Rent or buy with 0 down
"Whether or not you choose to buy is a complicated question.  I will answer as ""what you should consider/think about"" as I don't think ""What should I do"" is on topic. First off, renting tends to look expensive compared to mortgages until you factor in the other costs that are included in your rent. Property taxes.  These are a few grand a year even in the worst areas, and tend to be more.  Find out what the taxes are ahead of time.  Even though you can often deduct them (and your interest), you're giving up your standard deduction to do so - and with the low interest regime currently, unless your taxes are high you may not end up being better off deducting them. Home insurance. This depends on home and area, but is at least hundreds of dollars per year, and could easily run a thousand.  So another hundred a month on your bill (and it's more than renter's insurance by quite a lot). Upkeep costs for the property.  You've got a lot of up-front costs (buy a lawnmower, etc. types of things) plus a lot of ongoing costs (general repair, plumbing breaks, electrical breaks, whatnot).   Sales commission, as Scott notes in comments.  When you sell, you're paying about 6% commission; so you won't be above water, if housing prices stay flat, until you've paid off 6% of your loan value (plus closing costs, another couple of percent).  You hit the 90% point on a 15 year about year 2, but on a 30 year you don't hit it until about year 5, so you might not be above water when you want to sell. Risk of decrease in value. Whenever you buy property, you take on the risk of losing value as well as the potential of gaining value.  Don't assume that because prices are going up they will continue to; remember that a lot of investors are well aware of possible profits from rising prices and will be buying (and driving prices up) themselves.  2008 was a shock to a lot of people, even in areas where it seemed like prices should've still gone up; you never know what's going to happen.  If you buy a house for 20% or so down, you have a bit of a safety net (if it drops 10-20% in value, you're still above water, though you do of course lose money), while if you buy it for 0% down and it drops 20% in value, you won't be able to sell (at all) for years. All that together means you should really take a hard look at the costs and benefits, make a realistic calculation including all actual costs, and then make a decision. I would not buy simply because it seems like a good idea to not pay rent.  If you're unable to make any down payment, then you're also unable to deal with the risks in home ownership - not just decrease in value, but when your pipe bursts and ruins your basement, or when the roof needs a replacement because a tree falls on it.  Yes, home insurance helps, but not always, and the deductible will still get you. Just to have some numbers: For my area, we pay about $8000 a year in property taxes on a $280k house ($200k mortgage), $1k a year in home insurance, so our escrow payment is about $750 a month.  A 15 year for $200k is about $1400 a month, so $2200 or so total cost.  We do live in a high property tax area, so someone in lower tax regimes would pay less - say 1800-1900 - but not that cheap.  A 30 year would save you 500 or so a month, but you're still not all that much lower than rent." In the situation you describe, I would strongly consider purchasing.  Before purchasing, I would do the following: Think about your goals. Work with good people. Set a budget. Be able to handle surprises. If buying a home makes sense, you can do the following after buying:
"In Orange County (southern California), one agent has blogged pretty extensively about using rental parity to determine when it is time to rent or buy. Rental parity is achieved when the cost of renting is equal to the cost of owning; in theory, if you buy when a home is selling above rental parity, you're overpaying, and you'd be better off renting. He has many posts on the subject; a few you might care to read would be this one, and this other one. You might get a better sense of how to calculate rental parity by looking at an example or two. There is also the NY Times calculator mentioned in other responses, and the Patrick.net calculator. Be aware, the calculators are garbage in, garbage out. In other words, you have to consider the input carefully. In particular, I found the defaults on the Patrick.net calculator were not realistic. So far as I am aware, the agent at OCHousingNews does not make his calculations public (though I have never actually asked). He's using a spreadsheet which I have never seen. That is another option, if you care to do this kind of analysis yourself. Search around, you can find a spreadsheet that someone has posted here and there. But keeping something like that updated is not trivial. In my experience, in practice, it's difficult to be totally rational and mathematical when it comes to many decisions, and as other respondents have noted, where you live is one of those decisions. Too, saying ""buy when rental parity is achieved"" is sort of like saying ""buy low, sell high,"" as though it were perfectly clear when stocks are at a bottom and/or a peak. In our case, we bought a house about 12 years ago, before rental parity was being discussed in the blogsphere. Looking back, we supposedly bought at the wrong time, according to that agent's rating system, but it turned out fine for us. Our house has appreciated, whereas the S&P 500 is basically where it was 12 years ago. Had we been thinking in terms of rental parity, we might not have bought at that time. Of course, your mileage may vary, and hindsight is always 20/20. I think the most helpful advice I can offer was something I got from a real estate agent around the time we were looking. He told me ""when you're looking at houses, be sure you like the floor plan and the location, because those two things are not easily changed."" That advice really helped us to see things more clearly." "It depends on the deal: and you didn't give any details. That said, there are some things that stand out regardless, and some more specific answers to your questions. First, Mortgage rates (at the bank) are absurdly low right now. Like 4%-5%; less than 4% for excellent credit. You say your credit is ok, so unless your landlord is willing to do a deal where they get no benefit (beyond the price of the house), the bank is the way to go. If you don't have much for a down payment, go with an FHA loan, where you need only 3.5% down.  Second, there is another option in between bank mortgage and rent-to-own. And that is that where your landlord ""carries the note"". Basically, there is a mortgage, and it works like a bank mortgage, but instead of the bank owning the mortgage, your landlord does. Now, in terms of them carrying all of it, this isn't really helpful. Who wants to make 3-4% interest?  But, there is an interesting opportunity here. With your ok credit, you can probably get pretty close to 4% interest at the bank IF the loan is for 80% LTV (loan to value; that is, 20% equity). At 80% LTV you also won't have PMI, so between the two that loan will be very cheap. Then, your accommodating landlord can ""carry"" the rest at, say, 6-7% interest, junior to the bank mortgage (meaning if you default, the bank gets first dibs on the value of the house). Under that scenario, your over all interest payment is very reasonable, and you wouldn't have to put any money down.  Now for your other questions:   If we rent to own are we building equity? Not usually. Like the other posters said, rent-to-own is whatever both parties agree on. But objectively, most rent-to-own agreements, whether for a TV or a house, are set up to screw the buyer. Sorry to be blunt, and I'm not saying your landlord would do that, this is just generally how it is with rent to own. You don't own it till you make the last payment, and if you miss a payment they repo the property. There is no recourse because, hey, it was a rental agreement! Of course the agreements vary, and people who offer rent to own aren't necessarily bad people, but it's like one of those payday loan places: They provide a valid service but no one with other options uses them. If we rent to own, can we escape if we have to (read: can't pay   anymore). Usually, sure! Think about what you're saying: ""Here's the house back, and all that money I paid you? Keep it!"" It's a great deal if you're on the selling side.  How does rent to own affect (or not) our credit? It all depends on how it's structured. But really, it comes down to are they going to do reporting to the credit bureaus? In a rent-to-own agreement between individuals, the answer is no. (individuals can't report to a credit bureau. it's kind of a big deal to be set up to be able to do that)" Down payment: Emphatically avoid PMI if at all possible; it's pouring money down the drain. Do 20% down if you can, or pay off enough to bring you above 20% and ask for PMI to be removed as soon as you can. Beyond that it's a matter of how much risk you want to accept and how long you'll own the place, and you'll have to run the numbers for the various alternatives -- allowing for uncertainty in your investments -- to guide your decision. Do not assume you will be able to make a profit when you sell the house; that's the mistake which left many people under water and/or foreclosed on. Do not assume that you will be able to sell it quickly; it can take a year of more. Do not assume immediate or 100% occupancy it you rent it out; see many other answers here for more realistic numbers.... and remember that running a rental is a business and has ongoing costs and hassles. (You can contract those out, but then you lose a good percentage of the rent income.) Double mortgage is another great way to dig yourself into a financial hole; it can be a bigger cost than the PMI it tries to dodge and is definitely a bigger risk. Don't. Based on what you've said I think buying a rental is risky for you. It looks like you heard that renting a house is profitable and Zillow supported that idea. Vague advice + a website designed for selling + large amounts of money = risky at the very least. That doesn't mean that rental property is super risky it just means that you haven't invested any time into learning the risks and how you can manage them. Once you learn that your risk reduces dramatically. In general though I feel that rental property has a good risk/reward ratio. If you're willing to put in the time and energy to learn the business then I'd encourage you to buy property. If you're not willing to do that then rentals will always be a crap shoot. One thing about investing in rental property is you have the ability to have more impact on your investment than you do dropping money in the stock market which is good and bad. Whenever you put less than 20% down, you are usually required to pay private mortgage insurance (PMI) to protect the lender in case you default on your loan.  You pay this until you reach 20% equity in your home.  Check out an amortization calculator to see how long that would take you.  Most schedules have you paying more interest at the start of your loan and less principal.  PMI gets you nothing - no interest or principal paid - it's throwing money away in a very real sense (more in this answer).  Still, if you want to do it, make sure to add PMI to the cost per month. It is also possible to get two mortgages, one for your 20% down payment and one for the 80%, and avoid PMI.  Lenders are fairly cautious about doing that right now given the housing crash, but you may be able to find one who will let you do the two mortgages.  This will raise your monthly payment in its own way, of course. Also remember to factor in the costs of home ownership into your calculations.  Check the county or city website to figure out the property tax on that home, divide by twelve, and add that number to your payment.  Estimate your homeowners insurance (of course you get to drop renters insurance, so make sure to calculate that on the renting side of the costs) and divide the yearly cost by 12 and add that in.  Most importantly, add 1-2% of the value of the house yearly for maintenance and repair costs to your budget.  All those costs are going to eat away at your 3-400 a little bit.  So you've got to save about $70 a month towards repairs, etc. for the case of every 10-50 years when you need a new roof and so on. Many experts suggest having the maintenance money in savings on top of your emergency fund from day one of ownership in case your water heater suddenly dies or your roof starts leaking.  Make sure you've also estimated closing costs on this house, or that the seller will pay your costs.  Otherwise you loose part of that from your down payment or other savings. Once you add up all those numbers you can figure out if buying is a good proposition.  With the plan to stay put for five years, it sounds like it truly might be.  I'm not arguing against it, just laying out all the factors for you. The NYT Rent Versus Buy calculator lays out most of these items in terms of renting or buying, and might help you make that decision. EDIT: As Tim noted in the comments below, real monthly cost should take into account deductions from mortgage interest and property tax paid.  This calculator can help you figure that out.  This question will be one to watch for answers on how to calculate cost and return on home buying, with the answer by mbhunter being an important qualification Your reasoning is backwards. As others have pointed out, you cannot just decide how much you charge irrespective of the market. Let me paraphrase a little economics 101 to underline why you also should not think like this: You can see a rental property like your house (the same reasoning is usually explained with the example of hotel rooms) as a series of perishable goods. Your house represents the potential sale of the January rent (which perishes once January is over), plus the February rent etc. Your approach was to compute the total costs (all fixed and variable costs of owning that house as well as costs associated to renting specifically) and average them over the time period so that you know how much to ask at least. Assuming that you are only looking to rent it out, not sell it or let a family member live there, you can't think like this. Most of those costs that you averaged are what economists call sunk costs. You have already incurred the mortgage costs and they are not affected by your decision to rent or not to rent. These costs are irrelevant to your decision making process. You only need to think about marginal costs: those additional costs that you have when you rent but not when you don't. Look at the market prices for renting similar properties in that region and compare them with your marginal costs. As long as they are higher than your marginal costs, rent it out. This does not mean that you are sure to make profits, but it means that you are sure to make less losses than in your only alternative of not renting. "So either scenario has about $10K upfront costs (either realtor/selling expenses or fixing up for rental). Furthermore, I'm sure that the buyers would want you to fix all these things anyway, or reduce the price accordingly, but let's ignore this. Let's also ignore the remaining mortgage, since it looks like you can comfortably pay it off. Assuming 10% property management and 10% average vacancy (check your market), and rental price at $1000 - you end up with these numbers: I took very conservative estimates both on the rent (lower than you expect) and the maintenance expense (although on average over the years ,since you need to have some reserves, this is probably quite reasonable). You end up with 2.7% ROI, which is not a lot for a rental. The rule of thumb your wife mentioned (1% of cash equity) is indeed usually for ROI of leveraged rental purchase. However, if rental prices in your area are rising, as it sounds like they are, you may end up there quite soon anyway. The downside is that the money is locked in. If you're confident in your ability to rent and are not loosing the tax benefit of selling since it sounds like you've not appreciated, you may take out some cash through a cash-out refi. To keep cash-flow near-0, you need to cash out so that the payments would be at or less than the $3200/year (i.e.: $266/month). That would make about $50K at 30/yr fixed 5% loan. What's best is up to you to decide, of course. Check whether ""you can always sell"" holds for you. I.e.: how stable is the market, what happens if one or two large employers disappear, etc." If you can get a mortgage with 10% downpayment and the seller will accept (some may want at least 20% downpayment for whatever reasons) and with PMI it still lower than your rent, sounds like it's a good idea to buy now.  Of course this assumes that the money you'd be otherwise saving for 20% downpayment will be used to pay off a mortgage faster. Between now and October, your $3,000 will earn $30 in your savings account. If you are late on a payment for your 0% loan, your interest rate will skyrocket.  In my opinion, the risk is just not worth the tiny gain you are trying to achieve in the savings account. If it was me, I would pay off the loan today. A few more thoughts: There is a reason that businesses offer 0% consumer loans.  They are designed to trick you into thinking that you are getting a better deal than you are.  Businesses don't lose money on these loans.  The price of the loan is built into the cost of the purchase, whether you are buying expensive furniture, or a car.  Typically with a car, you forfeit a rebate by taking the 0% loan, essentially paying all the interest up-front.  Now that you have the loan, you might be ahead a few dollars by waiting to pay it off, but only because you've already paid the interest.  Don't make the mistake of thinking that you can come out ahead by buying things at 0%.  It's really not free money. In the comments, @JoeTaxpayer mentioned that fear of mistakes can lead to missed rewards.  I understand that; however, these 0% loans are full of small print designed to trip you up.  A single mistake can negate years and years of these small gains.  You don't want to be penny wise and pound foolish. As everyone is saying, this depends on a lot of variables. However... I had my dad help me with the downpayment on my house. In my case, the cost of mortgage payment and all maintenance expenses is still lower than paying rent. If I sell my house and walk away from the closing office with just $1 then I've still come out ahead compared to renting. The New York Times has a fantastic tool figure out if it's a good idea to buy vs. rent. http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0 It's asks all the relevant questions, and then it tells you how cheap rent would have to be make it the better option. It sounds like you plan to sell sooner or later. If your opinion is that there is still room for the housing market to grow, make your bet and sell later. The real estate market is much less liquid than other markets you might be invested in, so if you do end up seeing trouble (another housing crash) you may be stuck with your investment for longer than you hoped. I see more risk renting the house out, but I don't see significantly more reward. If you are comfortable with the risk, by all means proceed with your plan to rent.  My opinion is contrary to many others here who think real estate investments are more desirable because the returns are less abstract (you can collect the rent directly from your tenants) but all investments are fraught with their own risks. If you like putting in a little sweat equity (doing your own repairs when things break at your rental) renting may be a good match for you. I prefer investments that don't require as much attention, and index funds certainly fit that bill for me. If you're getting 0% on the financing, it's not costing you anything to borrow that money. So its basically free money. If you are comfortable with the monthly payments, consider going with no downpayment at all. Keep that money aside for a rainy day, or invest it somewhere so that you get some return on it. If you need to lower the payments later you can always use that money to pay down part of the loan later (check with the dealer that it is an open loan). If you're not comfortable with the payments at 0 down, put enough down to bring the monthly payment to a level where you are comfortable. Ultimately the question is more about your personality and level of discipline than about money.   The rational thing to do is hang on to your cash, invest it somewhere else, and pay off the 0% loan as late as possible without incurring penalties or interest.  Logically it's a no-brainer.  Problem is, we're humans, so there's a risk you'll slip up somewhere along the way and not pay off the loan in time.  How much do you trust yourself? I just read through all of the answers to this question and there is an important point that no one has mentioned yet: Oftentimes, buying a house is actually cheaper than renting the identical house. I'm looking around my area (suburbs of Chicago, IL) in 2017 and seeing some houses that are both for sale and for rent, which makes for an easy comparison. If I buy the house with $0 down (you can't actually put $0 down but it makes the numerical comparison more accurate if you do), my monthly payment including mortgage (P+I), taxes, insurance, and HOA, is still $400 less than the monthly rent payment. (If I put 20% down it's an even bigger savings.) So, in addition to the the tax advantages of owning a home, the locked in price that helps you in an economy that experiences inflation, and the accumulated equity, you may even have extra cash flow too. If you were on the fence when you would have had to pay more per month in order to purchase, it should be a no-brainer to buy if your monthly cost is lower. From the original question: Get a loan and buy a house, or I can live for the rest of my life in rent and save the extra money (investing and stuff). Well, you may be able to buy a house and save even more money than if you rent. Of course, this is highly dependent on your location. Whether it is better to buy or to rent depends on several factors.  Most of them are fairly uncertain, but calculations can be made to see how they play out in the long-term for insight into their impact. The results below are made on the basis that both the buyer and the tenant spend the same amount, in this case $1,480.03 per month.  The buyer pays his mortgage and when it's all paid for he switches to investing $1,480.03 per month at the fund deposit rate.  Meanwhile the tenant pays rent and invests whatever remains from $1,480.03 per month at the fund deposit rate. The amount $1,480.03 is set by the mortgage case and used by buyer and tenant for equal comparison. Taking some hopefully not too unrealistic rate estimates, these are the calculation inputs:- (All percentages are expressed as effective annual rates) Plot of buyer's and tenant's accumulated assets over time The simulation extends for twice the term of the mortgage.  If the investment fund can return 7% and a $900 rental is comparable to a $300,000 house then there isn't much of a compelling case either way. Lowering the expected fund return shows a different picture.  Sticking with the 5.0% fund return, lowering the rent brings the tenant's asset accumulation closer to the buyer's.  If there is a particular set of inputs you would like to see plotted I'm sure I could add another example to this post. There is also an interactive version of the calculation which you can find via this page.  However, unlike the examples above which include a deposit and grant, it just explores the simple case of a 100% mortgage. The aim is just to see how rate variations affect asset value over time.