Top 5 things homebuyers and sellers should do now (© Comstock Images/Jupiterimages)

With bank failures and bailouts topping each day's headlines, it's hard for most buyers and sellers not to get discouraged. But for many, the show must go on, due to job relocation, divorce, space or school needs.

MSN Real Estate asked mortgage and real-estate experts for their advice to buyers and sellers caught in the market's downward spiral. Here are their top five tips for those navigating the mortgage crisis.

5 homebuyer tips
For some buyers, it is the best of times and the worst of times. Homes in many areas are selling for as little as half of what they were fetching two years ago. But, with the number of foreclosures continuing to rise in many markets, it's also hard to determine how much lower home values will drop.

The lending climate is difficult, too. While rates on many types of loans are at historic lows, fewer people are qualifying for them. So, experts say, it pays to prepare a little before you dip a toe in these treacherous waters. 

1. Amass a decent down payment, but not at the cost of your emergency fund
After the excesses of the past few years, brokers say, you will need a substantial down payment to get good financing. The no-money-down era of lending is gone, and most buyers should expect to put anywhere from 5% to 20% down, unless they qualify for a Federal Housing Administration loan, which requires 3% down (3.5% as of Oct. 1.)

The less you put down, the more you're going to pay for mortgage insurance.

Discuss:  How is the housing crisis affecting you?

But be careful not to drain your bank accounts, either, in this age of financial and job uncertainty, says Rhonda Porter, a certified mortgage planner. She recommends that buyers practice making six months of mortgage payments into a bank account to use as an emergency fund.

"This isn't the time to be buying a house and tapping everything you have in the bank," Porter says.

2. Choose a loan originator wisely
Selecting a good mortgage broker or lender is one of the most critical and difficult tasks for buyers, since there are currently no national licensing standards in place. Porter recommends that buyers start out the old-fashioned way, by taking referrals from friends and colleagues.

Buyers should ask how long a broker has been in business, do Internet searches to see if his or her name is mentioned in unflattering or criminal ways and check his or her record with state regulatory agencies.

What's your home worth?

Porter recommends looking for originators that are FHA certified because they have more hoops to jump through to get that status and because it gives buyers the option of an FHA loan. These have had favorable rates compared to other loans lately and they require smaller down payments.

Once buyers have narrowed their list to three names, they should interview these brokers or lenders and get pre-qualified with at least two of them to see what range of options they can offer. A good broker, she says, will ask a lot of detailed questions about your income and assets upfront, so there will be less of a chance for surprises when it is time to get approved for a specific purchase.

3. Get pre-qualified as early as possible
There are a couple of reasons for this, brokers and agents say. First, buyers need to know how much house they can afford and what kind of money they will need for down payment and closing costs, says Miami real-estate agent Sandra Fernandez of Realty World International Gateway. "I tell my clients, 'Let's do this right from the beginning. Let's make sure you qualify, and make sure you know what amount you qualify for,'" she says.

There's no way to get good estimates on rates, brokers say, unless you pre-qualify, because the lending landscape has changed dramatically.

Clear this hurdle and ask for good-faith estimates and the costs associated with those rates to use in your calculations. This is simple and doesn't require a lot of documentation. That comes later, when you get pre-approved for a purchase.

Getting pre-qualified early also can give borrowers with decent credit time to make small adjustments that will affect their credit score, and get better rates.

Credit scores are put in bracketed ranges for pricing, Porter says, so missing a range by a digit or two, could set you back one-eighth to one-fourth of a point over the life of the loan and add to your closing costs.

Get all your documentation together — pay stubs, bank statements, etc. — before you start hitting open houses, says Holden Lewis, who covers mortgages for

4. Reduce your exposure to risk
Once you have selected a mortgage broker or lender, it's time to start checking out houses. Make sure your agent has done all his homework about the areas you're interested in before you take your first tour.

In addition to analyzing trends in value, agents should be scanning foreclosure data (from notice of default to bank repossessions) to make sure they know where the deals are, and whether or not there are so many foreclosures in the neighborhood that they'll pose a threat to home values in the years ahead.

In foreclosure-riddled Homestead, Fla., Fernandez says, some lenders are accepting half of what a property sold for several years ago, even though some properties in the area are listed for much higher.

Once you've found a property you want to make an offer on, ask for a contingency in the contract that lasts longer — through closing if you can manage it — that will allow you to get out of the deal without penalties if your financing falls through, says Jon Eisen, a San Diego mortgage broker and certified financial planner.

5. Get a rate lock — with a key
The turmoil in the financial markets has had rates really fluctuating, making it difficult to know when to lock in a rate. Your best strategy is to work with a lender who offers a float down. This is a chance to renegotiate your rate if it drops substantially — by a quarter-point or more, Porter says. So, before you settle on a lender, ask if it provides this kind of flexibility to borrowers. That said, Porter adds, you still need to lock in a rate within 30 days of closing.