Nov. 09, 2007: Finding the best real estate deal in the Phoenix real estate market is a matter of balancing trade-offs
Picture this: You have an opportunity to buy a house in Metropolitan Phoenix. Not only do you love it, but it's offered at a great price. Even so, it's a declining market. You don't want to pay more than you have to, and you owe it to yourself to get it for the least you can possibly pay.
Here are two scenarios: You buy the home for $365,000 with a 3% contribution from the seller toward your closing costs. Or you buy it for $350,000 and pay your own closing costs.
The closing costs will run to right around $8,000 either way, plus or minus a couple hundred bucks. The seller contribution of 3% would come to $10,950. That would tend to argue that paying $15,000 less would be the better deal, wouldn't it?
Not so fast. Everything is a trade-off, and we need to know a whole lot more to decide which deal is better for your particular financial circumstances.
For example, let's say you have great credit, a nice income -- but no cash. If you can qualify for 100% financing, then, with the seller's contribution for closing costs, you just bought a house.
Even if you have cash, you might be better off paying the higher purchase price. Your monthly payment could be around $90 a month higher, but if you stayed in the home only five years, that's $5,400 in mostly tax-deductible interest payments over time in exchange for $10,950 in cash benefits right now.
Plus, there would be around $3,000 left over after normal closing costs. You might use that to buy down your interest rate, resulting in a lower payment for the life of the loan. But this is another trade-off, requiring a different calculation. In general, pre-paying interest "points" is more profitable the longer you stay with the loan.
The same kinds of trade-offs apply for fixed versus adjustable rate mortgages and amortizing versus interest-only loans. Your lender should spreadsheet the financial consequences to determine which is best for you.
Greg Swann is the designated broker for BloodhoundRealty.com, a full-service Metropolitan Phoenix real estate brokerage. This article originally appeared in the West Valley regional sections of the Arizona Republic.
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