A home buyer today needs to have nerves of steel.

Tumbling home prices, stiff credit standards, gun-shy lenders and spooked appraisers have combined to make even routine transactions treacherous. It's not that deals aren't getting done -- they are -- but buyers face conditions that have changed dramatically in less than a year.

If you're going to wade into this maelstrom, you should know what you're up against and how to increase the odds of getting the home you want.

The housing market today is afflicted by two interrelated factors:

• A credit crunch resulting from the bust of the subprime lending boom.

• Falling home prices.

Not every area has seen prices decline, of course. The Seattle, Portland, Ore., and Charlotte, N.C., markets have remained resilient, and even in stricken cities, home values are still rising in some neighborhoods.

Average numbers don't quite tell the whole story, cautioned John Karevoll of DataQuick Information Systems, which tracks real-estate data.

Home sales have slowed overall, but sales of more-expensive homes are down dramatically, Karevoll said. Deals involving homes worth $500,000 or more in California, for example, are "at about half the level they were in August," he said. Without those higher-end sales to buoy the numbers, the median prices in many areas have fallen more dramatically than they would have otherwise. It's a kind of statistical glitch, if you will.

The jumbo question

Of course, the reason high-end home sales have slowed so much is important to potential buyers and sellers of these homes. Let's explore that.

Mortgages fall into two broad categories, conforming and jumbo:

• Conforming loans are mortgages of a certain size (currently $417,000 or less), most of which are purchased and resold to investors by Fannie Mae and Freddie Mac, the two big home loan agencies that also offer a guarantee if borrowers default.

• Jumbo loans are those exceeding that conforming loan cap. They're not purchased by Fannie and Freddie, but until the recent past they were bundled and sold to other investors.

For months, though, the jumbo-loan market has been all but frozen. Investors who were once eager for these loans have been scared off by the rising delinquency rates of subprime loans (those made to folks with troubled credit), said Michael Moskowitz, the president of a New York mortgage lender. The investors worry that borrowers of bigger loans soon will default in droves.

So, fewer lenders are making these loans. Most now are made by Bank of America, Chase, Wachovia and Wells Fargo, said Jim Svinth, the chief economist for and they're charging higher interest rates. Instead of jumbo loans being one-eighth to one-quarter of a percentage point more expensive than conforming loans, lately they've been 1 to 1.5 percentage points higher. On a million-dollar loan, that gap could boost the payment by $800 a month or more.

Rather than pay those high rates or meet the stiff criteria for getting the loans, because lenders now often require a fat down payment and high credit scores, many potential buyers are simply sitting on the sidelines, waiting for the jumbo-loan market to loosen up.

The situation is likely to improve if Congress temporarily raises the caps on conforming loans. The proposal that's part of the economic stimulus package would allow Fannie and Freddie to buy loans worth up to 125% of an area's median home price, subject to a $729,750 cap. That could lower rates on affected loans by a percentage point and stimulate sales.

But buyers still are likely to face other hurdles. Let's look at those.

Factors you control

Lenders assess you in three primary ways:

• Your credit scores.

• Your down payment.

• Your income and your ability to document it with tax returns and other proof.
  
  

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