Make a bigger down payment

This article is the archived version of a report that appeared in July 2009 Consumer Reports magazine.

If you're buying a new car, don't take out an auto loan with a term longer than four years. The longer the loan, the greater the likelihood that you'll owe more than the car is worth if you trade it in early. Making a larger down payment can help you keep the loan affordable.

If you're buying a home, plan to put down at least 20 percent. With private mortgage insurance becoming increasingly difficult to buy, especially in metropolitan areas, purchasing a home with just 10 percent down can be difficult. And even if you can get mortgage insurance, you might not be able to borrow with less than 20 percent down. To buy a condo or attached house, for example, larger down payments are generally required, especially in the foreclosure hot zones of Arizona, California, Florida, and Nevada.

If you don't have 20 percent to put down, you can turn to government mortgage programs. Federal Housing Administration loans, for example, require only 3.5 percent down, and there are a dwindling number of 5-percent-down loans through Fannie Mae and Freddie Mac, though 10 percent is becoming the norm even for those. The Department of Agriculture offers zero-down mortgages in rural areas, and the Department of Veterans Affairs offers the same for vets. No minimum credit score or mortgage insurance is required for USDA or VA mortgages.

But having 20 percent equity in your home will help if you want to refinance. Many lenders require an 80 percent loan-to-value ratio (Fannie Mae and Freddie Mac will refinance 105 percent of a home's value through the Making Home Affordable program). If you have an FHA loan, you might be able to refinance with less.

Whether you're buying or refinancing, go for a 30-year fixed-rate mortgage. Exotic adjustable-rate mortgages are, not surprisingly, scarce. Financing for second homes and investment properties has severely dried up. And fixed "jumbo" loans of more than $417,000 are becoming tougher to get (Wells Fargo stopped offering a 15-year jumbo) and you'll pay a premium in the interest rates and points, or prepaid interest, to get them.