If there’s one silver lining in the current economy, it’s the potential savings for individuals who are looking to buy a new home. The price of homes around the country has plunged by 20 to 40 percent—and, in some cases, even more over the past two years. It’s definitely a buyer’s market—particularly for home buyers in a solid financial position to qualify for a home mortgage.

But before you buy, there are a number of questions that you need to answer:

• Do plan to continue to live in the same area for several more years? If there’s a chance you’ll need to move to a new city in the next two or three years, you could have a very difficult time selling your house.
  
• Do you have a steady income that will enable you to keep up the mortgage payments for many years to come?
  
• Do you have the time and resources to maintain a home? When the maintenance bills come out of your own pocket instead of your landlord’s—for items such as a new roof, new furnace, new siding, or new appliances—it can add up to hundreds or thousands of dollars per year?
  
• Do you have sufficient money to cover a down payment? You’ll probably need to make a down payment of at least 20 percent of the total cost of the home down to qualify for a mortgage with a reasonable interest rate.
  
• Is your credit rating solid enough to qualify for a mortgage?

Once you’ve determined that homeownership is suitable for you, there are several more steps you should take to get a favorable mortgage.

Before you start shopping for a home, you might want to shop for a lender. You need to shop around for mortgages the same way you would for a car or any other major purchase.

Once you find a bank or mortgage company that offers reasonable terms, ask the lender to pre-approve you for a mortgage.

The pre-approval process is essentially the same as the mortgage qualification process. The lender looks at your credit rating and your financial situation and determines how much money they will approve for your loan.

While pre-approval is not a commitment to lend—in fact, you may find a better rate somewhere else when you’re ready to buy your home—once you’re pre-approved, you can shop with confidence for homes in your price range.

In comparing mortgage rates, you’ll find that different banks and mortgage companies offer different interest rates, although comparing rates can be deceiving. Lenders may assess certain add-on charges such as origination fees and points that can add to the cost of your house.

A point represents one percentage point of the total mortgage amount. If your mortgage is for $500,000, a point would represent $5,000. Sometimes by paying extra points, you can get a lower interest rate, but you need to decide whether the extra points would be worth the cost in the long run. If you plan to stay in the house for many years, adding an extra point or two to lower your interest rate might make sense. But if you only expect to stay a few years, you would probably be better served to find a lender who charges a point or less.

As you go through the home shopping experience, you should also discuss it with your financial advisor to see how buying a home will affect your long-term financial situation.