This guest post was written by Go Banking Rates, bringing you informative personal finance content and helpful tools, as well as the best interest rates on financial services nationwide.

Buying a home is especially difficult these days, especially because it’s hard to predict what will happen next. Mortgage interest rates and home prices are at their lowest in decades, but it doesn’t mean now is the time to buy.

The real issue is whether you’re really getting the best deal possible on your home: Interest rates are low, but they could keep dropping. Prices are down, but they may not seem so spectacular in a couple of years from now. A home you would have considered a steal five years ago may be ridiculously expensive now, right? So how do you buy a home in a down market and know you’re paying what you should?

How Market Value Is Determined

The market value of a home is what a seller can expect to receive from a buyer at any given time. It’s sort of like the Blue Book value on a car–an average asking price, but not necessarily the exact amount someone would pay.

The market value is determined by a professional like a real estate appraiser or agent based on a number of considerations. These can include what homes of similar size and location have sold for in the past six months to a year, but does not factor in things like cosmetic improvements made to the property. Importantly, the market value of a home can change dramatically over a short period of time, which is why the number is not completely reliable.

How To Tell If a Home is Worth Its Price

One way many potential buyers gauge whether the property they’re interested in is a fair price is similar to how appraisers judge market value–by comparing it to similar homes for sale in the area. However, this can be misleading. According to lendingtree.com, homes that have been on the market for just over three weeks might be priced too high.

Valuation

This is why valuation is important to consider. Valuation is the difference between what a home should cost and what the actual price is. For example, CNNMoney reports in mid-2006, at the height of the housing bubble, 53 metro areas were considered to have over-valued properties. Just two years later, that number dropped to only 8.

Aim for Pre-Bubble Prices

Right now, most areas are considered to be undervalued, which means you could score a good deal on a home. Additionally, due to the recession, unemployment and high rates of foreclosure, the demand for homes for sale is weak. This means sellers are forced to cut prices even further to entice buyers.

Even if it’s already a bargain basement price, judging the accuracy of a home’s market value can still be difficult. To be sure you’re really going to get your money’s worth from a purchase and not want to kick yourself years down the road when prices drop further, judge how closely the asking price matches what you would expect in a “pre-bubble” environment.

MSN Real Estate writer Luke Mullins describes a scenario where we will return to pre-bubble prices where there was only an increase of one to two percent above the inflation rate over the next decade. This is in line with average historical appreciation rate of about half a percent every year when adjusted for inflation. So, with this trend in mind, compare the historical value of a property you’re interested in against the asking price today. Ascertain whether the two match up by starting from 1995 and adding a percentage point or two above inflation each year until you get to 2010.

Will Home Prices Continue to Drop?

Even if home prices are abnormally low now, they might continue falling, making a premature purchase more expensive than necessary. Associated Press real estate writer, Alan Zibel, explains that home values are projected to to decline well into 2011 and maybe even 2012. He writes that Moody’s Analytics senior director expects “home prices could drop another 20 percent by early 2012 if there is another recession. If the economic recovery remains on track, she sees prices falling another 5 percent and hitting bottom early next year.”

Waiting for home prices to fall further could really be a gamble, though. It seems they will trend downward at least for a little while longer, but wait too long and you might miss out on rock-bottom numbers. Homes are already priced at historical lows, so if you use the above criteria to judge a home’s true value and find you’re set-up to profit from your purchase in the future, you might want to snag the opportunity while it presents itself. Of course, missing the boat and buying on the way up will still ensure that you’re purchasing during a time when home prices will continue up.

This is a guest post from Lender411 who allows consumers to compare today’s mortgage rates in their area instantly and for free online, consumers are also matched with 4 local lenders who can take care of their specific mortgage needs and compete for their business. 

Money flows in a lot of different directions when you buy a house.  There’s the down payment, the mortgage interest, the closing fees, and numerous other costs.  But there are ways to save money in the midst of the chaos.

Compare your options.  Don’t pick a loan package until you’ve thoroughly researched at least five or six different offers.  Check out rates, fees, and terms.  Get a Good Faith Estimate (GFE) from any lender you are seriously considering.  A GFE itemizes every cost associated with the mortgage so you can see exactly how much the deal will cost.  Lenders are required by law to provide this document to you if you request it.  Don’t be afraid to negotiate, either.  It’s not hard to find the best mortgage rates if you’re willing to take some time and do some research.

Get a shorter mortgage.  The shorter your mortgage term, the less money you’ll pay in the long run.  You can save literally hundreds of thousands of dollars, depending on your overall loan amount, by going with a 15-year mortgage instead of a 30-year mortgage.  This has been financially proven over and over again.  If you can afford to make slightly higher monthly payments, get the mortgage with the shortest term possible.

Assume an existing mortgage.  If the seller of the home has not paid off the current mortgage, you might be able to simply take over the existing mortgage.  If the mortgage is transferrable and the seller agrees, you could end up with a significantly lower interest rate. Of course, you need to guarantee that the interest rate on the existing mortgage is lower than the interest rate you could get on a new mortgage, and you’ll still have to pay the difference between the home value and the current mortgage balance, but you may be able to save a substantial amount of money in lower interest over the years and you may not have to pay any closing costs at all.

Skip the mortgage insurance.  If you’re a risky borrower, some lenders may require you to pay for mortgage insurance before the loan closes.  Once you’ve taken out the mortgage and you’ve made a few payments, however, your lender will likely allow you to drop the insurance.  This can save you a great deal of money.

Pay off your mortgage early.  You’ve heard this one before.  If you can scrape enough money together, make extra payments on your mortgage as often as possible.  Tell your bank to apply these extra payments directly to the principal of the loan.  In effect, this shortens the term of your mortgage, which will lower the amount of interest you’ll have to pay over the course of the loan, as mentioned above.  Make sure your mortgage won’t penalize you for early repayment, however.  This is common.  Try to arrange a deal that allows for this.  It’s staggering how much you can save.

Rent Across the Nation

My husband and I are gearing up to move to another rental house by the end of summer, beginning of fall. We’re just not quite ready to purchase our own little house in the valley, so for now we must settle for living in someone else’s little house. We currently rent a small, run-down house for $1,800 a month. We’re hoping to move to a nicer neighborhood and into a much nicer home for about the same amount. We’ve been scoping out a few prime areas and rent seems to have stablized, though hasn’t dropped much from 5 years ago when we first rented our current house. Reading other blog posts about average mortgages and keeping one’s living expenses low, made me decide to research rental costs in other parts of the USA. Here are a few random metros I chose to compare, with the range factoring in 2-bedroom apartments and small, 3-bedroom rental homes:

West

• Los Angeles: $1,100 – $2,400 a month
• San Francisco: $2,100 – $3,500 a month
• Scottsdale, AZ: $1,000  – $1,800 a month
• Las Vegas, NV: $800 – $2,400 a month

MidWest

• Denver, CO: $500 – $1,700 a month
• Omaha, NE: $550 – $2,500 a month
• Dallas, TX: $650 – $2,800 a month
• Chicago, IL: $725 – $2,600 a month
  

East

• Newark, DE: $600 – $1,300 a month
• Baltimore, MD: $700 – $3,500 a month
• New York, NY: $2,995 – $20,000 a month
• Boston, MA: $1,200 – $3,750 a month

Much of my data came from Zillow.com, then I cross-checked those prices through Craigslist.com to verify they were in the ball park. What my data doesn’t tell me is the condition of the house or the decency of the neighborhood. Choosing larger metros also may not be a good indication of rent prices in the outlying suburbs. I live in an outlying suburb of Los Angeles, so my rent range is based on that area, not within the city of Los Angeles. Using Zillow, I could have scanned outlying areas, but then I wouldn’t have any clue as to the economic status of those areas. For instance, the lower priced rentals in all of the above cities may be located in shady areas of the city, where the higher priced rentals may be in more prestigious areas. There’s just no way for me to know for sure without visiting these cities myself.

However, it looks like rent varies within each city, and this could be based on neighborhood crime rates, poverty levels, and demographics. I don’t feel like I’m paying too much in comparison to New York and San Francisco. Yet, Scottsdale and Denver seem like bargains!

My next research project on rent across the nation will be looking at monthly rent prices as opposed to mortgage payments in the area. I’m guessing some cities deeply discount their rent in comparison to what one might pay on a mortgage, while other cities cost about the same or more.

Do you rent? What are you paying? Do you live in a suburb, metro, or rural area? Do you think you pay a fair price?

This is a guest post from Crystal of Budgeting in the Fun Stuff: A Personal Financial Blog about the Next Financial Step. It’s an open fiscal diary and a personal finance blog rolled into one.

My husband does not want to stay in our current home forever. He wants more room…specifically more rooms. After board gaming at a few different homes, he is lusting after more space. Luckily, he has a cheap streak too, so we will wait until our house is paid off before even approaching the idea of moving. But our conversation did lead me to think, how much house is enough house for us?

I’m happy with our 3 bedroom home. I love our Master bedroom with our attached bathroom. I’m cool with the fact we use one of the spare bedrooms as my husband’s office. I’m also fine with turning the other bedroom into a guest bedroom/hobby room if he’d like.

I don’t think we need a separate library, office, hobby room, guest bedroom, and gaming area.

Our friends have some pretty awesome houses. I know exactly where he got these ideas. But I also know that those same friends make way more than we do. I don’t want to suffer from lifestyle inflation.

I also hate the idea of moving at all. Buying our home was not a fun process at all. It was stressful. Even the moving part was awful since the first movers never showed up and we had to wait all day to get fit in on a different company’s schedule. I also don’t enjoy the whole unpacking process. I just hate moving.

That hatred could easily convince me to stay exactly where we are until I’m too old to go up the stairs.

I know that my husband would never put his wants ahead of our finances, but I’m already trying to come up with ways to make our house seem bigger to him. I just think that as long and the TV works and we have a table to play games on, we’re doing just fine…

What do you think? How much house is enough house for you?

Ventura County at dusk

I love exploring city statistics, comparing them with the city I live in, and making comparisons to cities I contemplate moving to. One site I always go back to is BestPlaces.net. I can quickly use their city compare link and glance through their copious amounts of data. (The one draw back to using this site is much of their data is a few years old. I’m hoping that when the 2010 census is published, they will update their statistics.) Another feature I find helpful is personal quotes and opinions about cities that people leave on their site. This helps narrow down the positives and negatives of an unknown city.

I use this site when considering my options for moving. For instance, I’m currently thinking of moving to a neighboring county, Ventura. It’s only a 30 minute drive away from where I live in Los Angeles County. But their population is 1/10 the size. According to Google, Los Angeles County is busting at the seams at almost 10,000,000 people – Whoa! Ventura County’s population, just to the north west, is under a cool million.  Ventura County is almost half the size, but even factoring this in, the population density is 1/6th of that of LA County (according to Wikipedia). What a difference! Less density means:

• Less traffic! A huge problem with LA county.
• Better, smoother roads due to fewer cars. I’m really tired of the pot holes chewing up my car.
• Less people! I love our city’s diversity, but I feel a little like a sardine lately. Too many people in such a small area.
• Better bicycle infrastructure. Ventura county is more bike-friendly with bike lanes painted on most of their roads.
• Less graffiti. Because we have so many people, there’s more chance of hoodlums messing up the city. Lately, many of them have been having a heyday with spray paint!

When comparing counties, I’m also looking for a little break in the cost of living. According to BestPlaces.net, I will be saving money on most of my expenses. Below is a graph directly from their website:

City Cost of Living Comparison

I’m not claiming Ventura County is cheap in any sense of the word. But it is cheaper than where I live.

Another factor to consider is their employment, or unemployment rate, and future expected growth. Los Angeles, and California in general, is pushing an unemployment rate of 13%. Ventura, however, is slightly lower than that. Since I will also have to search for a new teaching job, or something temporary for a while, this may bring me more prospects. You’ll also notice from this data below that most people in Ventura make more money than those in LA county, promising at least!

Cost of Living

Because this data is slightly outdated, I know that the sales tax has increased about 1%, but it has all over California. Ventura County’s sales tax is still 1% or more less than LA’s. Again, another reason for me to think seriously about moving.

On a side note, Ultimate Money Blog is doing something similar, but comparing all 50 states. I find this data fascinating. If any one is thinking of moving out of state, this might be a good window into what other states have to offer. If you use her descriptions along with BestPlaces.net city comparisons, you might find a city and state you would prefer to live in.

What city do you live in? Have you recently moved to a new city? What data did you use? Are you contemplating moving?