THE TRUE COST OF OWNING A HOME

More and more Americans are fulfilling a lifelong dream and becoming homeowners with the percentage of US households that now own rather than rent at an all-time high. The reason? Super low interest rates.

For many people, the lure of low interest rates is just too big a draw. Many people are convinced that if they can just get into a home then they are going to make a fortune as the real estate that they own appreciates. While we certainly believe that real estate is a great investment, it is probably the largest financial commitment that you will ever make and you need to give some serious consideration to what you are getting into before you take the home ownership plunge. Why is that so? The true costs of owning a home are much larger than you might think.

For many people, the thought of missing out on the real estate bonanza drives them to compromise their financial future by taking the plunge before they are ready. With ultra low interest rates and aggressive salespeople talking up the benefits of real estate, many of us feel compelled to get into the market ? at any cost. In general, if you can't afford to make at least a 10 percent down payment, then you probably shouldn't be looking at buying a home. If you don't have at least that much cash to plunk down on the barrelhead then perhaps you haven't developed the financial discipline to really be able to handle owning a home.

The biggest challenge of owning a home for most people is not the down payment, it is being able to afford the monthly payments. While many people can afford to buy a home, not everyone can afford to keep a home. In spite of the record low interest rates we are witnessing currently, we have record numbers of foreclosures as well. Many people assume that if they are paying $1,100 a month in rent today that a mortgage payment of $1,050 is no big deal.

The problem with just comparing your current rental payment to a possible monthly mortgage payment is that the base mortgage payment is really just the beginning of your monthly housing costs. On average, you need to add another 40 to 45% to your mortgage payment to get a realistic total monthly cost. Here's why. For starters, when you buy a home you now have to start paying property tax which is based on the value of the home. If you end up qualifying for a $200,000 home, then in most areas you are looking at 1.25 percent a year in property taxes or roughly another $200 a month. As well, you'll need to start thinking about insuring your investment which typically runs about $25 per month for each $100,000 in home value ? for a house that costs $200,000 that works out to an additional monthly payment of $50.