The real estate bubble: It sounds like
something out of a second-rate horror movie. And it's
some homeowners' worst nightmare.
You buy the biggest home you can afford
and use every dime to do it. Now, instead of increasing
in value, the worth of your home, sweet home takes a
nose dive. The bubble has burst, leaving you in a financial
If you find yourself in a similar situation, don't
be afraid -- like most nightmares, this one's a lot
less scary in the light of day, where following a number
of dos and don'ts can lead you to the best possible
If you can afford your payments and you like your house,
a bubble can't really hurt you.
"Equity in your house should be viewed as a safety
device, a source of funding emergencies," like
job loss, medical bills or tuition, says Jack Guttentag,
professor emeritus of finance at the Wharton School
of Business and author of "The Mortgage Encyclopedia."
And it can be scary to suddenly realize you either
don't have the safety net -- or it's a little thinner
than you thought.
One of the biggest fears with a bubble is that the
homeowner will owe more than the house is actually worth.
But that's usually only a factor if you're selling,
need to tap your home equity, or have an adjustable-rate
mortgage (or some funky option where you're skipping
or delaying paying the equity) and interest rates start
DO stay put
Make sure you can make your payments "not just
currently, but what the payment will be in the next
two, three, four, five years," says Ric Edelman,
author of "The Truth About Money."
If you can, happily stay put and enjoy your house.
An adjustable-rate mortgage can be a scary prospect,
especially if your home's value actually starts to drop
and your rate begins to rise. It gets even worse if
your income isn't keeping pace. This could be a good
time to trade your current adjustable-rate (or interest-only
or a negative-amortization) loan for a fixed-rate version.
DO stay informed
Keep up with what's going on with home values in your
area and neighborhood.