The choice to buy or rent your next home is both a financial and an emotional decision. Emotionally, buying a home represents achievement, pride, and financial stability. Financially, owning a home involves expenses and benefits, all of which must be considered to determine the true cost of home ownership.

Not Just Your Mortgage: The Expenses of New Home Ownership

There are certain financial responsibilities associated with owning a new home. In addition to monthly mortgage payments, new home owners need to account for  property taxes, homeowner's insurance, homeowners' association (HOA)dues, and maintenance and repairs.

Property tax is determined by the location and assessed value of your home.  New home property taxes will likely be based on the home's purchase price. Property taxes are generally due several times a year.

Your mortgage lender may also require that you acquire homeowner's insurance to protect its interest in the property. This policy insures your home against damages such as fire.   Even if not required, it is always a good idea to have insurance on your home. Additional policies such as flood insurance may also be required depending on the property location.

New homeowners may have to pay homeowners' association (HOA) dues.  When you purchase a new home, the seller should disclose the existence of an HOA, its rules (called CC and Rs), and the required dues and transfer fees. HOAs are most commonly associated with condominiums or townhouses but not always. In the case of a condominium or townhome, your monthly dues may also include your homeowner's insurance.

Your lender may require that some or all of these expenses are prorated and added into your monthly mortgage payment. The lender then pays these expenses for you. This process is referred to an impounding. 

Your New Home: Benefiting from Home Ownership

The financial advantages of home ownership can be substantial. Run the numbers through a "rent versus buy" calculator. Factors such as prospective tax deductions of mortgage interest, appreciation potential of your property versus probable increases in rent over time, the costs of buying a home and obtaining a mortgage, and the accumulation of wealth in the form of home equity are all factors in making that crucial decision. The length of time you expect to remain in your next home and lifestyle decisions such as starting a family or retirement are also financial as well as emotional considerations. It's also a good idea to check with a financial advisor you trust .

The True Cost of Your Home: Lower Than You Think?

When you factor in the benefits of home ownership in addition to the expenses you may find that not only can you afford to buy a home, perhaps you can't afford not to. If you are a renter and feel that "home" is more than just someplace to hang your hat, think about the advantages of purchasing real estate. It may be time to take the step into building your personal net worth as a homeowner.