rent vs. buy calculator from Cleveland Fed

I have not tried it, but the description on the site seems reasonable.
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Knowing whether buying a home is a better financial move for a family
than renting requires a consideration of costs and options that people
often neglect to factor in. One aspect of the calculation that is
almost always overlooked is uncertainty?the fact that no matter how
good one?s estimates of the future are, the future can turn out
differently than projected. Incorporating uncertainty into the rent-or-
buy calculation gives potential homebuyers information that can
improve their decisions. While incorporating uncertainty is
complicated, it?s made easier with the Cleveland Fed?s online
Buying a home is the largest and most complex financial decision an
average family will make in its lifetime. Even with the recent decline
in home prices, the share of net worth that a typical U.S. household
invests in its home equity?12 percent?is sizeable. Such a large
investment requires careful consideration.
What makes the decision complex is the large number of variables that
must be taken into account. Of course when buying a home there are
choices to make on location, nearby amenities, school systems, and so
on, but the financial decision itself involves a host of other
While the basic questions might seem simple??how much can I afford??
and ?will the home be worth more than I paid for it when I sell it???
the answers depend partly on other choices being made. Do you go for a
15-year mortgage or a 30-year? Do you choose a fixed rate or an
adjustable rate? The answers also depend on conditions outside of a
homeowner?s control. If you choose an adjustable rate, for example,
what is the likely future path of your rate? Will you be able to
handle it in 5 or 10 years? How much is the home you might buy likely
to appreciate? How will the economy be doing in 5, 10, or 20 years?
So the decision process around buying a home requires making some good
guesses about the future. And while most people can come up with
guesses for all of these questions, taking the forecasting process one
step further could help them improve their results. Even the most
sophisticated forecasts can diverge in the end from what actually
happens. By taking that uncertainty into account, homebuyers can see
what outcomes their choices might lead to if conditions turn out
differently than they expect. For example, what would the impact on a
family?s wealth be if the actual appreciation rate of their home is
lower or higher than anticipated? What would their mortgage payments
be if their adjustable rate happens to be lower or higher than the
Our goal in this Commentary is to show how this uncertainty can affect
the decision to buy a home. We describe the ways in which some
important factors influence the possible financial outcomes of owning
a home, and we introduce a tool for working through the decision.
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I always asked people who are considering their first home mortgage, how badly would you be screwed if five years from now your house was worth 20% less than the purchase price, and you had to sell. If you can deal with that possibility, then go to step 2, can you afford the payments, taxes, insurance and maintenance.
For many buyers the answer to the first question is strangely simple. We have very nearly nothing now, so if we are busted by a house price crash, we will have nothing then. We are renters now and we will be renters then. If you allow people to put down practically nothing, most of the potential losses are transferred to the bank.
Even in the last six months, with the supposedly strict lending standards I know people who have bought for 5% down. It's privatization of gains, socialization of losses on a micro scale.
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