Despite exceedingly low mortgage rates and more affordable property prices, some families seeking to buy a first home must scale back their expectations. That's because their household income has also declined due to lower salaries or reduced overtime at work.

"Nearly all homebuyers must make tradeoffs. But this is especially true for folks who need to stay within a tight budget due to economic conditions," says Merrill Ottwein, a real estate broker and former president of the National Association of Exclusive Buyer Agents (www.naeba.org).

He tells the true story of a cash-tight couple he recently helped to find a home. They wanted to live near the university where the wife -- who'd lost her higher-paid position at another college -- had just been offered a job teaching English. The husband worked from home as an IT specialist.

At the top of their original wish list, the couple cited their desire for a yard with at least half an acre of land where the man could plant a large vegetable garden. Plus they hoped for a spacious kitchen with granite countertops and solid maple cabinetry.

Early in their search, they fell in love with an English cottage with a dream kitchen that opened onto a screened porch. But the yard was only an eighth of an acre.

"They were really torn. For more than two weeks they debated whether to buy that cottage with the tiny yard. It took many conversations and visits back to the house before they decided to go for it," Ottwein says.

Sometimes buyers come to regret the trade-offs they made to get what they want for a lower price.

For example, some purchasers make the mistake of accepting a grueling commute from a distant suburb in exchange for the chance to own a much larger property than they could otherwise afford.

"From time to time we hear from buyers that they don't care how far they have to commute to get that huge house with every single feature on their wish list. Then they call us back a year or two later to complain that the long drive isn't worth it," Ottwein says.

"Any commute that takes more than 50 minutes is punishingly long," he says.

He urges homebuyers to think through their lifestyle preferences before narrowing the scope of their property search.

"At almost every phase of the property search you're confronted with trade-offs. Very few people get everything they want in a house," Ottwein says.

Here are a few pointers for homebuyers:

-- Consider your feelings about your current living quarters.

"First write down what you like and don't like about your present home. Then list all the features you absolutely must have, would like to have, or are willing to forgo in the new house," Ottwein says.

Suppose the townhouse where you now live has you feeling cramped because it lacks side windows. That could tell you that buying a detached house with large windows would be more important to you than a townhouse with extra living space.

"People with a strict cost ceiling should be doubly mindful about what's critical for them versus what they're willing to give up," Ottwein says.

-- Select features early when buying a brand-new home.

Those buying in a new subdivision face lots of trade-offs before the sales contract is even written.

"Most builders give you a lump sum allowance for all the basic options -- everything from kitchen cabinets to lighting fixtures, appliances and landscaping choices. Usually anything else you select costs extra," Ottwein says.

It's important to make as many selections as possible before you sign the builder's contract. For instance, if you want a sunroom, bargain for that additional feature to be included in the original contract.

"After your sales contract is signed, you lose your leverage with the builder. Because he knows you've already agreed to buy the house, anything you purchase later will cost a lot more," Ottwein says.

-- Don't trade off a fixed-rate mortgage to get more home for the money.

Keith Gumbinger, a vice president at HSH Associates (www.hsh.com), which tracks mortgage markets throughout the country, says some homebuyers are still drawn to adjustable-rate mortgages.

It's true that at the front end the monthly payment on one of these loans is lower than on a traditional fixed-rate mortgage for the same amount. But Gumbinger says the savings you enjoy during the early years are likely to be more than wiped out over the term of the loan.

"The always-present downside of taking an ARM is that interest rates will undoubtedly rise at some point in the future," says Gumbinger, noting that nearly all variable rate loans have at least one automatic upward adjustment built in during the early years of the term.

Moreover, taking an ARM now could mean years of discomfort not knowing if your rate will rise or fall.

"For the vast majority of buyers, knowing your rate can't double while you're still living in the house is comforting. They sleep better at night," Gumbinger says.

Some purchasers, particularly those who think they will move again soon, are drawn to what's known as a "hybrid ARM," which is typically guaranteed to stay level for a minimum of the first five years before it's subject to adjustments. Gumbinger thinks such a move risky, given the vicissitudes of life

"You need to have a lot of confidence that you'll definitely have a short tenure in the house to warrant taking an ARM of any kind," Gumbinger says.

(To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)

As your kids grow up and move on to their adult lives, you realize you'll soon have a much larger house than you and your spouse need.

Do you sell the property and walk away from what you consider an idyllic suburban setting -- letting go of neighborhood friends and happy memories? And if you sell, what sort of place do you buy and how much do you spend?

These questions are extremely difficult for parents who've spent years absorbed in raising their offspring -- with very little thought to their own future housing plans, says Eric Tyson, author of "Personal Finance for Dummies" and several real estate books.

"It's tough to transplant yourself," says Tyson, a former financial adviser.

He says pre-retirement years are a good time for empty nesters to take stock of their housing needs and overall financial situation, though many people fail to seize that opportunity.

Cary Carbonaro, a financial planner since 1990, says it's rare for those in her profession to help clients assess their housing choices.

"Whether to sell your family home or stay is a very personal decision. As advisers, we can't tell clients what to do. But we can help them sort out the financial implications of their alternatives," says Carbonaro, who's affiliated with the National Association of Personal Financial Advisors.

Here are a few pointers for empty nesters:

-- Look at both the pros and cons of selling your present property.

As Carbonaro notes, some parents of grown children look forward to downscaling to a smaller place with fewer maintenance demands.

"The idea of a less complicated lifestyle can be appealing," she says.

Yet others yearn to take over their kids' old rooms in ways that would be enjoyable to them.

"They transform the extra bedrooms into hobby rooms, for crafts, exercise or home offices," she says.

Others count on hosting frequent family gatherings. But many will find the expense of keeping such a large house unjustified.

"Do you really want to pay for all that space, including your taxes and utility costs, just so you can entertain your kids for a week or two each year? Probably, it would be less expensive to put them up in a nearby hotel for those few days," Tyson says.

-- Ask for professional advice to help make a solid decision.

By going through a professional group, such as NAPFA (www.napfa.org), you should be able to locate a planner to hire for just the few hours it takes to talk through your housing options.

Another course that Tyson recommends involves seeking advice from a certified public accountant trained as a "personal financial specialist" (PFS). The American Institute of CPAs awards this designation. You can locate a PFS in your area by visiting the organization's website: www.aicpa.org.

-- Include retirement planning in your housing analysis.

If you lack funds for retirement but have substantial equity in your property, selling the big family home could open the way for investments that are potentially more lucrative.

Tyson says "many people romanticize about living somewhere cheaper and simpler." But he cautions there can be many hidden costs associated with selling one home and moving to a distant state to buy another smaller place.

"There are always financial trade-offs involved. Maybe you'll spend less to buy a house in the new area and your taxes will be lower. But remember there are likely to be many expenses to fix up your house for sale, to move and to buy the new place," he says.

Also, he recommends you factor in how living in a remote area -- away from a major airline hub -- might increase your travel costs and those of grown offspring who wish to visit.

-- Research your college financing options.

It's not an ideal time to reformulate your college financing plans after your children have already started classes or are about to do so. But Tyson says it's still not too late to try to make up for lost time.

Unfortunately, most people don't plan ahead for college financing, according to Tyson.

"They view college costs in isolation rather than as part of a holistic financial plan that integrates all the parts," he says.

Have you promised to contribute toward your children's college expenses with proceeds from the sale of your home? If so, Tyson cautions that doing this could put in jeopardy any need-based scholarship or grant money for which your offspring are eligible.

"While that equity is still in your house, many college financial aid offices won't expect you to tap it for tuition and fees. But if you sell the house and free up capital while your kids are in school, all that could change," he says.

Maybe you'll want to meet with financial aid officers at your children's colleges to discuss whether your kids might bear some of the expense through student loans or by enrolling in work-study programs.

"It sounds selfish, but as you approach retirement, you've got to think about yourself and your own financial needs going forward," Tyson says.

-- Give yourself ample time to make the right housing choices.

"Having your kids grow up and move away raises all sorts of emotional issues for a lot of people. So they avoid making hard choices about what to do next," Tyson says.

He advocates that empty nesters try to conceive their post-retirement housing plans at least five to 10 years before they stop working.

"Most people don't think very much about whether to stay or sell their big family house before taking action. But you need plenty of lead time and loads of information to make the right decisions," Tyson says.

(To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)

It's a scenario that still happens, despite the sobering realities of the real estate market in recent years. A lender tells homebuyers they're entitled to borrow more than they expected. Good news? Not necessarily.

Keith Gumbinger, a vice president with HSH Associates, a mortgage-publishing firm, says that even now, with stringent lending standards, some homebuyers can borrow more than is prudent.

Sean Sebold, a veteran financial planner, says, "There are lots of reasons to be conservative on how much you spend for a house. One factor is that if you overbuy and can't afford it, you'll be hit with major transaction costs to sell your home and buy a smaller one."

Among the homebuyers who should be especially careful not to overspend are people who are single and couples supporting a household on just one income, he says.

How is it possible to borrow more than you should for a home purchase?

The explanation is that lenders don't know everything about their borrowers' living costs. For example, homebuyers seeking a mortgage needn't disclose that they face high costs for their toddlers' day care or that they're helping cover a mother's nursing home bills.

"The lender is blind to everything but the income and liabilities on your record," says Sebold, who's affiliated with the National Association of Personal Financial Advisors.

"The problem is most people don't actually reduce their spending the way they expected to after moving to their new house. They keep spending as much as ever on restaurant meals, travel and expensive hobbies," he says.

Why do homebuyers continue to spend more than planned -- even after taking on a big mortgage? Sebold believes most Americans are inherently optimistic about their finances.

"Despite the current economy, the majority of people think they'll be making more money in the future," he says.

Here are a few pointers for homebuyers:

-- Watch out for mortgage brokers who push hard for business.

In the aftermath of the country's mortgage debacle, the home-loan industry has gone through a major restructuring process. One result has been tighter regulation of mortgage-lending practices. Another has been a dramatic decline in the number of mortgage brokers --intermediaries who originate loans for banks and other lending institutions.

Although there are fewer people working in mortgage lending, those still in the field are now competing as aggressively as ever for loans, Gumbinger says, and many work on commission, meaning they don't get paid unless their deals go through.

Do lenders want homebuyers to borrow more than they should relative to their financial situation? Generally not, says Gumbinger, but neither are they driven to dissuade borrowers from doing so.

"It's not the mortgage lender's responsibility to protect you from you," he says.

-- Get a grip on your finances prior to taking out a mortgage.

Sebold suggests that before looking at property, you do a careful analysis of your income and expenses to ensure you'll have adequate funds to cover your housing and lifestyle costs.

Because reducing your expenses could be even harder than reducing your weight, Sebold advises that the best way to determine how much you can afford for housing is to analyze your spending over a recent three-month period. Then assume you'll spend as much or more after you buy a home, adding in extra costs for the property, such as hardware and lawn supplies.

In fact, Sebold encourages renters to simulate what they would confront if they faced higher housing costs each month.

"Suppose you're now paying $1,500 a month for rent but plan to spend $2,500 for a house payment. While still living in your apartment, put an extra $1,000 a month in a savings account and see if you can live on the rest of your income," he says.

-- Set an upper limit on how much you'll spend for a home.

Are you working in a field with high levels of unemployment? If so, Sebold says you should keep regular contributions to savings in mind when calculating how much you can afford to put into housing.

"If you're working in an insecure job, you'd better have a year's worth of living costs set aside if you're in a one-income household," he says.

Even if you have two incomes, and believe your jobs are secure, Sebold says you'll want to add in a financial buffer when calculating what you can afford for housing.

After gaining mortgage pre-approval, he urges you to set a firm upper limit on how much you'll spend before heading out to look at property. Put this number on an index card and carry it in your pocket when you're searching for the right home, he says.

"You should always know that number before going out to buy," he says.

-- Don't let the vision of the perfect property for your kids sway you.

Sebold says many parents of young children fantasize about the ideal place for them to grow up -- with many bedrooms, a huge family room and a large, fenced yard where the kids can frolic along with the family pets. This is a fine vision if you can afford it. But he cautions that such an ideal has the potential to cause some parents to overspend, with good intentions but unfortunate results.

Sebold says that staying within your budgetary limits is ultimately in the best interest of everyone in the family, including the kids.

"You don't want your children to have the perfect house when they're very young only to have it taken away before they reach their teens," he says.

(To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)