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Homebuyer's Fair Rent vs. Buy Calculator
Instructions
The purpose of this calculator is to allow you to see how the financial
advantages of buying a home depend on the relationship of rents to prices and
the outlook for home price appreciation in your area.
Mortgage Rate
This is the interest rate on a mortgage with zero points. Because the starting rates
on ARMs are unrealistically low, it is recommended that you use a
fixed-rate mortgage rate for this calculation.
tax bracket
This is your marginal tax bracket. It should be the sum of your marginal tax rate on
Federal income tax and on state income tax. One complication is that
if you take on a big mortgage, your taxable income may fall and this
could reduce your marginal tax bracket. If your current income is only slightly above
the level needed to put it into the highest tax bracket, you might want to
use a lower tax bracket here to get a more realistic estimate.
Property Tax Rate
Input the property tax rate for your jurisdiction.
Expected Appreciation
This is a critical assumption, and it requires a forecast. At what rate
do you think that prices and rents will increase in your area for the
next several years? In the late 1980's, people in California thought prices
would go up 10 percent a year forever. Now, they seem to think that prices
will decline forever. The most reasonable guess nationwide is that prices will go
up with the general rate of inflation, about 2 percent per year. However,
local supply/demand conditions tend to be more important than national averages in
determining home prices.
rent, price
The rent is the monthly rent and the price is a selling price on comparable
residences. It is more important that they be comparable to one another than
that they be comparable to the place in which you live or are thinking of living.
Do not compare the 2-bedroom apartment you are in now with a 4-bedroom detached
home that you might buy. Instead, find a condominium complex where you can find
the rental rate and selling price of similar units. Or look in the classified section of
a newspaper for rental rates and asking prices of similar houses in a
neighborhood.
NOTE: Do not include any dollar signs or commas.
There are no edits in the program to take them out.
condo fee
If you are comparing renting an apartment with buying a condo, make sure to
include the monthly condo fee.
years
This is the number of years you expect to remain in the house. This
is important, because whenever you move you incur costs, including
fees to real estate brokers. The longer you plan to stay in a house, the
more likely it is that staying will be advantageous financially.
Results
Next, you click on "compute" and in the box you will see an evaluation
of whether or not it is advantageous financially to buy a home. To
see how the results change depending on the inputs, try putting in different
numbers, particularly for expected appreciation.
The answers are on a scale that ranges from "stongly advise buying" to "strongly
advise renting." For an article that describes a slightly different approach that uses the same basic
principles, see rent vs. buy.
Note: This
calculator does not tell you anything about what you can afford. It does not
tell you anything about mortgage loan qualification. It is purely a financial
rent vs. buy analysis.
Scroll back up to use the calculator.
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