There are a lot of factors to consider when deciding whether you should rent or buy. For example, if you’ve got a high annual income and low monthly expenses, then it’s probably better for you to buy. On the other hand, if your mortgage is underwritten using FICO’s new credit-score standards and there is no penalty for paying off the loan early, you might be better off renting.
Similarly, you might decide that it is better for your current financial situation to rent. You may simply be too close to the end of six months in which the payments will be equal to the amount of the interest on your mortgage or rent. If this is your case, Air Satellite suggests that renting is probably going to be more advantageous for you than buying.
Your personal circumstances are likely going to have a great deal of influence on the decision that you make about whether you should rent or buy. Similarly, the location where you live has a large effect on what kind of housing would be best for you.
Therefore, it is important to remember that you are the expert on your own financial situation. You need to do the research necessary to determine whether renting or buying would be more advantageous for you. There are a number of free rent or buy calculators available online that help you figure out what’s best for you.
In addition to looking at what kinds of expenses are going to be associated with one option over the other, you also need to consider the tax implications that affect your decision. For example, if renting allows you greater flexibility in how much house you can own, then it may make more sense for you to rent rather than buy.
Rent or buy calculators
In this article, I am going to look at some of the most popular rent or buy calculators available online and compare them to each other to see which one would be best for your particular situation.
If you are interested in learning more about calculating your own monthly rent versus monthly mortgage payments, then you should check out my article with rent vs. mortgage calculators. It explains how to calculate both types of monthly payments and how they affect your overall net worth.
The two calculators that I will be comparing here are the Rent vs. Buy Calculator from Wells Fargo and the IRS’ Buy vs. Rent Calculator. I will break down my comparison using three different scenarios.
Buy vs. Rent Calculator: The Basics:
I recently downloaded the Wells Fargo rent or buy calculator on my iPhone. I decided to compare it to the IRS Buy vs. Rent Calculator. Both of these calculators are very similar. It both provides a rent or buy comparison with their use of an adjustable rate mortgage (ARM). Of course there is one difference between the Wells Fargo rent vs buy calculator. The IRS’ calculator that I am going to discuss here: My personal home loans do not require a fixed-rate loan (FHL). The IRS is assuming that your loan will be fixed and the Wells Fargo calculator is allowing for an ARM.
The two calculators are providing the user with the same type of information. Both calculators require you to enter three pieces of information:
Down payment percentage (down payment divided by purchase price)
Annual Gross Income (or Monthly Gross Income if you prefer)
The IRS provides a link to its own free income tax calculator in which you can complete your annual income and expense report. Then, they use this number along with your loan amount and interest rate. This is to provide space for you to input this information. This has the following budget breakdowns:
The amount of money you spend toward your mortgage payment each month. This number includes principal and interest payments but does not include taxes, insurance, or homeowner association fees. The calculator provides an additional field for you to include these costs if they apply to your situation.
Maintenance and Repair
The amount of money that you need to have available each month for what the IRS calls “maintenance and repair” expenses.
Income taxes and Insurance
These are your income taxes and insurance expenses that are included in this category.
This is the amount of money that you have to spend each month for your personal expenses. You can add individual items here if you want to “roll” them into your total budget.
If you are in a FHL situation, then these costs will no longer be included in your calculations. Instead, the calculator provides two additional budget lines: Mortgage-Related Expenses and Total Monthly Housing Cost. The calculator provides a total monthly housing cost amount. And then it subtracts your monthly housing expense amount from that total to give you an estimate of how much money will be available for other expenses each month.
One of the biggest problems with this calculator is how it treats income taxes. It asks you for your monthly gross income. It then provides you with a budget for all of your expenses combined. This may work for certain areas of the country. But it certainly does not work if you are in a high tax bracket state like California.
For example, all of your mortgage interest is going to be included in the Additional Tax Expenses box on the budget worksheet. This means that although you are deducting as an expense on your taxes the amount of interest that you pay each year on your mortgage. It has already been deducted from each paycheck that you earn throughout the year.