Arizona homes for sale

Borrowing as much as you can creates leverage August 12, 2002 Many financial advisors, even conservative ones, recommend borrowing as much as you can at today's low interest rates. Today, lenders make it easier than ever to do just that. Not long ago, lenders limited the amount borrowers could pay for their monthly housing expense (principal, interest, taxes and insurance) to 28 percent to 32 percent of their monthly income. Now, many lenders permit high income-earners to apply as much as 50 percent of their income to their housing expense. This makes it easier for borrowers to qualify for larger mortgages and to buy more expensive houses. Lenders have also eased up on the amount of cash they require a borrower to contribute to a home purchase. First-time buyers in high-priced markets like San Francisco, Boston and New York City, are often making cash down payments equal to 5 percent of the purchase price, or less. A couple of decades ago, the norm was 20 percent. HOUSE HUNTING TIP: An advantage of borrowing as much as you can is that you can take advantage of leverage. Leverage is using someone else's money to buy an investment. The less of your own money you use to buy an investment, the more highly leveraged you are. For example, if you put 5 percent cash down and borrow 95 percent of the purchase price, you'll be more highly leveraged than you would be if you borrowed 80 percent and put 20 percent down. One reason to consider a highly leveraged purchase is that the profit potential is greater than it would be with a less leveraged purchase. Suppose you buy a home for $350,000 and put 20 percent, or $70,000, down. If the property appreciates 10 percent, it will be worth $385,000. You will have earned $35,000, a 50 percent return on your investment of $70,000. With a 10 percent down payment of $35,000, you earn 100 percent on your investment. The lower down payment yields a higher return. But, if you were to pay all cash, you would earn only 10 percent on your investment. Keep in mind that where there's a high profit potential, there's also high risk. Leverage works wonders as long as property values are going up. But, when values reverse direction and decline, a highly leveraged investor can end up owing more than the property is worth. During the early 1990's -- another time when lenders made it easy for home buyers to qualify for mortgages -- many first time buyers got themselves in to trouble with highly leveraged financing. One young couple, with two small children, bought their first home with 10 percent down. The real estate market softened soon after they purchased. About a year later, they were transferred. They kept the property because they thought they'd be returning to the area, and they didn't want to sell in a bad market. After a few years, they realized they wouldn't be transferred back and decided to sell. Property values had dropped about 20 percent. So, when they sold, their mortgage amount far exceeded the sale price. They had to use savings in order to make up the difference to complete the sale. When home prices are rising steadily, as they have been for several years in this country, buyers usually feel compelled to buy before prices rise further. As prices rise, buyers often find themselves taking out larger mortgages to make their home purchases possible. As buyers with limited cash resources, chase the market higher, they inevitably find themselves in a more highly leveraged purchase. THE CLOSING: You can reduce the risk factor by buying for the long-term so that you're not caught having to sell in a down market. Dian Hy mer is author of "House Hunting, The Take-Along Workbook for Home Buyers", and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books. Copyright 2002 Dian Hy mer Distributed by In man News Features   More - Real Estate Columns   FREE reports on homes sold in your zip code Arizona Homes - All available zip code reports Chandler Homes Gilbert Homes Glendale AZ Homes Goodyear Homes Mesa Homes Phoenix Homes Scottsdale Homes Sun City AZ Homes Tempe Homes   FREE custom-made reports on homes for sale Metro Phoenix Southeast Valley. Homes for sale in Ahwatukee, Chandler, Gilbert, Mesa, Queen Creek and Tempe. Phoenix. Homes for sale in Anthem and Phoenix. Southwest Valley. Homes for sale in Avondale, Buckeye, Goodyear and Litchfield Park. Northeast Valley. Homes for sale in Carefree, Cave Creek, Fountain Hills, Paradise Valley, Rio Verde and Scottsdale. Northwest Valley. Homes for sale in Glendale AZ, Peoria AZ, Sun City AZ, Sun City Grand, Sun City West, Surprise and Youngtown. Wickenburg homes for sale. Metro Tucson Tucson area. Homes for sale in Marana, Oro Valley and Tucson. Green Valley area. Homes for sale in Green Valley and Sahaurita. Other Great Arizona Towns • Casa Grande homes for sale • Flagstaff homes for sale • Lake Havasu City homes for sale • Payson homes for sale • Prescott homes for sale • Showlow homes for sale • Yuma homes for sale