Tips to avoid trouble

10/30/2007 8:34 AM

10/30/2007 8:35 AM

Before reaching the point of default -- or even applying for a loan -- home buyers should keep the following strategies in mind, according to experts:

Understand a loan fully. If the interest rate changes after a few years, or if you're paying interest only, that can turn your situation upside down in a hurry.

Know your finances. You'll have to have enough money to make your mortgage payment for the life of the loan, and you shouldn't count on selling if at some point you can't afford it.

Be careful of refinancing. Doing so takes equity out of your home and doesn't help pay your home's principal. If you refinance, use the money to pay down debts, experts say.

Have a contingency plan. It's possible you'll lose a job, get divorced or have a family illness that will sap your finances.

Slow down. Bad financial decisions are made when people think they must act now, rather than taking their time.

Understand the default process. If you are in default but can work something out with a loan holder because you know the system, it improves your chances of avoiding a foreclosure.

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