Jennifer Wallace turned 35 last year, she vowed she would own a house by age 40. But now that her landlord is raising the rent on her three-bedroom apartment in Bedford-Stuyvesant, Wallace says she is hoping to buy a house in Nassau County for herself and her two children next summer.

Over the past year she has worked to improve her credit profile by paying down debt. At this point, Wallace says, she doesn't know what her credit score is because she's afraid to check it. But she plans to get a credit report once she clears up a few more bills.

A case worker at Elmhurst Hospital by day and a bartender by night, Wallace has set aside $8,500 for a down payment. And she says she is planning to take a first-time home buyers class through her union to prepare for such a big responsibility.

Her goal is to sock away another $1,500 and start looking at homes in the $300,000 to $400,000 range in Baldwin, Freeport, Hempstead, Uniondale and other communities.

Wallace's agent, Daphnee Doresca of Century 21 Laffey Associates in Westbury, told her that to obtain a mortgage she'd need to save more money. These days, with delinquency and default rates soaring, the banks want larger down payments and greater reserves in the bank. To deal with this higher bar, Doresca suggested Wallace look into a first-time home buyers program that helps with closing costs or down payments.

The turmoil in the market has dismayed Wallace, who finds the new requirements very intimidating.

"It's discouraged me having to have a stronger credit score and larger down payment," says Wallace, who grew up in a house in Brentwood and in Central Islip and wants her young daughter to have the same lifestyle. "It's gotten me a lot more nervous than before."

Doresca says she finds that more of her clients - especially first-time buyers - are having a tough time obtaining mortgages. Several lenders, including those who catered to subprime borrowers with less-than-perfect credit, have gone out of business. Others have eliminated loans that offered super-low introductory interest rates or no down payments.

Before the summer, Doresca says, she could get a loan for "just about anybody who came to me." Now, one in five of her customers is running into trouble. That's why she counsels those interested in buying a home to see what kind of financing they can get before they start looking. Those who got their mortgage pre-approvals months ago should check to make sure they still qualify and that the programs still exist. That way, they know they can follow through when they put down an offer to buy a home.

"They have to be pre-qualified," Doresca says. "It's not the same story as six months ago."

In the last two or three weeks, though, some banks have started offering new mortgage programs - requiring full income documentation - in certain lower-income neighborhoods to spur home buying, she says.

One development that will help Wallace and others looking to own instead of rent is that home prices have fallen in recent months. Real estate brokers around the Island report slides of up to 10 percent in many communities. In some places it's even greater than that.

"The drop in prices has put a lot of otherwise on-the-fence buyers in the market," says Lynn Law, director of education and counseling at the Hauppauge-based Long Island Housing Partnership, which runs a first-time home buyers program. "Homes that two years ago would have been out of their reach are now affordable."

As far as Johnny Matos is concerned, prices haven't come down enough. The Levittown native recently sold his home in Orlando, Fla., and returned to Long Island after getting married. He and his wife, Mirtalita, a high school language department chairwoman, are renting a one-bedroom apartment in a Wantagh house.

For the time being, Matos says, he thinks it's more economical to rent than to own. He is paying $850 a month but figures he would likely pay about $4,000 a month in mortgage payments, taxes and insurance if they bought a home.

Still, he expects to purchase a place in the $400,000 to $550,000 range in the next year because his wife wants to start a family. He says he's hoping prices will drop more by then.

"In the last year nothing has enticed me to buy," says Matos, 48, who owns a kitchen cabinet business. "For me, it's just waiting until somebody gets desperate."

TRADE-UPS

A year ago, Carolyn and Todd Segarra could have started searching for a larger house before landing a buyer for their Island Park home.

Not anymore. Like many couples looking to trade up, the Segarras were told not to bid on anything until they had a firm buyer for their two-bedroom, two-family house.

Now that they have an infant son, the Segarras need more room. They are looking at Wantagh because they like its "kid-friendly" neighborhoods and they have family and friends there.

Last spring, they listed their home at $569,000, accepting that they couldn't get the $600,000 they had hoped for. In August, the couple lowered the price to $539,000.

The Segarras had some offers, but they fell through after the bidders couldn't obtain mortgages. In the meantime, they aren't looking too intensely for their next home.

At this point, Carolyn Segarra, 38, says she's not panicking because she has time to wait for the right buyer since Todd Jr. is still in diapers. She says she and her husband, 39, who owns a bagel store in Queens, are not concerned about having trouble finding a larger home in the $550,000 range, since they say there are a lot of homes on the market these days.

One thing she says she is not going to do is drastically cut the price of her home just so it will move.

"Don't devalue your house because of what's going on," says Segarra, a financial manager at a pharmaceutical advertising firm in Manhattan.

The Segarras' agent, Michael Scully of Century 21 Scully Realty in Island Park, says he advises his clients to wait until they have an offer in hand and inspectors on their property before they start looking seriously.

"We've just come out of a market where you could buy before you sell because you could sell your home in a week," Scully says. "That luxury doesn't exist anymore."

Even better, they should hold off until they know the buyer can secure financing, since so many are having trouble getting mortgages nowadays.

To get potential buyers to look at your home, you have to price it properly, Scully says. That's tougher to do in this ever-changing market. For the Segarras, Scully looked at the sales of nearby homes in the previous eight months. The most similar was one that went for $578,000. He suggested the Segarras price their home about $10,000 less in hopes of attracting buyers. After the mortgage guidelines tightened this summer in the wake of rising defaults, he advised lowering the price by another $30,000.

"You have to evaluate the number of showings and listen to the offers," he says. "A lot of times we don't know what to expect."

Even though trading up can be tricky in this fluid housing market, there are some benefits, says Paul Garrett, licensed broker-owner of Deblat & Garrett Real Estate in Oceanside.

While sellers may get less for their homes, they're often able to swing deals for their future homes, he says. Also, since homes are sitting on the market longer, those looking to trade up usually don't have to jump on the house of their dreams as they did in years past, Garrett says.

"It may take them longer to sell, but they will have the pick of the litter to buy," he says. "Chances are the homes will still be there several months down the line."

His clients, Joy and Gregg Fowler, have their eye on a house in Seaford, but first they have to sell their Baldwin home where they are raising their four children, ages 19 months to 9 years. The couple put their two-family Victorian home on the market in September at $649,000, and in early November, they reduced it to $624,000.

The Fowlers are pretty picky about what they want in their new home, which would need to have four bedrooms, nice property and a garage for 39-year-old Gregg Fowler's landscaping company equipment. While they are looking in several communities in southern Nassau and eastern Suffolk, they haven't found too many they've liked so far other than the one in Seaford.

"Hopefully it will still be on the market, but there are plenty of other houses out there," says Joy Fowler, 34, a stay-at-home mother.

STRUGGLERS

Bonnie Costa-Licker has until May to find a new mortgage or she could lose her Kings Park home.

The mother of three grown children, Costa-Licker is facing the resetting of her $452,000 adjustable rate mortgage, which will raise her payments by $700 a month to more than $5,600.

Though she knew the terms when she obtained the loan in March 2006, she had to take it because it was the only way she could keep her home of 27 years after her divorce. Costa-Licker says she thought she'd be able to pay down some bills and fix errors on her credit report so she could refinance to a lower monthly payment.

"I thought I would refinance after improving my credit, and I would get a better rate," says Costa-Licker, a computer lab assistant at Rocky Point High School who is in her late 40s.

But with the mortgage market in turmoil after the default rates soared nationwide, lenders have raised their standards. Now, Costa-Licker's credit score, which is in the mid-600s, isn't good enough to get her a prime mortgage with a rate of about 6.5 percent. The banks want at least 700, she says. Even worse, the value of her home is slipping so she now has only $100,000 in equity in it, down from $140,000 when she took out the mortgage.

Her best hope right now is a mortgage carrying a rate of between 7.5 percent and 8 percent, which would reduce her payments by about $1,000 a month. She's working with a broker to land that loan, but she's not sure she'll qualify for it.

"I'm very worried," she says.

A growing number of people are struggling with mortgages whose rates will reset soon, experts say. These readjusting ARMs are one of the main reasons Americans are falling behind in their monthly payments. Foreclosures have hit record levels, and delinquencies are at a six-year high.

Now that it's harder to refinance, homeowners really have to shop around and call many lenders, says Eileen Anderson, senior vice president at Centereach-based Community Development Corp. of Long Island, which offers foreclosure prevention counseling. That includes their own lender.

"We are seeing them do modifications they weren't doing before," Anderson says, noting the earlier homeowners call, the more options they may have. The lenders "don't want these houses back on their books."

Those who can no longer afford their mortgages should contact a housing counselor certified by the federal Department of Housing and Urban Development. Counselors can explain loan terms and can reach out to lenders or servicers to negotiate on one's behalf.

Also, the counselors can go over one's income, budget and credit history to determine if there are options, says Yvette Pacheco, deputy director of Nassau County's Homeownership Center, which provides foreclosure prevention counseling.

"We go over whether they even have the ability to keep the house," Pacheco says.

That isn't always the case, so the center's staff also works with some homeowners to do a "short sale" before they go into foreclosure. In a short sale, the bank agrees to take whatever the homeowner can get for the house if it's not enough to satisfy the loan.

Vivian of West Sayville, who didn't want her last name used, says she has tried to negotiate with her lender and has called more than 20 others, to no avail. The claims correspondent got an option ARM in January 2006 which costs her $2,500 a month, not including taxes and insurance. When it resets in February, her monthly bill will rise by $1,000, which she can't afford.

When she took out the mortgage, she thought she'd soon convert to a fixed-rate mortgage with only a $1,900 monthly payment. But, she says, a fraudulent broker altered the paperwork, leaving her with the costlier ARM. She now regrets not having asked more questions or hiring a real estate attorney to go over the loan documents.

Vivian says she knows she's in a tough spot because her home is now worth less than her $400,000 mortgage. And her husband's credit isn't very good, she says, so lenders are not willing to refinance her mortgage.

She sent a hardship letter to her lender, Option One, asking for either a loan with a fixed rate or one with comparable payments to what she has now. But the lender denied her request.

"I don't know what to do," Vivian says. "I don't want to lose the house."

INVESTORS

The recent downturn in the market has made Jack Geoffroy all the more interested in investing in real estate.

Geoffroy, 56, who owns a wholesale seafood company but has dabbled in real estate for more than 30 years, is looking for Hamptons houses he can renovate or vacant pieces of land he can build on. Now that the prices have come down a bit, he says he hopes to be even more involved.

But the Sag Harbor resident acknowledges that the landscape has changed in recent months. He accepts that the properties he buys are no longer going to soar in value as they have in recent years. "I'll make whatever I'll make," he says.

Geoffroy is also more careful these days on what he spends for an investment property and how much money he puts into it for renovations. He's had to lower the price of a waterfront Southampton home he put on the market in October, about a year after he purchased it for $950,000. It's now listed at $1.295 million, down from $1.395 million, reducing the profit he had hoped to make.

Financing also has become tougher, he says. The banks want more money down and are charging a higher interest rate. They also are doing more thorough background checks, which can slow the process.

Those who have good credit, however, will be fine, he says. Geoffroy also has another option: He can take out home equity loans against the property he already owns to buy new ones.

"You can still do it ... it just takes a little longer," he says. "To me, it's a good time to get involved if you can come up with the money. You just have to be careful with the renovation budget."

Geoffroy has a rosier view of the housing environment than some. Industry insiders say it can be tough to make money in this market.

The key to investing now is to get a good price when buying the home and not to over-invest in fixing it up, says Beth Troy, a licensed real estate saleswoman with Town & Country Real Estate in East Hampton. It's harder to make a nice profit when flipping properties since homes are sitting longer on the market and are commanding less, she says.

"Don't overextend yourself," she warns.

In the past two months, she's noticed that sellers are becoming more realistic and adjusting their prices to the market. Some of these homes are now getting multiple offers, she says.

Still, a lot of professional investors are pulling back, says Todd Yovino, owner of Huntington-based Island Advantage Realty, which sells bank-owned property. These investors are having trouble getting financing to purchase homes and finding buyers for them.

"Investors are sitting with inventory trying to sell it," Yovino says. "They can't. We're in a whole different world."

SECOND-HOME BUYERS

Second-home buyers such as Norman Yohay don't have to worry about the tightening of the mortgage market.

Yohay, a Great Neck resident who is looking to trade in his two East Hampton weekend homes and purchase a nicer one, has a good credit history and a great relationship with banks. He recently sold one house for the original asking price of $2 million and says there's a lot of interest in the other one.

He has started shopping for his new weekend home, which will be in the $5 million-plus range. He had initially thought he would buy south of Montauk Highway because he felt it would be a better investment. But Yohay found that the homes in that price range didn't offer the privacy and quietness he's used to in the Hamptons. So Yohay's now looking at properties in the woods north of the highway, where he's owned homes for 18 years. He's hoping to find a deal.

"There's so much uncertainty in the marketplace that there should be some good opportunities," says Yohay, 51, the owner of a consumer sales and marketing company.

And, some say, prices may go down further.

Now is the best time in years to buy a second home because of the number of houses for sale, says Christopher Chapin, a licensed sales associate with Prudential Douglas Elliman in East Hampton. There are deals to be had on homes selling for up to $4 million north of Montauk Highway, he says. The best finds are modest homes on smaller plots in the smaller communities north of the highway. But luxury homes of up to 7,000 square feet on up to four acres are selling for 25 percent less than they did two years ago, Chapin says.

Homes selling for less than $1 million were hit the hardest by the mortgage market meltdown, he says. Buyers for these homes are more dependent on traditional mortgage financing and have had a harder time securing it. So these homes are sitting on the market longer, and the sellers may offer better deals if they really want to get rid of the property.

A home valued at $1.25 million two years ago could be had for $975,000 today, Chapin says. In Amagansett, for instance, there were fewer than a dozen homes on the market two years ago. Now, there are more than a hundred properties available.

"People had been on the sidelines," he says. "They are now jumping in."

DOWNSIZERS

Now that they are retired, Don and Barbara Fratta have put their Dix Hills home on the market. The couple, former teachers, plan to rent an apartment in Manhattan to be closer to their two daughters and to the city's entertainment.

They say they want to take advantage of the run-up in housing prices in recent years. They bought the house in 1986 for $265,000 and listed in April for $689,000.

But they also are feeling the effects of the market's turn. They had to come down $30,000 in July and they still weren't seeing a lot of traffic. In October, they took it down to $629,000. In mid-November, they had an open house for agents and no one came.

"It's dried up," says Don Fratta, 60.

The Frattas, however, have the luxury of time. They are in no rush to unload their four-bedroom house.

"We're not being pushed to move," Don Fratta says. "It just seems like the next thing to do."

Long Islanders looking to sell their homes and downsize must keep a few things in mind, says Wendy Osinoff-Sutton, sales manager at Daniel Gale Sotheby's International Realty in Old Westbury, which is working with the Frattas.

First, sellers must price the house properly. They should look at what comparable homes in the neighborhood commanded in the past few months, not in the past year or two. The longer the house sits on the market, the more potential buyers start to wonder what's wrong with it, she says.

"The worst thing is to put the house on the market at too high a number to test the waters," Osinoff-Sutton says.

Those who really need to move quickly can consider offering incentives for buyers, Osinoff-Sutton says. For instance, some sellers are offering to pay points on the buyer's mortgage. This reduces the buyer's interest rate, which may make it possible for them to afford the purchase.

But don't wait to sell because you think the market will improve in a few months, says Alan Deblat of Alan Deblat Real Estate in Baldwin.

"Waiting isn't going to help," Deblat says. The housing downturn "is going to be a long, drawn-out process."

Some homeowners, particularly retirees, want to sell fairly soon to cash in on the rise in home values in recent years. They figure they can bank part of the gains to fund their "golden years."

That's one reason Joseph and Kathleen Policano are planning to put their East Hampton home on the market in the spring. The couple bought the home 30 years ago as a vacation home when they lived in Laurelton, but started living there full time in 1990 after Kathleen retired from her teaching job.

The Policanos say they are hoping to reap the gains from selling the house, which they plan to list for $1.3 million but would lower if the market dictates. They'll use some of the funds to buy another home, possibly a condo in Florida, and bank the rest.

Another reason they want to sell their home is that they are tired of the upkeep, including the contractors who never show up, the lawn that needs mowing and the pool that requires repairs.

But they aren't in a rush to leave. Their grown children love visiting them there, and two of their grandsons live with them and attend East Hampton Middle School. The couple is debating whether to move before their grandsons start high school in 2009.

Between now and March, the Policanos plan to fix up the house to prep it for a spring listing. They will stain the exterior, do some landscaping and turn a shed by the pool into a bath house.

"The agent said it's a better selling season," says Joe Policano, 73, who owned a public relations agency. "It's a waste of time to put a house on the market before March."

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