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Moves to make


Always dreamed of being in the right place at the right time? You may be right now.

On the bubble? Heed these do's and don'ts

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 mess.

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 outcome.

DON'T panic
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 to rise.

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.

-- Posted: March 1, 2006
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