Buyer's market: Is now the time to rent or buy?

For those looking to enter the market, current economic conditions may make buying a home a long term, cost-effective alternative to renting.

The large number of homes for sale, coupled with incentives such as the new First Time Home Buyers tax credit, could give buyers the opportunity to save thousands of dollars. Taking a conservative approach to borrowing and the new first time home buyers' tax credit may put current buyers in an even better position. A credit of up to $8,000 is available on homes purchased between January 1 and December 1, 2009 for qualified buyers who earn less than $75,000 filing alone or less than $150,000 filing jointly.

The large number of homes for sale and the new tax incentive give some buyers the opportunity to save tens of thousands of dollars. The National Association of Realtors' latest figures indicate that existing home sales fell almost 9 percent from January '08 to January '09. Across the country, single family home prices fell about 19 percent from December '07 to December '08. Although prices have decreased dramatically, tightened lending standards may require some buyers to make larger down payments than in the past. Lower mortgage rates, however, could ease the pain. The average par rate on a 30-year mortgage dropped below the five percent mark in mid-March.

Potential buyers can use this opportunity to make a smart purchase and avoid common pitfalls that contributed to the trouble that some home owners are in right now. One piece of advice to keep in mind is to avoid buying more house than you need. The current market has illustrated that speculating in real estate can be risky, so it may make sense to buy a house that you would be willing to live in for at least a few years.

In addition, buyers should be realistic about how much of their monthly income they can devote to costs associated with housing. A practical rule of thumb suggests that buyers should spend no more than 30 percent of their gross monthly income on mortgage payments, taxes, and insurance. Spending more than 30 percent could make it difficult to have enough left over to cover other expenses.

For more about mortgage programs and rates, click here.

--Bridget O'Sullivan

Suspected fraud fuels sub-prime mortgage hysteria

As the sub-prime mortgage situation continues to worsen, the FBI confirms that they're investigating lenders for possible fraud. According to articles in The Wall Street Journal and CNN Money, Countrywide Financial Corporation could be involved in the suspected fraud within the industry.

The company’s practices of representing their losses and underwriting loans are said to be under examination. In addition, the company has also come under scrutiny after sending out letters to customers this week informing them that some personal data may have been compromised.

A former employee is cited as the cause of the leak and Countrywide is providing two years of credit monitoring services for free to customers believed to be impacted. This comes at a difficult time for Countrywide, the country’s biggest home-loan lender.

Though Countrywide is the biggest lending company involved, it's not the only company under investigation. CNN Money reports that the FBI is looking into the lending practices of a total of 16 mortgage companies.

As other major financial institutions continue to experience the negative effects of the subprime mortgage market, the FBI would not release the names of the lenders under investigation.

"The FBI has been investigating potential fraud in the mortgage/sub-prime lending industry, however, we can not confirm or deny which companies are under investigation," FBI spokesman Richard Kolko told CNN.

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--Bridget O'Sullivan