Spring is normally the busiest time of year for real estate agents and brokers, and this year looks to be more of the same.

As February’s colder-than-average temperatures started to rise, the real estate market also began heating up. Sales of existing homes rose, as did home prices. In a housing industry forecast, secondary mortgage market player Freddie Mac said this could be the healthiest spring home-buying season since 2007.

Whether you’re a first-time homebuyer or a seasoned investor thinking about buying a home, here are three trends to watch for as the spring home-buying season comes into full bloom:

1. Home prices are on the rise.

Home prices have continued to climb upward. From early 2012 to early 2013, home prices rose by 8 percent—the most since mid-2006.

This increase in home prices is due, in part, to real estate investors dumping money into the housing sector. Investors right now account for a larger portion of buyers compared to recent years or to what is typical in a normal housing market.

But prices can’t go up forever—and certainly not at a rate of 8 percent per year. In fact, it’s likely that the housing recovery will be shaky, with prices fluctuating up and down. At the beginning of 2013, for example, not all real estate markets experienced the same housing sales upturn. Although home prices for all 20 cities tracked by the Case-Shiller home price index rose at the start of 2013, some cities—like New York, Chicago, and Boston—experienced only limited growth.

If investors suddenly drop out of the housing market, or if a large number of homeowners sell at the same time—thereby drastically increasing available inventory—housing prices could take a dive.

2. Housing inventory is limited.

Limited housing inventory (the homes that are available for sale at any single point in time) is what’s driving the housing recovery and contributing to the rise in home prices. March’s housing inventory—with over 1.5 million homes on the market—was down by over 15 percent from the year before, according to Realtor.com.

Tighter supply and increasing demand means buyers will pay higher prices for the homes they want. While home prices are rising, most homeowners can’t afford to sell until prices climb even higher. Due to the high cost of the commission and other closing costs and fees, it can cost up to 10 percent of the sales price to actually unload a property. This is especially true for the 13.8 million owners whose homes were worth less than the mortgage amount owed.

3. Interest rates remain low.

Interest rates remain at historic low levels, and that has propelled interest from buyers in all price ranges.

Since 1971, the 30-year fixed mortgage interest rate has dipped below 4 percent in only 15 months—and those were the 15 consecutive months ending February 2013, according to the most recent data available from the National Association of Realtors.

The national average commitment rate for the 30-year fixed-rate mortgage was 3.53 percent in February, down from 3.89 percent the year before, according to Freddie Mac.

Despite a slight uptick in home prices, low mortgage interest rates are keeping homes affordable in many parts of the country. And while that’s great news for potential homeowners, these affordable homes are also driving more investors to the market. An investor-driven recovery is a shaky one, and if that’s what we’re experiencing, we could be in for a rude awakening.

Ilyce Glink is the author of ten books, including the bestselling 100 Questions Every First-Time Home Buyer Should Ask. Her nationally syndicated column, “Real Estate Matters,” appears in more than 125 newspapers and Websites, and her online “Ask Ilyce” columns are read by hundreds of thousands of people every month. She is a top-rated radio host on WSB Radio in Atlanta, the Home Equity blogger at CBS MoneyWatch.com, host of the Internet program “Expert Real Estate Tips,” managing editor of the Equifax Personal Finance Blog, and publisher of ThinkGlink.com.

Who is at fault in this sticky situation, and how is your unit covered?

“The worst thing is for folks to do nothing on the assumption that someone else’s insurance will cover the damage,” said Rich Rykens, a claims team manager from State Farm.

This could turn into a complex situation because multiple parties are involved, including the other condo owner and possibly the condo association. In addition, your condo association’s bylaws—and even state laws—may affect who ultimately foots the bill.

Although it’s difficult to look at this scenario and immediately determine who is responsible for the damage in your condo, there is a protocol that you can follow to get the mess cleaned up.

Be proactive. Immediately file a claim with your own insurance company, which may cover the damage according to the limits of your condo owner’s policy.

Unlike homeowners insurance, there is no standard insurance policy for condo owners. The type of insurance policy you have as a condo owner is dependent on the master policy held by the condo association. You probably contribute to this on a monthly basis through assessments. Although it differs from building to building, the condo association master policy usually covers the building’s structure, exterior parts, and shared spaces.

Once you file a claim with your own insurance company, it will investigate whether or not a third party—like the upstairs neighbor, the condo association, or a plumber—was responsible, said Justin Herndon, a member of the Allstate National Media Team.

If a third party is at fault for the damage in your unit, your insurance company will then subrogate the claim with that party, which means it will try to recoup what it paid out in the claim. If your insurance company is able to recover any of the costs, it may refund you for repairs paid for out of pocket, according to Rykens.

This procedure should apply to submitting insurance claims for other types of damage in your condo. Shared living spaces can be difficult at times, but as a condo owner, it’s important to read both your master and individual policies so you understand how you are covered before coming home to another accident.

Ilyce R. Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask and Buy, Close, Move In!. She blogs about money and real estate at ThinkGlink.com and at the Home Equity blog for CBS MoneyWatch.

While thereal estate market is still making a slow recovery, there’s more activity on the home renovation front. A strong rebound for home improvement activity is expected in 2013, according to the Joint Center for Housing Studies of Harvard University, which reported that robust spending in the second half of 2012 may have kicked off a remodeling recovery.

“It’s encouraging to see the residential sector finally contribute to growth in our economy,” said Eric S. Belsky, the Joint Center’s managing director.

“Through the first three quarters of 2012, investment in the residential sector was responsible for one out of every six dollars added to our GDP. Moving forward, home improvement spending is expected to make an even larger contribution to GDP growth.”

Even though the home remodeling market is on the upswing, it can still be difficult to find the right design matches that meet your needs both aesthetically and financially.

Before you dive into your next remodeling project, consider these five ways social media can help you get the job done.

1. Organize your ideas

You no longer need to go through the painstaking task of combing through stacks of magazines, tearing out photos and tacking them to a bulletin board. Social media sites like Pinterest offer you a new kind of filing system where you can collect photos from around the Web and organize them into categories—sometimes called idea boards or inspiration boards. If you are renovating your bathroom, for example, you could create an entire board devoted to tiles and aggregate all of your favorite colors and patterns in one place.

2. Get inspired

It’s easy to get burned out when remodeling and hit a creative dead end. Are you renovating your home office and unable to find the right accents to make the room feel warm and cozy? Social media can help you find new inspiration during your remodeling effort by seeing what your friends—or even complete strangers—are doing with their homes. Most social media sites allow you to see the idea boards that other users are making.

If you use the website Project Décor, for example, you can follow other users and keep up with the design and home furnishing products they are finding through a customized news feed. Maybe someone you follow will add a desk chair to a design board, and that chair’s color, style, or designer will inspire you. If you share your own ideas publicly, you might also inspire other remodelers looking for a creative push. On Pinterest, follow the topic “home décor”—you’re bound to discover new ideas and trends.

3. Estimate your costs

You can search for remodeling ideas all you want, but when push comes to shove, you need to know that you will be able to finance your project. It’s fun to be creative and think big, but you also need to stay practical. On Zillow Digs, which is both a website and an iPad app from real estate site Zillow, you can peruse photos of real renovations and determine how much it will cost you to recreate the same remodeling effort. Zillow Digs uses an algorithm that considers the cost of contractors, materials, and labor in your own city. With this cost breakdown, you’ll get an idea of how to budget for your own remodeling projects.

4. Find home professionals in your area

If you are unsure whom to call for remodeling help and you want to see work portfolios before picking an architect or interior designer, social media can be a helpful resource. With a social media app like Houzz, you can easily search for home experts in your area with filters for type of professional, location, and the “most reviewed” or “recently reviewed.” Not only will you be able to access information on the professionals, but you can also see examples of their work. If you are trying to make your home energy efficient, you can also check out architect and design work done on green homes.

5. Collaborate

Social media sites allow you to seamlessly engage, interact, and network with others. If you join a social media network that focuses on home remodeling, you’ve found a space where users with similar interests and hobbies can gather to share ideas. For example, Houzz has a discussion board where you can ask questions of fellow remodelers or provide advice to others based on your own experience. You can also post a photo of an unfinished room in your home and ask for feedback on what type of furniture or decorations you should add. The number of users that will weigh in with useful suggestions that will help you take your project forward—and the speed with which they’ll reply—may surprise you.

Ilyce R. Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask and Buy, Close, Move In!. She blogs about money and real estate at ThinkGlink.com and at the Home Equity blog for CBS MoneyWatch.

Here are four signs that the housing market is recovering:

1. Unemployment is falling.

In order to have a strong real estate market, you need a strong job market. The unemployment rate fell to 7.7 percent in February, its lowest level since December 2008. February saw 236,000 jobs added to the U.S. economy, which is more than was expected.

2. Home equity is increasing.

Almost two million homeowners moved into a positive home equity last year, according to a recent report from real estate website Zillow.com.

While 15.7 million people had underwater mortgages at the end of 2011, meaning that they owed more on their mortgage than their home was worth, that number dropped by 12 percent to 13.8 million people at the end of last year. Zillow forecasts another 7 percent of homeowners will also have positive home equity by the end of 2013, mostly due to increasing home values.

3. Home values are rising.

Home prices across the country climbed 9.7 percent in January from a year ago, the largest increase since April 2006 and the 11th straight month home prices have risen nationally, according to a new home price index report from CoreLogic. The report showed that all states, except for Delaware and Illinois, saw year-over-year price gains.

4. Home equity lines of credit are rising.

Home equity lines of credit (HELOC) are also on the rise, with a 19 percent increase in originations at the end of 2012. However, this is considerably lower than the pre-recession peak in 2006, according to an Equifax report.

HELOCs can still be difficult to get, and lenders tightened their borrowing requirements after the financial crisis and housing market collapse when they lost billions of dollars worth of loans. While lending has increased, lenders are staying conservative. The average home equity line in October 2006 was more than $100,000. It was slightly below $90,000 in October 2012.

Lenders are giving loans to the people with the highest credit scores, so if you can’t get a loan right now, you might want to spend time improving your creditworthiness. People with lower credit scores might receive higher interest rates or not be able to take out a loan at all.

To see if the housing market is recovering in your neighborhood as spring comes into bloom, watch for more pending home sales and more homes increasing in value.

Ilyce R. Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask and Buy, Close, Move In!. She blogs about money and real estate at ThinkGlink.com and at the Home Equity blog for CBS MoneyWatch.

Recently, several companies have been seen advertising what seems like a potential lifesaver for these folks. If you are stuck in your home, but want or need to move, they will rent out your home for a set period of time. In exchange, you agree to purchase one of the company’s new homes.

The program is frequently offered by homebuilders who have had their own struggles moving their inventory since the housing bubble burst or by organizations working in partnership with the homebuilders.

The deal initially looks pretty great. For a couple of years, and without any risk on your part, the mortgage, taxes, and insurance on your old home could be completely covered, while you are free to move on with your life in a new home. The builders who are trying to sell homes nobody is buying get a sale in exchange for a small investment. And, hopefully, the builders find a renter that covers most of that investment.

In the best-case scenario, you’d buy a new home and sell your home down the line after receiving rent payments during the guaranteed time—let’s say it’s three years. The home would stay in great shape and a buyer would walk through the door and take the home off your hands at a price that pays off all your debts. But that might not always be the case.

Consider the risks

The first question to ask yourself is whether you will be prepared to take over this property again and what that will mean to you. Will three years buy you the time for local market conditions to improve enough that you will have an easier time selling your home at the price you want?

Before you even consider this kind of deal, you should know exactly what is happening in your local market—not just in the headlines that say prices are going up nationally. You need to know what home prices are at the moment and what they are projected to do in the future. You also need to know what the demographics of the area are and how they are changing. Three years’ time may make all the difference in selling your home or it may make no difference at all.

Here’s another issue to consider: Let’s say you do this deal, and your home gets rented to a tenant. Those three years could take a toll on the home, which then might require substantial repairs to bring it up to selling condition.

And what if you can’t sell? What if you can’t get enough from a sale to pay off your mortgage? You’ll be stuck with the cost of your new home and the cost of maintaining the old home. You will either have to become a landlord outright or you might have to try a short sale.

If you tried a short sale, this might not be so bad, except now the home may not be considered your primary residence (according to the IRS). Depending on where tax rules sit, you may have to pay taxes on the amount of debt the lender forgives in the short sale. That could be tens of thousands of dollars alone.

What does this mean for homeowners? Renting out your home could be a good option for those who need to move, and these deals can make that easier. But homeowners need to evaluate their circumstances and the possible effects of a rental situation. If you are an underwater homeowner, you may feel trapped and desperate for options, but it’s just as important to make sure you’re not causing more problems in the long run.

Ilyce R. Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask and Buy, Close, Move In!. She blogs about money and real estate at ThinkGlink.com and at the Home Equity blog for CBS MoneyWatch.

If you find yourself stuck in this situation and have decided to rent your home, there are a few things you need to understand to prepare yourself and your home to enter the rental market.

Being a landlord

Not everyone is cut out to be a landlord. You are part leasing agent, handyman, and property manager, often on top of your day job. There are myriad potential issues that could come up—your tenants don’t pay rent on time, they move out without telling you, they have problems with your neighbors—and you need to be ready to kindly and patiently deal with them.

Think of as many worst-case scenarios as possible and find out how you would deal with them.

• What kind of lease will you use?
• What are your legal obligations in the area in which you live?
• What is your legal recourse in a given situation?
• How will you mediate disputes with tenants?
• What professionals could you lean on if a situation gets out of hand?

Having the cash

A lot of homeowners turning to renting are already under financial duress, even before considering how much money they need upfront to keep their rental afloat. Do you have enough cash to cover these common situations?

• Months where you have no tenant
• Regular maintenance or repairs
• Emergency repairs
• Damage to your home that exceeds your tenant’s security deposit

Also keep in mind that the rental price is determined by the size, location, and condition of the house and is not set by adding up your mortgage, taxes, or insurance. If you can’t make the rent work to cover your expenses, you will need the cash to fill the gaps.

Having the insurance coverage

You will need to switch your homeowner’s insurance over to a landlord’s insurance policy, which will protect your building from damage and help you guard against financial losses.

While the coverage is often similar to homeowner’s insurance, you want a separate insurance policy to cover renters for two reasons. First, if you fail to notify your homeowner’s insurance company that you no longer live in the home and are renting it out, the company may deny any claims. Second, there are typically specific caveats in landlord’s insurance that extend beyond homeowner’s insurance. Some carriers will cover your losses if the home is not rentable due to damage, while others will cover malicious damage caused by tenants. At the very least, you will want liability insurance.

Preparing your home

To get the best rent for your home, you’ll want to keep the property in good shape to compete against the other homeowners or rental companies on the market. Hire a home inspector or contractors to thoroughly look over the house. Make sure your roof, flooring, electric, plumbing, and heating and cooling systems work properly. These larger issues could be much more problematic to fix with a tenant in the house. Also, thoroughly document the condition of your home so you know what is a pre-existing condition and what might be tenant damage.

Handling tax issues

There are many tax issues with home rental. The best place to start is with IRS Publication 527, Residential Rental Property. You can write off many expenses with a rental property, but you also have to count the rent you collect as income.

The most important thing to remember as a homeowner-turned-landlord is that if you sell more than three years from now, any profit you make may be subjected to taxes. Generally speaking, you must have lived in a home for two of the past five years before the sale to qualify for up to $500,000 in tax-free profit.

Good luck with your new venture. It can be challenging, but you might also find that you really enjoy being a landlord and wind up becoming a real estate investor some day.

Ilyce R. Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask and Buy, Close, Move In!. She blogs about money and real estate at ThinkGlink.com and at the Home Equity blog for CBS MoneyWatch.

Homeownership has been trending down, while renters are snapping up vacant properties. In fact, according to the U.S. Census Bureau, homeownership may be at its lowest rate since the 1960s, sliding from 69 percent at the peak of the housing bubble in 2005 and 2006 down to 65 percent in 2012. Meanwhile, rental vacancies were at 8.6 percent for rental housing and 1.9 percent for homeowner housing in the third quarter of 2012, according to the Bureau.

Most of these shifts are a direct result of the economic downturn and housing bust that began in 2008. As millions of homeowners were hit with foreclosures, the homeownership rate dropped, and so did the rental vacancy rate as those homeowners shifted into renting. Since then, lending standards have tightened, some say perhaps too far, leaving potential homebuyers in the lurch.

But if we are shifting from a nation of homeowners to a nation of renters, it’s not just a demographic shift but also a shift in the American ideology. Owning a home—your own plot of land surrounded by the proverbial white picket fence—has long been part of the American Dream. But the housing crisis may have changed the way Americans look at housing. It’s now seen as shelter—not necessarily an investment.

In a recently released Trulia survey, only 72 percent of consumers said homeownership is part of their personal American Dream. While that’s still the majority of Americans, that number is lower than the 76 percent and 77 percent of consumers who said owning a home was part of their dream in surveys taken in February 2009 and January 2010.

Beyond that, 31 percent of all renters say they want to buy a home in the next two years, according to the survey. However, the dream of homeownership is not dead. When it comes to 18- to 34-year-olds—the age group that is typically moving from renting to purchasing a home—93 percent say they plan to buy a home someday.

But that may be the crux of the issue: When is someday?

New homeowners have a tough battle to face. Assuming they are income secure and have solid jobs and good credit scores, they should be able to take advantage of depressed home prices and low interest rates. But that simply isn’t the reality for most young people who found themselves graduating into one of the most difficult job markets in recent history. Add to that the weight of student loans and other debt, and owning a home seems a little more difficult—if you even believe buying a house is a good idea.

Meanwhile, investors are snapping up properties, especially single-family homes, with the intention of renting them out. These investors do not believe that the idea of a renter nation is a myth; they believe this is the new reality.

Only time will tell, particularly if prices continue to rise and inventory begins to loosen up.

“2013 could be the year that inventory turns around, just as 2012 was the year that prices started recovering,” said Jed Kolko, Trulia’s chief economist. “Homebuyers need inventory to choose from, and with fewer foreclosures on the market, new inventory will come from new construction or homeowners wanting to sell. Rising prices will bring out more sellers, especially if price increases lift them back above water. ”

That could be a good thing, if it happens. So far we are still way behind the kind of inventory and pricing that would be seen in a normal year, but a shift in the right direction might be enough to inspire the kind of hope a renter needs to make the life-changing shift into homeownership.

Ilyce R. Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask and Buy, Close, Move In!. She blogs about money and real estate at ThinkGlink.com and at the Home Equity blog for CBS MoneyWatch.

I purchased my first home a year ago, but since then interest rates have dropped and my credit has improved. Can I refinance already?

Yes, in theory you can, but you have to figure out if you should. It depends largely on whether you have a prepayment penalty built into your mortgage contract, what you hope to gain out of the refinance, and how much money you will have to pay out in closing costs. If your main goal is to save money in interest, look at how long it will take you to recoup any closing costs. Typically you want to be able to pay these off within a year, so you should look for low closing costs or a large drop in your interest rate.

I want to take advantage of these low rates, but my credit is not ideal. When I took out my mortgage, I had a score above 700. However, due to a long bout of unemployment, I got behind on my bills, and my credit has dropped to below 650. Should I refinance?

You could try, but you may find that it’s not worth it. The super-low rates you see are set for prime borrowers—typically defined as people with credit scores above 720. Unless you qualify for that bracket, you’re not going to get the lowest rates anyway.

The real question is whether or not you can save money on a refinance. Depending on when you took your mortgage out and what rate you have, you may still be able to shave a percentage point or more off your current mortgage. Make sure to consult with your mortgage company or another mortgage broker to find out more. Also, if you’re shopping around for interest rates, remember to apply in rapid succession to avoid having too many hard inquiries on your credit report.

My home is underwater. Can I refinance?

Yes, you can, but unfortunately your options are limited because you don’t have any equity in your home. If you want to refinance now, your best bet is the government-backed Home Affordable Refinancing Program (HARP) 2.0, which allows homeowners who have less than 20 percent equity in their homes to refinance. There are several caveats to this program, however: Your mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae, and it has to have been sold to them on or before May 31, 2009. In addition, the loan on your home must be for at least 80 percent of the home’s value, and you must have a good payment history for the last 12 months.

I have a second home that I am renting out right now. Can I refinance this home, even though it is not my primary residence?

Yes, you can, but it depends on how much equity you have in your second property. These days, lenders like to see 20 percent to 30 percent (or more) equity in rental or investment properties. If you have enough equity, mortgage lenders should be willing to work with you. Otherwise you may be facing an uphill battle.

I only have $48,000 left on my $350,000 mortgage, but I am still interested in refinancing. Can I do this?

In this scenario, you may be out of luck. Few lenders will refinance a loan that small because there’s simply not a lot of incentive for them to do it. Your best bet is to amp up your payments if you can and to pay it off as quickly as possible, which will cut down any remaining interest.

The bottom line on refinancing is that interest rates are at record-low levels right now and you should take advantage of them if possible. If you can’t currently qualify for a refinance, try to Increase your equity, pay more each month, and work on your creditworthiness. You might be able to qualify for a refinance soon—before rates rise.

Ilyce R. Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask and Buy, Close, Move In!. She blogs about money and real estate at ThinkGlink.com and at the Home Equity blog for CBS MoneyWatch.

For the past five years, most homeowners have been watching their homeowners insurance rates go up, even as their homes drop in value. This has led some homeowners to wonder: If my home is worth less, shouldn’t it cost less to insure?

Unfortunately there is no insurance break on the horizon for homeowners, regardless of the market value of their homes. There is no direct link between insurance costs and the value of a home.

Insurance companies value homes differently than a real estate agent or tax assessor might, and market value isn’t a factor for insurance agents. Insurance companies calculate what it would cost to rebuild the same kind and quality as your home on your exact property, either as replacement cost coverage or actual cost coverage. The difference between the two is simply that actual cost factors in depreciation, while replacement does not.

Neither of these values takes into account market factors, such as your community building a new park nearby or the prices that comparable homes are selling for in your neighborhood. If your home’s value took a hit during the past five years, it’s not really relevant to your insurance company.

That does not mean, however, that the cost to replace your home has not changed. In fact, it probably has.

“It’s always a good idea to review your insurance annually,” says Loretta Worters, spokeswoman for the Insurance Information Institute. “While it’s true the market value of the home has no bearing [on your insurance coverage], the cost to rebuild can change.”

For example, the cost of construction and building materials may have changed over time. As a result, it may cost more to build your home now than it did when it was first insured five years ago. In the past year alone, construction costs are up 3 percent and building costs and materials have gone up 2 percent, according to Engineering News Record.

“There can also be changes in building codes, if you’ve upgraded a kitchen or added square footage to your home, such as a family room or a dormer,” Worters said. “So this can determine whether you have the right amount and type of coverage.”

You may find, based on these factors, that the value of your home has actually increased in the eyes of your insurance company. If so, you may need to upgrade your homeowners insurance coverage to avoid a situation where your insurance company writes you a check that doesn’t meet today’s costs.

Plus, in any insurance review, you may learn that you qualify for newly introduced discounts or savings, that you made safety improvements that actually lower your insurance costs, or that bundling insurance plans is a good option.

If your insurance rates do go up, consider making an extra-careful examination of your insurance policy and look around at other insurance companies. But remember: Saving pennies is not always smart with insurance plans. Make sure that you’re not sacrificing your long-term needs for the best bottom-line price.

Ilyce R. Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask and Buy, Close, Move In!. She blogs about money and real estate at ThinkGlink.com and at the Home Equity blog for CBS MoneyWatch.

Most of the time, prepaying your mortgage is a perfectly good and reasonable idea. You will save thousands—if not tens of thousands—of dollars in interest, shorten the length of the loan, increase the equity in your home, and own it outright sooner. This is a guaranteed return on your investment in real dollars, so you cannot go wrong.

But, of course, it’s not as simple as that. There are a variety of personal factors—including how much money you owe, the type of mortgage you have, your interest rate, your other savings and investments, your debts, and even your age—that can influence just how good an investment prepaying your house will be versus investing elsewhere. So start with the basics.

Do you have any debt? If you are carrying any consumer debt through credit cards, auto loans, school loans, or medical bills, put your extra money toward paying off debt.

Do you have an emergency savings account? Because any money you invest in your home is not available to you unless you take out a home equity loan, you need to have easily accessible liquid assets in a savings account. You should have at least three months’ worth of income saved—and with today’s unstable job market, you really should have closer to a year’s worth.

Is your retirement on track? Before you put an extra dime in your home, you should have a retirement plan and be on track with your retirement savings goals. That means contributing the maximum amount to your 401(k), contributing up to the maximum in your Roth IRA (if you have one), and/or creating a separate savings plan that will line up with your retirement goals.

Where else do you want to see your money go? I’m talking about college for your kids, footing the bill for a wedding, paying for a big family vacation, or making sure you’re covered for any upcoming or ongoing medical bills. After all, this is extra cash you have on hand, so what are your priorities? Do you want your kids to graduate with minimal to no student loans? Have you been dying to take that honeymoon you never had to Hawaii?

After you’ve made all these considerations and you still have some extra cash to invest, then you have a decision to make: Should you prepay your mortgage or invest?

Today’s historically low interest rates, volatile stock market, and depressed housing market make the question even trickier. You need to weigh the pros and cons of each option.

Lower interest rates mean less savings, so if you have a 4 percent interest rate instead of an 8 percent rate, you’re not saving as much money over the long term if you prepay your mortgage. But you’re certainly making more money than letting that money sit in a savings account, where it will earn virtually no interest these days.

Investing in the stock market is still risky, and while you may earn more money, you also risk losing more money as well. Additionally, investing in property may be a sound long-term investment, but the short-term housing market is still on shaky ground.

If investing makes the most sense to you, find an investment that will pay more than what you will save in interest. This means if you have a mortgage rate of about 6.25 percent, and you take into consideration your mortgage interest deduction on your taxes, you’re really looking for an investment that will yield you more than 8 percent per year in order to get the same post-tax bang for your buck. Keep in mind that you may also have to pay capital gains taxes.

If you can find that investment deal and you are a bit more of a risk-taker, then consider investing long-term. And there’s always the split option—put half your extra money in your home and half in investments.

Ilyce R. Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask and Buy, Close, Move In!. She blogs about money and real estate at ThinkGlink.com and at the Home Equity blog for CBS MoneyWatch.