(MONEY Magazine) – When Barry Silver and his fiancee Mary Krupinsky began shopping for a beach house a year ago, they ignored Martha's Vineyard, the island off Cape Cod that is favored by such well-heeled vacationers as Walter Cronkite, Jacqueline Onassis and Carly Simon. ''We assumed the Vineyard would be too expensive,'' recalls Silver, 49, a lawyer in Newburgh, N.Y. ''But after checking the listings, we realized prices had come down into our range.'' Silver and Krupinsky eventually bought a three-bedroom, cedar-shingle ranch house (pictured above) that is just a 10-minute bike ride from popular South Beach. The couple paid only $165,000 for the house -- 15% less than the seller's original asking price. Such bargains abound today. From ski cabins in Park City, Utah to condos on Padre Island, Texas, sellers are willing to accept 10% to 50% less for second homes than they would have five years ago. The softness is blamed on -- or credited to, if you are a buyer -- overbuilding, slumping regional economies and tax reform's restrictions on rental write-offs. (One big tax break remains: if your adjusted gross income is $100,000 or less, you can deduct as much as $25,000 in losses from a vacation home you rent out against income from other sources.) Many real estate analysts regard today's depressed prices as only temporary. ''Now is a great time to buy,'' says John Hawks, a respected Baltimore demographer who specializes in resort properties. ''The same baby boomers who bid up prices of first homes will cause a similar run on vacation homes in the coming decade.'' (For a glimpse of prices in resort markets across the country, see the box below.) Before rushing off to make an offer on a vacation retreat, however, figure ( out whether you can really afford a second home. Mortgage lenders suggest you first answer these questions: -- Do you have enough income? Your combined mortgage payments, homeowners insurance and property taxes for your primary and vacation homes should not exceed 28% of your gross annual income. In addition, payments on your mortgages and other long-term debts should not top 36% of your gross. -- Can you afford the down payment? It probably will be 20% of the purchase price vs. as little as 10% for a primary residence. You may be required to put down 25% if you plan to rent out the property. -- Have you allowed for the extra costs of a vacation home? You may be charged one-quarter to one-half of a percentage point more for a mortgage on a second home than for one on a primary residence. Because the getaway place may be remote and often unoccupied, your total insurance costs can run 50% higher than for a similarly priced principal residence. For example, beachfront properties often require flood insurance, which can cost $500 a year for $100,000 in coverage. And if you rent out your second home, you will pay roughly 20% extra to cover damage while tenants are there. Resist the temptation to look for a house in a resort area merely because you enjoyed your vacation there this past summer. Take a reality check: For instance, if the trip back and forth from your principal home would be unbearable on a regular basis, you need to scout out a more accessible spot. And be certain that you will get enough use out of the place for what you'll pay. Once you settle on an area, it pays to retain a knowledgeable local real estate agent. Searching for a vacation home is ''like shopping in a foreign country,'' says Peter Miller, author of Successful Real Estate Investing (Harper & Row, $8.95). The agent can tell you, for example, whether the location you love is becoming heavily populated with year-round residents. ''You don't want to be stuck with escalating taxes to pay for schools you won't use,'' says John Diamond, a senior vice president at the Real Estate Research Corp. in Chicago. Local government officials can also provide valuable information. In a waterfront community, they can supply a study of the shoreline's erosion pattern, which could prevent you from buying a house that might one day need a $10,000 retaining wall. In winter resort areas, a highway department officer can cite the priority assigned by the town to snowplowing specific roads ( -- some owners of secluded homes may not see plows for days. When you find an ideal house, a real estate agent can help you make a reasonable bid. Ask him or her for the average number of days houses are on the market compared with a year ago -- two to four months is typical -- and how much the seller has dropped his asking price. Sellers in languishing markets will often accept low bids. In areas such as Lake Winnipesaukee, N.H., where properties take an average of 45 days longer to sell than in 1988, vacation homes frequently go for as much as 30% below their list prices. Be sure to ask your agent about auctions. They are fast becoming a favorite way to find buyers quickly for banks with foreclosed homes, developers with unsold properties and even anxious homeowners. Typically, auctioned homes go for 10% to 45% less than their asking prices. When bidding at an auction, you must bring a certified check -- usually ranging from $2,500 to $10,000 -- and deposit any remaining balance on 10% of the purchase price in about a week. Then you will have 45 to 60 days to get a mortgage. Vacation homes listed with agents by a decedent's estate can also offer terrific buys. Quite often, families are so eager to unload these houses that they will help you with financing. Janet Voth, 33, and her husband Gary, 39, a U.S. Postal Service distribution clerk in Portland, Ore., just made such a deal with two sisters who inherited a three-bedroom cottage in the coastal town of Lincoln City, 95 miles southwest of Portland. By getting a 10 3/4-year mortgage at 10% from the sellers, the Voths avoided having to pay closing costs of $2,000 or so on the $34,000 house. Says Janet: ''There's no way we could have afforded as nice a house if we had gone to a regular lender.''

BOX: Check It Out

Bargains galore! Vacation-home prices are down in many markets around the country, according to a survey by MONEY correspondents. Their findings: -- New Hampshire/Vermont. Sellers in winter wonderlands such as Stowe, Vt. and the White Mountains of New Hampshire have been accepting bids 20% to 30% below their asking prices. -- Cape Cod, Nantucket and Martha's Vineyard, Mass. Overbuilding spurred by 20% to 50% annual appreciation rates in the mid-1980s has softened prices somewhat. Best buys on Cape Cod are condominiums and houses in the $150,000 to $250,000 range. -- The South Carolina coast. An abundance of sellers has sent prices plunging. A typical two-bedroom oceanfront condo in Hilton Head now costs $100,000 to $150,000. -- The Mississippi Gulf Coast. House prices in Gulfport and Biloxi are down 50% from four years ago. -- The Texas Gulf Coast. The condo market on Padre Island is beginning to stabilize. Still, prices remain roughly 40% below mid-'80s levels. -- The Colorado Rockies. Moderate appreciation has resumed for ski condos and cottages, but there are still great buys in the Keystone Basin and Vail. -- Utah's Wasatch Range. In Deer Valley, buyers can scoop up ski chalets for $325,000 that sold for as much as $500,000 in 1982.