federal marginal rate.

Realized capital gains from investments and from the sale of the property are taxed at a constant 20% rate.

Property taxes each year are assumed to be 1.15% of the home's market value.

The standard deduction of $12,600 and the home-sale exemption of $500,000 are assumed to increase with inflation

2. Rates

The chosen constant interest rate and loan duration of 30 years are used to calculate the annual mortgage payment using an ordinary annuity formula. The default of 4.25% is based on the quotes from Bankrate.com on July 15th, 2015 for a 30 year loan, assuming 20% down payment and a 740+ credit score.

For both renting and buying scenarios, the difference in initial and monthly cash flows is assumed to be invested in a taxable account and a constant rate of return is applied. 1/6 of the return is assumed to be interest income and 1/3 is assumed to be dividend income. Additional 1/6 of the return is assumed to be in the form of realized capital gains.

The default of 6% is based on the average historical returns of a hypothetical portfolio of 14% U.S. stocks, 6% international stocks, 50% bonds, and 30% short-term investments. The calculations used historical monthly performance from January 1926 through December 2014 from Ibbotson Associates SBBI; stocks are represented by the S&P 500 and MSCI EAFE Indexes from IA SBBI, bonds are represented by the IA SBBI U.S. Intermediate Government Treasury Bond Total Return Index, and short-term investments are represented by the IA SBBI U.S. 30-day T-bills Total Return Index. The tool is for illustrative purposes only and is not indicative of any investment. Past performance is no guarantee of future results.

The market value of the home is assumed to grow at a constant rate annually. The default of 3.8% is based on the 30-year average return of S&P/Case-Shiller U.S. National Home Price Index from January 1985 to December 2014. Appreciation of an individual house may differ widely from an index price. Past performance is no guarantee of future results.

Rent payments are assumed to grow at a constant rate of 2% annually.

Inflation is assumed to be constant at 2% per year.

Income is assumed to grow at a constant 3.5% per year.

3. PMI

Lenders often resell the mortgage to government-sponsored agencies Fannie Mae and Freddie Mac. These loans need to conform to the Fannie Mae and Freddie Mac guidelines. One important requirement is the need to pay for mortgage insurance if the down payment is less than 20% of the home value. While there are different kinds of non-conforming loans like FHA, VA or jumbo loans, we are treating all the loans as conforming loans with only private option (PMI) for mortgage insurance. The maximum loan value constraint is also ignored for simplicity.

The annual amount of Private Mortgage Insurance (PMI) is assumed to be 0.5% of the home value. The PMI amount is considered if the down payment is less than 20%. The PMI payment stops once the home equity reaches 22% of the home's value.

4. Down payment, closing costs

Buying costs are assumed to be 2% of the home value. Selling costs are assumed to be 7% of the home value. The chosen current savings amount is assumed to cover both down payment and buying costs.

5. Maintenance, home insurance

Home insurance is assumed to be 0.35% of the home value per year.

Maintenance and improvement costs are assumed to amount to 0.5% of the home value per year.

6. Costs

Monthly costs for the buying scenario include the monthly mortgage payment, property taxes, home insurance costs and PMI (if applicable). All monthly costs are estimated by dividing the annual costs by twelve. Monthly costs for the renting scenario include rental payment.

First year tax savings are estimated as the federal tax payment difference between: deducting the sum of state taxes, property taxes and interest expense versus using the standard deduction (currently at $12,600, adjusted for inflation in the future).

7. Price-to-rent ratio

This ratio is estimated as: purchase price of the house divided by the annual rent payment. The annual rent payment is equal to twelve times the monthly rents. This ratio is directional in nature and is not the basis for our recommendation. It is provided as supplemental information to the user.

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Here are a few factors that we used to calculate your results.
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Use this simple calculator to estimate how much house you can afford.

Use this simple calculator to estimate how much house you can afford.

The calculator is for illustrative purposes only.
This Website is not intended for individuals under the age of 18.
Fidelity does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Fidelity cannot guarantee that the information herein is accurate, complete, or timely. Fidelity makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.
Investing involves risk, including the risk of loss.
Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917
728411.1.1
The calculator is for illustrative purposes only.
This Website is not intended for individuals under the age of 18.
Fidelity does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Fidelity cannot guarantee that the information herein is accurate, complete, or timely. Fidelity makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.
Investing involves risk, including the risk of loss.
Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917
728411.1.1
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