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 calculator.

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 variables.

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 forecast?

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.

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.