When buying a home, not only the purchase price but its true cost should be taken into account. Knowing the true cost can help you more wisely decide whether or not to buy a home, determine what sort of mortgage to apply for, and compare the cost of living in different individual residences.

Some of the additional components in the true cost of a home include closing costs (an average of just over $3000, according to bankrate.com), interest on the mortgage, Homeowners’ Association fees (if the home is located in a development/community where this applies), local property taxes, and home insurance. Although it is true that property taxes and insurance are not directly part of paying for the home, they are ongoing additional costs which are not required for renting a home, and can be much higher or lower depending upon the individual property. It is not possible to live in a residence without paying the property taxes and the insurance (unless you don’t have a mortgage and/or the bank doesn’t require insurance), so they should be considered part of the true housing cost. Any repairs, improvements, or replacements which are immediately necessary to live in the home should be included in its true cost as well.

There are a number of steps which can be taken to reduce a home’s true cost. It reduces substantially as the mortgage period is shortened; for example, the difference between a $225,000 thirty year mortgage’s total interest cost (at six percent) and a fifteen year mortgage for the same amount is about $144,000; the overall expense of a fifty-year mortgage for $225,000 would be $224,768 more than a thirty-year, although the monthly payments would be lower. Shorter length mortgages tend to have slightly lower interest rates as well. A larger down-payment also helps reduce the expense of interest. Purchasing a home in a town or city with relatively low property taxes can decrease the cost substantially; such taxes for a single-family residence range from a few hundred dollars per year in some parts of the country (such as West Virginia) to several thousand in others (like New Jersey). Some municipalities offer property tax reductions for people who are disabled, seniors, veterans, and/or have a relatively low level of income.

Taking all of these factors into consideration, the true cost of a $175,000 home purchased with a thirty year mortgage at 6.5 percent interest and a $25,000 down-payment would be about $369,316 plus thousands of dollars in yearly property taxes and insurance.