Home buying

Prequalifying for a mortgage before you go on a house-hunting trip allows you to narrow your search for properties and leverages your bargaining power. (Photo for Tribune Newspapers / May 6, 2011)

Traditionally, spring is when prospective homebuyers come out of hibernation and begin the hunt for their next residence. But with the economy still in flux, budget battles raging in Washington and a housing market on shaky ground, many house hunters are wondering whether it is the right time to buy.

The wild card remains home prices, which are down 31 percent from their prerecession peak in July 2006, according to the S&P/Case-Shiller home price index. While some experts see another wave of foreclosures further depressing home values regionally, others say the worst of the housing slump is over.

"I'm hopeful the spring will be better, because the job market is improving," said Celia Chen, senior director at Moody's Analytics, who expects housing prices to bottom out nationally by the third quarter.

Despite the uncertainty surrounding the housing market, experts say, the market climate can't get much better for Americans poised to put down roots.

"Confidence is building, prices are down, interest rates are wonderful for a 30-year fixed-rate mortgage. It's a good time to borrow money," said Dorcas Helfant-Browning, managing partner at Coldwell Banker Professional Realtors.

To help sort through the pros and cons of buying now, here is advice from experts:

Determine your budget

Interest rates on 30-year fixed-rate mortgages are at historic lows, but experts concede that qualifying for a mortgage this spring might be more challenging than it has been in the past.

"The big constraint on (housing) demand this year is going to be the availability of mortgages," said Chen. "Lenders are still being very cautious."

Although there are signs that the credit markets may be loosening a bit, even some of the most creditworthy consumers may be unable to snag the best interest rates on mortgages. Consumers with lower credit scores could also face higher down payment requirements, said Keith Gumbinger, vice president of mortgage information website hsh.com.

"You'll need good credit to get the best pricing," he said. "We're talking about a FICO 740 or above for the best possible pricing."

Would-be homebuyers must jump through additional hoops, as lenders are demanding more financial documentation from applicants.

"You need to be able to fully document your income and all your assets," Gumbinger said. "Your debt loads relative to your income need to be pretty low. You can't have the leverage you used to be allowed several years ago."

Despite these obstacles, qualifying for a mortgage is an essential step, said Diann Patton, Coldwell Banker Real Estate consumer specialist.

"Too many people put the cart before the horse," Patton said. "It's so important to know exactly what you qualify for and have that preapproval letter in hand before you even look at houses."

Knowing how much you can borrow to finance a home purchase is important, but it shouldn't be the only consideration when looking at your budget.

"Look at what you qualify for and then what you really want to have as excess capital," said Helfant-Browning. "Provide yourself a savings plan, an entertainment fund, and give yourself a little cushion. Don't buy at the top of what you qualify for, but what's comfortable, so you can do all the other things in life you wish to do."

Think local, not national

Don't let national headlines about plummeting home values or foreclosure trends spook you, said Patton.