A short sale is similar to purchasing a foreclosure, but there are some key differences. For example, a short sale property is not yet fully owned by a bank, while a foreclosure is held by a financial institution.

In a typical short sale, the current owner of a home is upside down on their loan, and they can come to an agreement with their lender to sell the property for the amount remaining on their mortgage. Although a bank takes an immediate loss on their investment, in the long run they can actually save money by skipping expenses, such as legal fees and maintaining the property once it is empty. In addition, a short sale is often less damaging to the finances of an underwater borrower.

Like a foreclosed house, a short sale is often sold as is, so you may be required to make some out-of-pocket expenses for repair and updates. However, since the initial purchase price is often a bargain, you have the opportunity to come out ahead on the transaction. 

Unlike a conventional purchase or buying a foreclosure, the short sales process is often drawn out, since a lender may take a long time to respond to offers, so be prepared to wait.

Prices low

Property values are currently an estimated 34 percent below where they were at the housing market's peak nearly six years ago. This is a result of numerous foreclosed homes flooding the marketplace after households found themselves unable to make their home loan payments.

While this dragged down overall prices across the country, now lenders are attempting to move these distressed properties off of the market to thin their real estate inventories. As a result, buyers can find bargain prices in these homes that are often much lower than a conventional purchase. In fact, many of these homes come with such low price tags, investors are currently buying them in bulk and reselling them for a profit or converting them into rentals.       

However, although these homes are very affordable, they often come as is, and will require some out of pocket expenses for repairs and updates.

Affordable mortgage rates

Another reason why it's a great time to buy a home is because mortgage rates have been below 4 percent since December with the exception of one week earlier this year. These rock bottom rates tip the market heavily in favor of buyers. In addition, since property values are so low, the down payment required to qualify for a home loan is the most affordable it has been in many years.

However, the only current setback of the mortgage industry is that since so many borrowers defaulted after the housing market's collapse, lending regulations have tightened, making it more difficult to qualify. But borrowers with available cash, stable employment and a good credit score should be able to find options.    

Owning cheaper than renting

Meanwhile, as a result of tightening lending standards, many prospective buyers were forced to put their dreams of homeownership on hold as they waited for their financial situations to improve. This resulted in a surge of rental rates across the country. In fact, this spike was so significant that it is now cheaper to own a home than rent one in most housing markets.

Rent out your home while you're away

According to the website, a great way to earn some extra money on your property is to rent it out, especially if you plan on being away for a while. If you have a long vacation scheduled, rather than letting your home sit empty, renting it out will not only earn you cash, it can give you the peace of mind that someone is looking over your property while you are away.

There are numerous outlets to list your rental property for short term occupation. However, rather than handing your keys to the first person who responds to your listing, make sure to scrutinize respondents to make sure the people living in your home for the summer are reputable and responsible.

Plant a garden   

Depending on where you live, the weather that accompanies the summer months makes it much easier to grow plants than during the winter, MSN Real Estate says. While this task is not only therapeutic and good for your mental and physical health, it also gives you an opportunity to save money at the grocery store. By planting vegetables on your property, you could soon find yourself with an overwhelming supply of fruits and veggies, saving hundreds on your grocery bill.

Additionally, if you find yourself with a surplus of items from your new garden, you can set up a small farmer's stand on your property to earn a little extra income.

Share costs with neighbors

One of the biggest new found expenses of the summer involves your landscaping. If you don't have the time or energy to keep your property manicured, but take pride in its appearance, hiring a landscaping company is the the way to go, advises MSN Real Estate.

However, as households tighten their money belts as a result of uncertain economic times, this expense could be getting to be too much. Instead, you should team up with your neighbors to share the cost. Many landscaping companies offer multi-yard discounts, so if you can get a few households on your block to rally together, you can keep your lawn beautiful at a fraction of the cost.

According to a recent report from CoreLogic, distressed properties, including foreclosed homes and short sales, caused prices in 57 of the nation's 100 largest cities to fall in March from a year earlier. However, as buyers continue to recognize these homes for their bargain values, prices could stabilize in the coming months.  

"This spring the housing market is responding to an improving balance between real estate supply and demand which is causing stabilization in housing prices," said CoreLogic chief economist Mark Fleming. "Although this has been the case in each of the last two years, the difference this year is that stabilization is occurring without the support of tax credits and in spite of a declining share of REO sales."

State-by-state, property values in Alabama, Delaware, Georgia, Illinois and Nevada took the biggest hit as a result of the presence of REO homes. The report noted that prices in these markets fell by an estimated 10.6 percent on an annual basis.

If your property needs work to create a better first impression, MSN Real Estate has some advice on how to attract more home buying activity by increasing your curb appeal.

Exterior lighting

Installing tasteful lighting to the outside of your home is a great way to attract buyers, according to the website. Not only will this illuminate the property, if a prospective buyer passes by at night, it can highlight your landscaping and make your home seem more secure.

While you may think that installing a new lighting system to the outside of your home will require a major investment of both time and money to set up a new electrical system, you would be mistaken. Instead, you can opt to put in lights powered by solar panels that run off of their own energy supply.

Edge paths and driveways  

Few projects give a home a crisp look like edging the lawn that lines your driveway and paths leading around the property, MSN Real Estate says.

First, you should select a material that goes with the rest of your property. Popular options include brick and stone. Next, dig enough soil out from the surrounding asphalt so your brick or stone can slide easily into place, and do so after adding a two-inch sand base. This low cost, do-it-yourself project can be completed in as little as a weekend.

Add flora

If you take a good hard look at your property from the street and determine it needs more color to attract buyers, you should plant some flowers, advises the website. If you don't know which particular flowers will flourish in your yard, do some research or consult a local nursery on your options. However, if you don't feel like getting your hands too dirty, you can strategically place potted flowers around your property to keep from digging up your yard. 

Update your hardware

If you manage to get a prospective buyer out of their car and to your front door, you're halfway there. This is where replacing your home's exterior hardware comes in handy. If you have rusty light fixtures or a rattly door handle, you should change these out to add value to your home's appeal.

According to the government-sponsored enterprise, the rate for a 30-year fixed-rate mortgage dipped to 3.83 percent from 3.84 percent a week earlier. This occurrence, paired with rising median household incomes and low property values, could result in a surge of home buying activity in the coming months as prospective owners capitalize on affordable rates.

Experts from the mortgage giant say a number of economic indicators are responsible for rates falling to all-time lows for the second consecutive week.

"Following April's weaker than expected employment report, and the French and Greek election results raising concerns over the stability of the Euro currency zone, long-term Treasury bond yields declined allowing fixed mortgage rates to ease to new all-time record lows this week," said Freddie Mac vice president and chief economist Frank Nothaft.   

Meanwhile, the rate for a 15-year FRM averaged 3.05 percent, a notable decline from the previous week when the rate was 3.07 percent.

Specifically, the report recognized Phoenix, Miami and Orlando – all areas with high rates of foreclosures in recent years – for improvements in both prices and their housing inventories.

"We continue to see signs of stabilization and recovery on the local level throughout the country, basing analysis on the real-time nature and accuracy of the Realtor.com data," said Steve Berkowitz, CEO of Move Inc., which operates Realtor.com. "By all indications, the 2012 housing market is unfolding as we expected, and we’re encouraged with the progress local markets are making."

During the first three months of 2012, the property inventory in Phoenix thinned roughly 48 percent, resulting in a subsequent 26.9 percent increase in property values from a year earlier. Similarly, property values in Miami rose 24.3 percent after the local inventory declined 48 percent, while prices in Orlando surged 11.5 percent following a 41.5 percent dip in its inventory.       

As a result of these improvements, experts anticipate home buying activity in these areas, as well as the rest of the country, to rise in the coming months.

However, before you run out and try buying one of these distressed properties, it's important to remember that the foreclosure home buying process can be very different from purchasing a conventional home. To make sure you understand the process and don't make missteps along the way, Bankrate.com has some advice on how to ensure a smooth transaction.

Talk to professionals  

The route to buying a foreclosure can be filled with new and unfamiliar obstacles, so enlist the help of a few real estate professionals who are familiar with the terrain, recommends the website. This includes an agent who specializes in foreclosures and a preapproval from a mortgage lender.

However, if you are finding it difficult to find a lender who is willing to originate a mortgage for you to buy a distressed home, a real estate agent may be able to help. While they can't approve you for a home loan themself, if they have gone through the process in your area numerous times, they may be familiar with a few mortgage lenders that are more willing to issue a loan for a foreclosure.

Price negotiations are different

Since the title of a foreclosure is held by a financial institution, rather than a homeowners, the process of negotiating a price point may not be what you're expecting. Before you make an offer, it's important that you do your research on how much similar homes in the area cost. This includes both distressed and nondistressed properties.

Additionally, do a thorough assessment of what kind of condition the home is in. To do this, it may be a good idea to enlist the help of a home inspector. If there are any major issues, this may work in your favor and put a more affordable initial price tag on the home. But be warned, foreclosures are often sold as is, and any future repairs will need to be paid out of pocket.

Mortgage application activity on the rise

According to a recent report from the Mortgage Bankers Association, home loan activity rose 1.4 percent during the week ending May 4. This overall increase was spurred by an upswing of purchase requests, as the refinancing share of the index declined.

Refinancing requests fell marginally to 72.1 percent from 72.6 a week earlier, the report found. In addition, government initiatives, such as the Home Affordable Refinance Program and Home Affordable Modification Program, reported fewer requests from distressed borrowers, as the Government Refinance Index fell 2.3 percent from the previous week.   

These trends of rising purchase applications and decreasing refinance activity could be an indicator that the housing market is preparing for its peak season. The fact that the refinance share of mortgage application activity has trended lower during recent weeks could be a result of more current homeowners opting to keep their home loans under the same structure as they gear up to sell their properties.

Home loan delinquencies declining
    
The mortgage delinquency rate of borrowers who were more than 60 days late on their home loan payments was down during the first quarter this year to a rate of just 5.78 percent, marking both an annual and month-over-month decline, according to a report from TransUnion. This is the lowest the rate has been since the beginning of 2009. As a potential result, this could give lenders the confidence they need to extend more lines of credit to prospective borrowers in the coming months.

"To see that quarter-over-quarter, and year-over-year, more homeowners were able to make their mortgage payments is certainly welcome news," said TransUnion U.S housing financial services business unit vice president Tim Martin. "Before this, we saw two quarters of delinquency increases and while we are still about three times above the pre-recession norm, this should mark the start of consistent improvement each quarter."

Prior to this decline, the delinquency rate had fallen for six straight quarters, until appreciating during the final six months of 2011.

Housing affordability reaches 40-year high

As a result of recent changes in mortgage rates, median housing incomes and property values, a report from Fiserv and Case-Shiller found that housing affordability is now at the highest level seen in nearly four decades. Home prices have fallen by as much as 35 percent since the housing market's peak, according to the report, which has been arguably the most significant influence on how affordable it is to own a home now. Property values are now at the same level they were in 1998, which is well before the real estate industry collapse.        

"The precipitous drop in home prices was an immediate cause of the last recession and the financial crisis. Falling home equity has cut into household consumption and has further constrained the economic recovery," said Fiserv chief economist David Stiff. 

Nowadays, at the current median household income, the average American family that purchases a home will only need to allocate 12 percent of their annual income to the investment. Normally, experts advise not putting more than 30 percent of an annual income toward housing, which makes 12 percent a real bargain.

According to Bankrate.com, the first step to pricing your home to sell is doing research on your local housing market. While national real estate averages can say one thing, every local marketplace is different, so the value of your property could be much higher, or lower, than the national average.

To get a feel for how much your home is worth, do some research online, the website suggests. Look at recent home sale records of homes in your area that are similar in size and have comparable amenities. This can give you a ballpark estimate of how much your home is really worth.

The next step is talking to a certified appraiser, advises Bankrate.com. An appraiser will do a walkthrough of your home and give you a certificate stating how much the property is worth. Home prices have fallen by as much as 30 percent in some areas since the housing market's peak, so don't surprised if the value is less than you initially bought it for.