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.

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.

Over your time horizon

—

Total cost of renting

—

Net cost of owning

—

Equity when you sell

—

Home value at sale

—

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.

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.

Related calculators

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: July 2026.