Should I rent or buy this house?

People type this into search every day: rent vs buy calculator.

The usual answer is “buy if you will stay five years.” That line is a shortcut for transaction costs. It is not a verdict on your listing.

The rent vs buy calculator compares the rent you would pay with a simplified ownership cost over the years you enter. It does not guess the future sale price. Appreciation is left out on purpose.

If the house price rises, buying looks better than this page. If it falls, buying looks worse. Start with the costs you can write down.

What the calculator adds up

Ownership cost in the tool is:

mortgage interest + 2% of price per year + 8% of price

The 2% is a stand-in for tax, insurance, and maintenance. The 8% is a stand-in for buying and selling costs combined. The assumptions on the calculator page say both of those things in one line.

Rent cost is simpler:

monthly rent × years × 12

The published result is whichever side costs less, and by how much. Principal you repay is listed as a detail. It is not subtracted from ownership cost. That principal is still your money if the price holds. It is not a bill that vanished.

The CFPB’s closing costs note lists appraisal, title insurance, taxes, and prepaid items as the usual closing fees. Their Closing Disclosure explainer calls those upfront costs “settlement costs” and separates them from cash to close. The 8% bucket is a planning stand-in for that whole round trip, buy plus later sale. Your Loan Estimate will not print 8%. It will print line items.

The default five-year case

Here are the calculator defaults:

• monthly rent: $2,200
• home price: $420,000
• down payment: 20%
• mortgage rate: 6.25%
• comparison period: 5 years

Down payment: 420000 × 0.20 = $84,000

Loan amount: 420000 − 84000 = $336,000

That loan is the same one in how a mortgage payment is calculated. Monthly principal and interest: $2,068.81.

Five years is 60 months.

Rent paid: 2200 × 60 = $132,000.00

Estimated ownership cost: $177,341.72

Estimated cost difference: $45,341.72

Principal repaid after 60 months: $22,386.87

The published result is Renting, by $45,341.72.

This is a labeled example, not a forecast for one street.

If you net the $22,386.87 of principal out of the ownership cost, you still have $154,954.85 against $132,000 of rent. Renting still costs less in this model. The gap shrinks. It does not flip.

Where the $177,342 comes from

The ownership total is three pieces stacked.

Interest over 60 months: 177341.72 − (420000 × 0.02 × 5) − (420000 × 0.08) = $101,741.72

Carrying cost at 2% a year: 420000 × 0.02 × 5 = $42,000.00

Round-trip transaction cost at 8%: 420000 × 0.08 = $33,600.00

The $33,600 is why a short stay is expensive. You pay most of those transaction costs whether you stay one year or ten. The 2% carrying cost and the interest grow with time. The 8% does not.

One year, three years, ten years

Keep rent at $2,200, the price at $420,000, the 20% down, and 6.25%. Change only the years.

1 year. Rent paid: $26,400.00. Ownership: $62,888.48. Renting is $36,488.48 less. Principal repaid: $3,937.23.

3 years. Rent paid: $79,200.00. Ownership: $120,689.41. Renting is $41,489.41 less. Principal repaid: $12,587.74.

7 years. Rent paid: $184,800.00. Ownership: $232,692.89. Renting is $47,892.89 less. Principal repaid: $33,487.13.

10 years. Rent paid: $264,000.00. Ownership: $312,895.89. Renting is $48,895.89 less. Principal repaid: $52,961.28.

In this default rent, buying never catches up. The house would have to do work the model refuses to do: rise in price, or beat a much higher rent.

That is the point of excluding appreciation. You can see the cost gap before you argue about the market.

When buying wins in this model

Raise only the rent. Keep the $420,000 house, 20% down, 6.25%, and five years.

$2,800 rent. Rent paid: $168,000.00. Ownership stays $177,341.72. Renting is still $9,341.72 less.

$3,000 rent. Rent paid: $180,000.00. Buying is $2,658.28 less.

$3,200 rent. Rent paid: $192,000.00. Buying is $14,658.28 less.

At $3,000 a month, the same house finally costs less to own over five years in this formula. That $3,000 is $800 above the $2,200 default. It is also above the rent affordability default on a $4,200 take-home month. I would run both tools before I treated $3,000 as a serious rent.

Stay ten years at $3,000 a month and buying is $47,104.11 less. Rent paid: $360,000.00. Ownership: $312,895.89. Principal repaid: $52,961.28.

The crossover is a rent-and-horizon pair, not a personality type.

A smaller down payment makes buying look worse here

The model uses the down payment only to size the loan. A smaller down payment means a larger balance, more interest, and a higher ownership cost. It does not add mortgage insurance as a separate line.

5% down on $420,000 is $21,000 down and $399,000 borrowed. Five-year ownership: $196,418.29. Rent is still $132,000. Renting is $64,418.29 less. Principal repaid: $26,584.41.

10% down is $42,000 down and $378,000 borrowed. Ownership: $190,059.43. Renting is $58,059.43 less.

The 20% default was the cheapest of those three buying paths, and it still lost to $2,200 rent.

The CFPB’s Closing Disclosure explainer says mortgage insurance is typically required if the down payment is under 20%. That extra monthly cost is not inside the 2% carrying bucket unless you raise the 2%. A 5% down comparison in this tool is already missing a real line. Treat it as too kind to buying.

The rate on the Loan Estimate moves the gap

Freddie Mac’s Primary Mortgage Market Survey for the week of October 8, 2026 puts the 30-year fixed average at 7.40%. That is a national average from purchase applications, not your quote.

Put 7.40% on the default $336,000 loan and the mortgage payment becomes $2,326.40. Over the full 30 years, total interest is $501,502.61.

In the rent vs buy tool, same house, 20% down, $2,200 rent, five years, 7.40% instead of 6.25%:

Ownership: $196,781.00

Renting is $64,781.00 less.

A higher rate does not change the 8% transaction bucket. It changes the interest piece. That is why a week of rate news can move this comparison more than a $50 change in rent.

Cash to close is a different question

The five-year comparison asks which path spends more over time. It does not ask how much cash you need next month.

The home purchase cash to close calculator uses:

down payment + closing costs + prepaid items − credits

Defaults:

• price: $420,000
• down payment: 20%
• closing costs: 3%
• prepaid tax and insurance: $4,500
• credits or deposit already paid: $5,000

Down payment: $84,000.00

Closing costs: $12,600.00

Prepaids less credits: −$500.00

Estimated cash to close: $96,100.00

The 3% closing field is only the purchase closing, not the later sale. That is why it is smaller than the 8% round-trip number in the rent vs buy tool.

At 5% down, cash to close on the same defaults is $33,100.00. The monthly comparison got worse. The cash hurdle got smaller. Those two results can point at opposite decisions. Write both down.

CFPB says cash to close is the amount you bring to the table, usually by cashier’s check or wire, and it should match the Closing Disclosure. If it does not match the Loan Estimate, ask why.

Rent can rise. The model does not raise it.

The calculator holds the rent you typed. Five years of $2,200 is $132,000 only if the lease never moves.

If you expect rent to rise, run a second case with the higher rent you actually believe. I would not invent a growth rate. Use the renewal you were just offered, or last year’s increase on this building.

A $2,200 rent that becomes $2,400 in year 3 is not in this formula. The honest move is to enter $2,400 as a separate scenario and see whether the winner flips.

The rent affordability calculator answers a different question: what rent you can carry after debts, essentials, and saving. Its conservative result on the site defaults is $1,260. That post is how much rent can I afford. A house that “wins” against $3,000 rent still fails if $3,000 does not fit the month.

Debt-to-income is the lender’s version of the same month

Gross monthly income of $6,500, a $1,800 housing payment, and $650 of other debt is a 37.7% DTI in the debt-to-income calculator. Swap in the $2,068.81 mortgage payment from the defaults and DTI becomes 41.8%. At the 7.40% payment of $2,326.40 it is 45.8%.

That is what is a good debt-to-income ratio. Lenders look at gross pay. The rent affordability tool looks at take-home pay. Run both. A house can be cheaper than rent over five years and still be a payment the underwriter or the grocery week cannot carry.

What I would type in

Open the rent vs buy calculator with the rent you actually pay or were offered, the list price, the down payment you can write a check for, and the rate on the Loan Estimate. Set years to the stay you would not be shocked to repeat.

Then open cash to close with the same price and down payment. If the cash number empties the emergency fund, the five-year winner does not matter this year.

Treat a flip toward buying as a prompt to look at the Loan Estimate, not as a reason to skip it.