Know if you should refinance sooner rather than later
To refinance, your house has to be worth more than the amount of the refinanced loan. Your equity is the difference between the house's market value and the amount you owe. If the house is worth $200,000 today and you owe $180,000, that $20,000 difference is the equity. With a $200,000 house, that would be 10 percent equity.

The more equity you have, the easier it's going to be to refinance. If you have less than 5 percent equity, it might be difficult to qualify for a refinanced mortgage. Difficult, but not impossible -- if you have a decent credit score. Preferably, you will have 10 percent equity; ideally, you'll have 20 percent or more.

If your home has been losing value in this down market, you probably are aware of it from reading the newspapers, gossiping with neighbors and occasionally checking Zillow.com. In cases where the percentage of equity is in the single digits while home prices are falling, it might be a good idea to refinance months before the reset date. Wait too long and you might not be able to refi because you owe more than the house is worth.

The best moves to make in 2008

• Know when your ARM resets. • Find out what your ARM's rate would be if it were reset. • Know if you should refinance sooner rather than later. • Get ready to document your finances. • Buying? Bring a down payment.

Get ready to document your finances
During the housing boom, many homebuyers eagerly got low-documentation and no-documentation (low-doc and no-doc) mortgages, in which they stated their incomes and assets, but didn't have to provide paperwork to document their personal finances.

Experts believe that most of these borrowers exaggerated their incomes because that was the only way they could get approved for their loans. Had they been required to submit W-2s and tax returns, they would have been turned down for loans because of insufficient income.

In 2007, the rising foreclosure rate was blamed partly on these borrowers. Most of them got ARMs, and they were able to scrape by and make their monthly payments during the introductory rate period. But when the ARMs reset, these borrowers found themselves falling behind. That trend will continue in 2008.

Spurred by self-preservation, lenders have cracked down, and now they're demanding documentation of income and assets from most borrowers. Don't be surprised if a lender wants not only W-2s and tax returns, but also bank and brokerage statements.

If you lied about your income to qualify for an ARM and now you can't refinance because of documentation requirements, you're not going to get any sympathy. When you signed the promissory note, you swore under penalty of perjury that you were telling the truth.

Buying? Bring a down payment
House prices are falling in many major markets. Your lender doesn't want to give you a big pile of money for a house that's going to be worth less than the loan balance in a few months. So your lender is going to want a cushion. The down payment is that cushion.

During the boom years, it was easy to buy a house with a down payment of 5 percent or 3 percent or even with no down payment at all. Those deals aren't as common anymore.

"I think we're going back to where 10 percent is going to be the standard for a down payment," says Mitch Ohlbaum, president of Legend Mortgage Corp., in Los Angeles.