Rent vs Buy

Not sure if you should buy or rent your next home? Amplify’s Rent vs. Buy Calculator can help you build out your budget.

If you currently live in an apartment or rental property, you may be wondering when the time will come to buy a house. It can be hard to work out which option ends up being better for you in the long run, which is why we’ve built the Rent vs. Buy Calculator for prospective homebuyers.

This tool will give you an idea of how much money you can expect to save (or lose) when you purchase a home, compared to renting one.

Monthly rent

This is how much you spend on rent each month, not including utilities. If you pay a lease on an annual basis, divide your yearly lease payment by 12 to get the monthly cost.

Annual Rental Insurance

Renter’s insurance is a great way to protect the value of your belongings in the case of fire, theft, or other damage. The average cost for renter’s insurance is around $14, but this can vary by state.

Home Purchase Price

The home price is the total cost of the home that you purchase. This price includes your loan amount and any down payment that you put down.

Down payment

The down payment is the initial payment that a borrower puts up when purchasing a house. Homebuyers will put a percentage of the home’s value down (usually anywhere between 5% to 20%) and borrow the rest from a lender.

Annual property taxes

Annual property taxes are an ad valorem tax, meaning that they are based upon the property’s assessed value. This means that the amount you pay in property taxes is directly related to your home and land value and is calculated as a percentage. In the United States, taxes are levied on the local level by taxing units such as counties, school districts, cities, and special districts.

Monthly HOA Dues

Some neighborhoods require that homeowners belong to the HOA, or homeowner’s association. These are private associations most often formed by real estate developers to manage homes in that subdivision. Membership comes with a fee used to pay for amenities, property maintenance, or repairs.

If you anticipate belonging to an HOA, make sure to add that on top of your monthly payment.

Annual Home Insurance

This one number actually may consist of two amounts: homeowners’ insurance and private mortgage insurance (PMI).

Homeowners’ insurance is a type of insurance policy that covers damage to your home and your belongings. You may also see the phrase “hazard insurance” used; homeowners’ insurance policies include hazard insurance, but typically cover more than the minimum for hazard insurance. Every homeowners’ insurance policy is different, and it’s very important to ask for an accurate quote from multiple insurance providers. Every insurance company covers natural events, theft, and other damage differently and in different amounts. If you have valuables that you’d like to insure, it’s important to understand how those will be covered as well. Quotes are relatively easy to get—just call some of your local insurance agents and describe your future home (or the types of homes you’re looking at).

Private mortgage insurance (PMI) insures the mortgage lender if you foreclose on your home. If you put down less than 20% as a down payment, your lender may require you to carry PMI. It’s a little harder to obtain this quote, as it varies per lender, but it can vary between .5%-2% of the total loan amount.

Loan Term

The loan term is the length of your home mortgage. Mortgages are typically repaid over a 30-year, 20-year, or 15-year period.

Interest Rate

The interest rate, sometimes referred to as the loan rate, is what a lender charges you in exchange for being able to borrow their money. It’s calculated as a percentage of your total loan amount and is added to the principal balance of the loan.

The lender determines your loan rate. It can depend on several factors, including your credit score, home location, home price, loan type, and more.

Years in Home

Adjust this slider to see how savings change depending on the number of years you spend in a house that you buy.

Annual Rent Increase

Unfortunately, rent prices don’t stay the same over decades. Use the annual rent increase slider to estimate how much you anticipate rent going up per year, based on previous rent increases in your home or the area. Rents typically increase by at least the same amount as inflation, if not higher.

Annual Appreciation Rate

Annual appreciation refers to how the value of a property increases over time. In general, values go up simply because real estate is in limited supply, and there is almost always a demand. However, exact appreciation rates are influenced by a combination of factors. Location, neighborhood, home size and usable space, age and condition, and general economic indicators all play a role in your home’s appreciation.

If you aren’t sure of your home’s annual appreciation rate, you can estimate by doing a little research on home values and trends in your area. Home appreciation is typically between 3.5-3.8% annually.

Marginal Tax Rate

This refers to your tax bracket. While not all of your income is taxed at this rate (due to our progressive tax system), this is the rate applied to your “last dollar” of income. Tax brackets can change year-to-year, so make sure you’re applying the tax bracket for the current year.

Pre-Tax Savings Rate

This is the interest rate you receive on your current savings pre-tax—in other words, the rate of return you earn on retirement accounts (like a 401k or 403b).

Annual Inflation Rate

This number is the rate that prices increase or decrease. Inflation changes from year-to-year, but average inflation over the last few decades is around 3%.

Remember One-Time Loan Costs

This calculator doesn’t include the one-time closing costs that come with every mortgage, including things like:

• Loan application fee
• Loan underwriting and origination fees
• Home appraisal
• Title search/insurance fee
• Credit report fee
• Settlement fee
• Mortgage points

Typically, these costs range from 2% to 6% of the loan amount.

More Financial Resources

Whether you’re buying your first home or evaluating other financial moves, you can check out our blog posts for more helpful articles! We want to provide you the kind of financial advice you need to accomplish your goals.