Hi Home Buyer,
My first recommendation would be to sit down with a reputable, recommended lender. Have them provide you with a pre-approval, present you with options (programs, rates, etc.) and ask them a lot of questions. After you meet with a (good) lender, you will know where you stand, what price range/payment you qualify for, if you require seller paid closing costs, etc. At that point, you can decide if you are able to purchase the home you really want. Next, armed with the information the lender provides, you need to decide what you feel you can comfortably afford (principal, interest, taxes & insurance) to pay monthly. You should have a personal budget that includes all of your expenses, so you can protect yourself from becoming "house poor." One question, are the rents comparable to what your mortgage payment would be? After you have analyzed your financial picture, and you have a full understanding of your options, it's time to talk to your Realtor. Is this a home that you plan to own for 10, 15, 20 years? I don't necessarily agree that it is a bad time to buy, of course a good Realtor who specializes in your market area will be able to better answer that question. My thoughts - if you get into a home now, negotiate a good deal, make a commitment to that home for at least 10 years, now could be a good time. If homes in your market are continuing to drop, as Blayne mentioned, than you may want to work with your Realtor to time your purchase. Real Estate runs in cycles, always has. Even though we're in a rough market, the values will come back around when the market normalizes. There a numerous benefits to home ownership (like the tax benefits) and I still believe that real estate, in the LONG run, is a good investment. Sellers are willing to deal right now and buyers are getting incredible prices. There are investors buying up homes, in many different markets, and renting them with plans to sell (at a profit) when the market stabilizes. My home's value, just like everyone else in my market, is not what it was in 2005, but I have a nice home that I enjoy, I get the tax benefits, and I know the value will return when it's all said and done. I'm certainly not going to sell it and rent because it is going to continue to decrease in value for the next year(s). Bottom line, surround yourself with trusted, reputable, experienced professionals and use YOUR best judgement.
I wish you the best and hope things work out well for you.