Calculate the True Cost Before You Buy a Home

Sarah dreamed of homeownership but hesitated when the numbers didn’t add up. She broke costs into chunks: a 5% down payment, 3% in closing fees, 1.2% annual property tax, homeowners insurance at 0.5%, and a 1% maintenance reserve. Total annual costs were almost 6% of the home’s price.

Next, she asked: what if I invested my down payment? At a modest 5% return in a diversified portfolio, her money could grow faster than the equity she’d build in the house—especially if home values stagnate or dip.

Economic studies confirm that it often takes seven to ten years just to recoup purchase costs on a home, even in rising markets. For short-term stays, renting can be the better financial move.

By applying cost-benefit analysis—comparing all expenses plus the opportunity cost of the down payment against projected appreciation—Sarah made an informed choice. She ultimately decided to rent for five years, maximize her investing potential, and only buy when she was ready to settle in long-term.

Treat buying a home like any major investment: total the upfront costs and annual expenses, factor in what your down payment could earn elsewhere, and calculate how long you must stay to break even. This analysis will guide you to the smartest decision—rent, delay, or dive in.