It's no secret that rising prices in countless communities have caused a housing crunch, forcing many first-time buyers and people moving to higher-cost areas to wrestle with difficult tradeoffs.

Merrill Ottwein, former president of the National Association of Exclusive Buyer Agents, says some house hunters make choices they later come to regret.

For example, budget-challenged buyers sometimes mistakenly accept a punishing commute to an outer suburb to obtain the prestige home they couldn't otherwise afford.

"We often hear buyers say they don't care how far they have to commute to get that big house with all the bells and whistles. Then they call us back just a year or two later complaining that they can't take the long drive anymore," says Ottwein, co-owner of a small realty firm that caters to relocation clients. "A lot of people rationalize that by accepting a long commute they're helping their families live better. But because they get home so late, their families actually suffer."

Ottwein recommends that you analyze your lifestyle and personal preferences before narrowing the scope of your home search. Would you rather have a small house with a bigger yard or vice versa? Is a fourth bedroom more important to you than a third bay in your garage?

Here are several pointers for those who must make harsh concessions to income limitations when they buy a home:

n Don't take an "interest-only mortgage" without serious forethought. Keith Gumbinger, a vice president at HSH Associates, which tracks mortgage markets across the country, says many homebuyers who are close to the line on affordability are drawn to interest-only loans.

True, the monthly payment on one of these loans is lower than on a standard fixed-rate mortgage for the same amount. But Gumbinger contends that the "savings" is not as substantial as many people think.

"In the early years of a standard mortgage, the interest takes up about 95 cents of each dollar paid to the lender. So you're not cutting your payment that much by taking an interest-only loan," he says. Furthermore, not paying any principal now means you'll pay more interest later. And eventually, of course, you'll have to start paying the principal.

In an article published on the HSH Associates website, www.hsh.com, Gumbinger seeks to document why the benefits of an interest-only mortgage are "way overblown."

The fact is that numerous savvy investors have used interest-only mortgages to buy homes for investment purposes. Their assumption is that the property will appreciate in value quickly, helping them build equity in the early years.

"You have to have a lot of confidence in neighborhood appreciation to warrant taking an interest-only loan," Gumbinger says.

n Do a love-hate analysis of your current housing. During his 35 years in the real estate business, Ottwein says he's been struck by the intensity of people's feelings about the place where they live. An assessment of these feelings is a good jumping-off point for setting priorities.

"First, write down the good and bad in your present residence. Then make a list of features you've got to have, would like to have, or are willing to give up," Ottwein says. "When you have a strict affordability ceiling, you've got to be mindful about what's imperative to you versus what you can surrender."

n Choose features early when buying a brand-new home. If you decide to buy in a new subdivision, you're likely to be faced with lots of tradeoffs before your contract is even written.

"Within the standard price, some builders give lump sum allowances for anything ranging from lighting fixtures, to appliances, to landscaping, to kitchen cabinets. Everything else over and above the allowance costs you extra money," Ottwein says.

These choices should be made before the sales contract is written — but not under pressure from a hurried homebuilder or salesperson.

Procrastinators may discover belatedly that they've gone over budget to fulfill a strong desire for, say, cherry cabinets in the kitchen.

Money-constrained buyers who confront hard choices may wish to defer those items that can be readily installed later, such as upgraded landscaping.

n Think seriously before buying a fixer-upper. Given your budget ceiling, you may think purchasing an older home in poor condition is a smart way to shoehorn yourself into a prized neighborhood or to obtain the largest possible property with limited funds. But Ottwein cautions that fixer-uppers often require vastly more money and effort to repair than their would-be buyers believe.

Ottwein urges money-strapped purchasers to get reliable estimates on the cost of restoring a property before committing to a purchase. For bids on the work, your real estate agent should be able to help arrange for contractors.

Planning to tackle the home improvement work yourself? If so, you may wish to canvass friends who know you well, Ottwein suggests. Ask them if they think do-it-yourself work is a realistic option for you — both from the point of view of your skill and available time.

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