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For a house you will live in, if it is within your means, getting a great house at a fair price is a lot better than getting a mediocre house at a great price. As long as the price is reasonable then I would focus on the other factors. Some of the factors, like no AC, can eventually be improved but things like the location and lot size are unchangeable and more important.

Having the second story addition will never be as desirable as a house that was built with a second story. In addition to the looks pay a lot of attention to the floor plan and how the “flow” of the house works since the there were likely lots of compromises in the design to get the addition built. It is hard to quantify but some houses are just awkward to live in because of the floor plan. With the addition to the house may now be larger and more expensive than the other houses in the neighborhood which would tend to hurt its resale value.

One thing to keep in mind is that in addition to buying a house, you are also “buying” a big chunk of money with the mortgage. You didn’t day but if you are looking at getting a 30 year fixed rate mortgage for around 6% then that is a historically a great rate that can be refinanced if rates go do farther.

One of the perplexing(at least to me) parts of the “credit crisis” is that mortgage interest rates are still staying low and after taxes are arguably less than inflation especially since the CPI inflation rate probably understates the real inflation rate. Some people have speculated that there could be deflation in the near future but I am skeptical that with all the money that is being thrown at problems that there isn’t a huge risk of price inflation. The cynical part of me has to wonder if triggering price inflation might not be an intentional way to help stop people from defaulting on house loans.

Greg
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