(Reblogged from CNBC.com)

Inventories are high, prices are low and housing markets across the country are still testing the bottom following the real estate recession that wiped out more than $4 trillion worth of homeowner equity since 2006.

Tough times if you’re a seller. But those in the market to buy have assumed an enviable position indeed.

"Buyers are paying 20 to 40 percent less than they would have paid two years ago and far less in some markets,” says Eddie Fadel, a mortgage broker and author of "Don’t Rent, Buy!" "You have more bargaining power right now."

Low interest rates and federal incentives (such as the $8,000 tax credit for first-time homebuyers) are giving would-be buyers greater motivation still to get off the fence.

Yet, despite all the upsides, many house hunters remain hesitant to commit, fearing prices in their target neighborhoods may fall further in the months ahead.

If the price is right, you plan to stay put and you’re able to get good financing, he notes, there’s no real reason to wait. Here’s a plan to put yourself in the driver’s seat when shopping for a home.

Credit Report

Your first order of business is to obtain a copy of your credit report from the three major reporting agencies, Equifax, TransUnion and Experian.

It’s free and the earlier in the process you review it, the more time you’ll have to correct any errors and make changes that can improve your score.

"Anyone thinking of becoming a homeowner should get a copy of their reports and check them," says Zigas. "They’re not always accurate. They may include old credit lines that you closed or incorrect information."

It may cost a small fee, but it’s also worthwhile to request your actual credit score, the number banks use to determine your level of credit risk—and thereby, what interest rate to charge you.

"These days, if it’s much under 660, the consumer will find it much harder to get a loan on favorable terms," says Zigas, noting before the real estate bubble burst, banks were lending to those with scores as low as 620.

Today, you’ll need a score of 720 or better to land the lowest rates.

You can help raise your score by paying future bills on time, eliminating lines of credit and paying off any outstanding debts you may have, including student loans, car loans and credit card balances.

Purchasing Power

Next, you’ll need to determine how much you can reasonably afford to spend on a home.

You may qualify for more, but mortgage finance giant Freddie Mac says a quick rule of thumb is to multiply your annual gross income by 2.5.

For example, if your annual household income is $50,000, you might be able to qualify for a $125,000 home.

The depends, of course, on interest rates, your credit history and any existing debt.

Lenders use two ratios to determine how much house you can afford.

For the housing expense ratio, they recommend your monthly mortgage payment be less than 28 percent of your monthly gross income and that your recurring debt plus your monthly mortgage payment be no more than 36 percent of your monthly gross income.

Banks also look at your debt-to-income ratio to make sure your total debt is not greater than 30 percent to 40 percent of your monthly gross income. That includes credit cards, student loans, alimony, child support, car loans and housing expenses.

Remember, just because you qualify for a loan amount does not mean it’s within your budget.

Houses come with lots of expenses beyond the principal and interest payments, including homeowner’s insurance, property taxes, utilities, repairs and maintenance.

Getting A Loan

These days, securing a mortgage can be the hardest part of the equation.

Generally speaking, you’ll need to document a steady employment history, have good credit history, and have a low debt-to-income-ratio to even qualify.

If you fall short in any one area, be prepared to make up for it with a larger down payment or higher interest rates.

Despite the credit crunch and disappearance of zero down and no-doc loan programs, the Federal Housing Administration still offers programs for cash-strapped borrowers with little money for a down payment.

FHA-insured loans require a 3.5 percent down payment, far less than most conventional loans require. They also allow for higher debt ratios and they offer greater flexibility on both the borrower’s credit rating and the source of their down payment (which can include gifts).

Such loans have no income limit, but do come with a maximum loan amount, which ranges from $271,050 in lower cost parts of the country to $729,750 in higher priced markets.

Before signing anything, says Zigas, consumers should research all options available, from adjustable rate loans to points that lower your interest rate, to be sure they’re getting the loan that’s best for them.

Ready, Set Buy

Homebuyers who are in it for the long haul and know their market are almost sure to benefit from a confluence of factors, including low interest rates, better bargaining power and discount prices.

Those who have their financial house in order may want to consider jumping in, says Zigas.

"Trying to bet on the market’s ups and downs is not a reasonable strategy [for home buyers],” he says. "If a house is comfortably within your reach, yeah, it might go down [in price] some more, but if the community is strong it’ll come back and you get to live in the house in the meantime [building equity and benefiting from tax deductions].  If they do their research, then it might be the right time to buy."