What is the 5-year rule for buying a house?

A rule of thumb that you should plan to own for at least five years before buying. That's the typical time needed for appreciation and principal paydown to overcome the transaction costs of buying and selling.

Does this calculator include the mortgage interest tax deduction?

No. Since the standard deduction roughly doubled in 2018, most homeowners no longer itemize, so the mortgage interest deduction provides little or no extra benefit for a typical buyer. Itemizers in high-cost, high-tax areas may see a modest additional advantage to owning that isn't captured in this model.

What is the price-to-rent ratio, and how do I use it?

It's the home price divided by the annual rent for a comparable property. Below about 15, buying tends to be favorable; above about 20, renting often wins financially even over longer stays. It's a quick screening tool, not a replacement for running your own numbers with your actual time horizon.

Rent vs. Buy Calculator

Q: Is it cheaper to rent or buy?

It depends mostly on how long you stay. Buying carries large one-time costs (closing and selling costs of roughly 8-10% of the home's value combined), which need years of equity growth and rent savings to recoup. Short stays usually favor renting; stays beyond about 5 years increasingly favor buying, depending on local prices and rates.

Q: What costs does buying include beyond the mortgage?

Property taxes (commonly around 1% of value per year), homeowners insurance, maintenance (about 1% of value per year), PMI if under 20% down, closing costs when you buy, and agent commissions and fees of roughly 6-8% when you sell.

The honest comparison: total cost of renting vs. total net cost of owning — appreciation, maintenance, and transaction costs included — over the years you actually plan to stay.

Written by the Calculator Index team · Last reviewed September 2026

Over your time horizon

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Total cost of renting

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Net cost of owning

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Equity when you sell

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Home value at sale

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How this comparison works

Renting's cost is simple: rent, rising each year. Owning's net cost is everything you pay, minus what you get back when you sell:

Net owning cost = down payment + closing costs + mortgage payments + tax/insurance/maintenance − sale proceeds after selling costs and loan payoff

The model assumes a 30-year fixed loan, 3% buyer closing costs, 7% selling costs, and the appreciation and cost rates you enter. It ignores tax deductions and investment returns on the renter's saved down payment — two effects that partially offset each other.

Worked example

Rent $1,800/mo (rising 3%/yr) vs. buying a $350,000 home, 10% down, 6.5%, staying 7 years, 3.5%/yr appreciation:

Renting for 7 years costs about $165,000. Owning costs more in cash outlays, but you leave with equity — after selling costs, the net cost of owning comes out lower over 7 years in this scenario. Shorten the stay to 3 years and renting wins: the ~$35,000 of combined buying and selling costs hasn't been recouped yet.

Worked example — the same numbers, but staying only 3 years

Same $1,800 rent, $350,000 home, 10% down, 6.5% rate, 3.5%/yr appreciation — just a 3-year stay instead of 7:

Renting for 3 years costs about $66,800 (rent rising 3%/yr). Buying costs roughly $117,200 in cash outlays (down payment, closing, payments, taxes/insurance/maintenance) over the same period; after selling at an appreciated ≈$388,000 and paying off the remaining ≈$303,700 loan balance minus 7% selling costs, net proceeds are only about $57,100 — leaving a net owning cost near $87,700. Renting comes out roughly $21,000 cheaper at this shorter horizon, because the ~$45,500 of upfront buying costs plus ~7% selling costs haven't had enough time to be offset by equity growth.

Price-to-rent ratio quick guide

Price ÷ annual rent	What it usually means
Under 15	Buying is often financially favorable
15–20	Depends heavily on time horizon, rate, and appreciation
Above 20	Renting is often favorable, even for longer stays

The examples above use a ratio of $350,000 ÷ $21,600/yr rent ≈ 16.2 — squarely in the "depends on time horizon" range, which is exactly why the same market flips from renting-wins at 3 years to buying-wins at 7 years.

Common rent-vs-buy mistakes

Comparing only the monthly payment, not the total cost. A mortgage payment near your current rent looks appealing, but ignores closing costs, maintenance, and selling costs down the line.
Assuming appreciation always bails out a short stay. As the 3-year example shows, transaction costs alone can outweigh a few years of typical appreciation.
Forgetting the mortgage interest deduction rarely applies anymore. Most buyers take the standard deduction post-2018, so the "tax benefits of owning" argument is weaker than it used to be for a typical household.

What actually decides it

Three variables dominate: how long you stay (transaction costs amortize over more years), the price-to-rent ratio in your market (price ÷ annual rent — above ~20, renting often wins financially), and appreciation vs. your alternative returns. Run pessimistic appreciation (1–2%) before deciding; a result that only works at 5%/yr appreciation is a bet, not a plan. And confirm the purchase fits your budget first with the affordability calculator and mortgage calculator.

Frequently asked questions

Is it cheaper to rent or buy?

Mostly a function of time. Combined buy/sell transaction costs run ~8–10% of home value, needing years to recoup. Short stays favor renting; 5+ year stays increasingly favor buying.

What costs does buying include beyond the mortgage?

Property taxes, insurance, ~1%/yr maintenance, PMI under 20% down, closing costs at purchase, and ~6–8% selling costs at exit.

What is the 5-year rule?

Plan to own at least five years — the typical time for equity growth to overcome transaction costs.

Does this include the mortgage interest tax deduction?

No — since most buyers take the standard deduction post-2018, it usually adds little benefit. High-tax itemizers may see a modest edge not modeled here.

What is the price-to-rent ratio?

Home price ÷ annual rent. Under 15 tends to favor buying; above 20 tends to favor renting, even for longer stays.

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Note: A simplified model with your assumptions; excludes income-tax effects and renter investment returns. Real outcomes depend on local markets. Not financial advice. Last reviewed: September 2026.