It's tough out there for first-time homebuyers. Despite a seemingly attractive housing market, many remain sidelined by low incomes, high debt or a combination of both. So what's the trick to finding a house you can afford?

While there's no substitute for good credit and solid financial resources, there are a number of strategies available to those who are looking to buy a home on a tight budget. And we're not simply talking about buying the cheapest dump you can find - we're talking about getting a home that is not only affordable, but in good condition and in a decent neighborhood.

Here are seven tips to help you make your homebuying dollar go further:

1 - Don't assume you need a huge down payment

Since the housing crash, you may have heard a lot of talk about how potential homebuyers should be prepared to put 20 percent down in order to qualify for a mortgage. Don't believe it. Even during the worst of the downturn, borrowers with decent credit could still get an FHA mortgage with as little as 3.5 percent down - and they flocked to those loans.

These days, things have eased enough that it's once again possible to get a conventional mortgage - one backed by either Fannie Mae or Freddie Mac - with as little as 5 percent down. You'll likely find that the fees and insurance costs on those mortgages are less than on an FHA loan as well.

The downside of making a small down payment - less than 20 percent of the purchase price - is that you'll have to pay for mortgage insurance. This will either be private mortgage insurance on a Fannie or Freddie loan, or the FHA's own insurance on that type of mortgage. This typically costs anywhere from half a percent to 1.4 percent of your loan amount each year, but often makes better financial sense than waiting the extra years it would take you to save up a 20 percent down payment.

VA loans, for those who qualify, are available with 0 percent down and no mortgage insurance fees - which is pretty hard to beat.

2 - Look to Fannie, Freddie, HUD foreclosures

You may have heard that buying a foreclosed home can be a risky proposition for the unwary. That's true, particularly if you're trying to compete with seasoned foreclosure veterans at a sheriff's auction on the courthouse steps.

But there's an easier and safer way for first-time homebuyers to shop for a foreclosed property, and that's by going directly through the agency that guaranteed or held the loan. Fannie Mae, Freddie Mac and HUD (which oversees the FHA) all have their own programs for selling foreclosed properties.

There are several advantages to this route. First, homes listed through these programs are reserved for bids by owner-occupants when they first come on the market, so you're not competing with professional investors. Second, you can inspect the property before submitting a bid, which you typically can't do for properties sold at a sheriff's auction - and which is one of the biggest pitfalls of that approach.

You can often get special financing through these programs, though the details vary among them. Both Fannie Mae's HomePath and Freddie Mac's HomeSteps programs allow you to arrange financing with as little as 5 percent down and no mortgage insurance. HUD doesn't provide special financing on its properties, although if you go the FHA route you may be able to obtain a 203k loan that will provide additional funds for repairs or certain home improvements as part of the purchase loan.

3 - Broaden your search

One of the best ways to find good deals on housing is to look outside the area you initially focused on. This doesn't have to mean settling for a long commute or a shabby neighborhood - often, you may find that prices drop significantly just a few miles out of town once you get into more rural neighborhoods - property taxes are often lower as well.

The character of a community can have a big impact on prices as well. Consider two towns, both about a 20-minute drive from the downtown of a prosperous small city with a major university. The first has a "destination" downtown with popular restaurants and shops, and is home to a high percentage of professionals.

The other is more blue-collar, with a less trendy downtown, but with solid, safe neighborhoods nonetheless. The homes are similar styles and were built around the same time, but prices in the former may be 25 percent to one-third higher than those in the latter. For a first-time buyer, the latter may be exactly what you're looking for.

4 - Find a "quirky" home you can live with

Everyone has different tastes. So there's a good chance there are some homes out there that have caused others to turn up their noses, while you might say "not bad."

This might be a house with an unusual appearance, such as a former vacation cottage that's been expanded over the years in a rambling manner. Or a mismatch, such as the old farmhouse now surrounded by a modern subdivision on what used to be its fields. Perhaps there are some quirks with the layout, such as a bedroom that can only be reached by going through another room. Or where the washer and dryer are in the garage.

Unusual features that these can make a home more difficult to sell - which means a lower price. A good way to spot these is to look for homes that have been on the market a long time - check MLS listings for things like CDOM (continuous days on market) or PMP (property marketing period). While a home that hasn't sold may be a sign that it's simply priced too high, it can also indicate that it's just not generating much interest - and where the seller may be willing to deal.

5 - Look for estate properties

Another way to find a good deal is to keep an eye out for properties where the owner has died. This isn't to be ghoulish, but as a practical matter, the family often wishes to dispose of the property fairly quickly, and so will price it to sell.

There's often a lot of interest in these homes, so you have to be ready to move quickly. If you're working with a real estate agent, ask him or her to alert you if such a property is coming on the market.

You can check death notices for what appear to be single persons who are likely to have been homeowners in the communities you're interested in, then check the assessor's records online to see if they were a homeowner and if the property is one you might be interested in.

If you do this, however, be respectful. Don't rush to contact the family directly. If you can find out which attorney is handling the estate through probate court records, that's a good point of contact. Otherwise, there may be an estate sale to clear out the furniture and other possessions, which would be an appropriate time to introduce yourself and inquire about the home itself.

6 - About fixer-uppers

One of the most popular ways to save money is to seek out a fixer-upper, a home that's in rough shape but could be a real jewel with a little TLC. A word of warning here - the operative word is "little."

If you haven't done a lot of home improvements before, you'd be absolutely astounded how what initially appears to be a series of small "molehill" projects can swell into absolute mountains as you approach them. Don't bite off more than you can chew.

If you're an experienced handyman (or woman), you probably already have a pretty good sense of how long things will take and your own abilities to handle them. If you're not, it's a good idea to stick to the smaller stuff - painting walls, upgrading appliances, planting new shrubs, adding insulation, etc. You can include one or two "major" items - such as refinishing a wood floor - but more than that will likely be a recipe for frustration for home improvement rookies.

Don't be afraid to hire professionals for challenging projects like replacing windows, new siding, bathroom renovation, roofing, etc. Although it's more costly than doing it yourself, the fact these major projects can be drawn out over several years can add value to your home in a way that's more affordable than buying a property that's in pristine shape to begin with.

7 - Consider an adjustable rate

This last one can save you money by shaving a full point or more off your mortgage rate. Although adjustable rate mortgages (ARMs) have fallen out of favor in recent years, they're actually a very good option for first-time homebuyers.

Why? Because most people don't stay in their first home long enough to come anywhere close to paying off their first mortgage. Five to seven years is about the norm. And if that's all the longer you're going to be there, why pay a premium to lock in a rate for 30 years?

With an ARM, you can lock in a rate for however long you expect to stay in the home - 5 years, 7 years, 10. Since you're only locking in the rate for a relatively short time, you'll get a lower rate than you would on a 30-year fixed-rate mortgage. And if you do stay in the home longer than you expect, there are limits on how fast the rate can increase after the lock period expires.

Again, this is an option best suited for those who are confident they'll only remain in the home a short time. If you think it could end up being your long-term residence, you're probably better off with a 30-year fixed-rate loan, particularly with rates as low as they are.

Published on January 25, 2014