One is better off buying an undervalued asset with a higher interest rate vs. buying an overvalued asset with a low interest rate. Reason being: first the obvious, better opportunity for appreciation over time with an undervalued asset. Second, you will have a better opportunity to refinance going forward as rates may become more attractive. Taxes: you will have a higher tax deduction on a higher interest loan and you will also be paying lower property taxes on the lower purchase price. Locked in: you will most likely not be locked in your home for a very long time because you would ideally be gaining equity vs. losing equity to market depreciation. Bottom line, now is not a good time to be buying real estate.