5 Mortgage Rules You Should Know by Heart

If you’re buying a house or refinancing your loan, here’s what you need to know.

For millions of Americans, a mortgage is the biggest debt they’ll ever have to repay. Unfortunately, as anyone who’s ever gone through the process can attest, mortgages involve pages and pages of legal documentation that can be nearly impossible for most people to comprehend. To simplify mortgages, there are some basic guidelines that anyone can learn and commit to memory. Below, we’ll go through five useful rules about mortgages.

Rule 1: Keep your mortgage payment to 25% or less of your income.

Housing costs are typically the largest expense item in your household budget, but that doesn’t mean you can afford to break the bank. Lenders look closely at your income to determine how much you can truly afford to pay for a monthly mortgage payment, and one simple guideline they use is to take your available income and multiply it by 25%. If a mortgage would require larger payments than that, after taking into account both the loan itself and associated payments like property taxes and insurance, then a lender will generally be less comfortable in giving you the loan.

Rule 2: Avoid private mortgage insurance by making a 20% down payment.

Mortgage lenders typically require borrowers to obtain private mortgage insurance or PMI if they make a down payment that’s less than 20% of the value of the home. PMI protects lenders against the risk that the value of the home will fall below the outstanding principal balance on the mortgage, leaving the borrower “underwater” on the loan. For borrowers, however, it’s an added expense that essentially provides no value to them. As difficult as it can be to save up a 20% down payment, the hundreds of dollars in PMI that it will save you could make the difference between being able to afford a slightly more expensive home and having to settle for less.

Rule 3: Understand how adjustable rate mortgages work and what risks are involved.

Fixed mortgages are easier to understand because the interest rate that they charge never changes, so you can count on monthly mortgage payments remaining constant throughout the lifetime of your loan. That’s not the case with adjustable rate mortgages or ARMs, which only remain fixed for a set period. Most lenders refer to ARMs with two numbers, such as 5/1. The first number refers to how long the initial rate remains in place. The second number describes how often the rate adjusts after the initial rate ends. For a 5/1 ARM, the initial rate stays in place for five years, and then changes every year after that. When rates change, they’ll also change your monthly payment, so make sure you understand the illustrations that your mortgage documents will provide so you don’t get a nasty surprise at the end of the initial term.

Rule 4: Know whether you’ll actually be able to deduct your mortgage expenses.

Many people look forward to being able to deduct mortgage interest, property taxes, and other key expenses of owning a home. But one thing to keep in mind is that all of these tax breaks are only available if you itemize deductions on your tax return. If the cost of your interest and taxes isn’t enough, when combined with other itemized deductions, to exceed the standard deduction you’re entitled to receive, then buying a home won’t do you any good from a tax perspective. That shouldn’t necessarily stop you from making a purchase and taking out a mortgage loan, but it should inform you as to the true cost of doing so.

Rule 5: Be careful diverting retirement money toward a home purchase.

The tax laws governing retirement accounts allow you to make withdrawals from an IRA of up to $10,000 toward a first-time home purchase without having to pay the typical penalties for early withdrawal of your retirement savings. However, just because you can use IRA money toward a home purchase doesn’t mean you should. First, even though you won’t owe penalties, you will owe income tax on the money you withdraw, potentially leaving you with a big tax shortfall at the end of the year. More importantly, diverting that money from your retirement savings will leave you in a less favorable position in the long run with the size of your nest egg. As a potential source of down payment money, tapping an IRA can seem like a smart move, but be aware of the long-term consequences before you pull the trigger.

Buying a home will probably be the biggest purchase you ever make. Being smart about the debt you incur to buy your home is essential to avoid the mistakes that so many homeowners made during the financial crisis. Keeping these rules in mind will take you a long way toward a better understanding of the mortgage process and your mortgage loan.

Source:  http://www.fool.com/investing/2016/05/28/5-mortgage-rules-you-should-know-by-heart.aspx?source=iedfolrf0000001

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11703 N 123rd Way Scottsdale, AZ 85259

$1,159,000

4 Beds

2.5 Baths

2,701 SqFt

Status Active

MLS # 6761943

Property Type Single Family Residence

Price Type --

Discover the epitome of Scottsdale luxury in this breathtaking 4-bedroom, 2.5-bath sanctuary, perfectly situated in the coveted 85259. Relish in awe-inspiring mountain views, a private pool, and a heated spa—all designed for an indulgent lifestyle. Thoughtfully upgraded with Energy Star Renewal by Anderson windows, complete with a 30-year transferable warranty, this home seamlessly blends elegance with efficiency. Unwind by one of two sophisticated fireplaces or venture out to nearby premier golf courses, scenic hiking trails, and top-rated schools. Modern, refined, and poised for discerning tastes, this residence offers the ultimate Scottsdale experience. Don't miss this rare gem!

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3788 E Gemini Place Chandler, AZ 85249

$1,156,800

6 Beds

4 Baths

4,935 SqFt

Status Active

MLS # 6787807

Property Type Single Family Residence

Price Type --

This rare basement home offers6 bedrooms, 4 bathrooms, a large bonus room, 2 lofts, and a Pool! The spacious, open kitchen features granite countertops, island, gas cooktop, wall ovens, and large great room. The home is North/South facing and includes a Pebble tec pool, covered patio and grass backyard. The main living area has an office/bedroom, a full bath and bonus room. The basement is fully equipped with a full bathroom, living area (loft), and 3 bedrooms. Upstairs, you'll find the master bedroom suite, full bathrooms, 2 more bedrooms and loft. Don't miss the chance to see this incredible home located in a highly sought-after area of the City of Chandler.

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16810 E Roy Rogers Road Rio Verde, AZ 85263

$1,155,000

3 Beds

3.5 Baths

3,433 SqFt

Status Active

MLS # 6760171

Property Type Single Family Residence

Price Type --

Experience the perfect balance of tranquil living and convenient access to city amenities in this newly built 3,433 sq. ft. luxury retreat. Nestled just outside the hustle and bustle, this home offers breathtaking, uninterrupted views of Four Peaks, creating a stunning backdrop for daily life. While you'll feel miles away from the city, you're still just a short drive from all the essentials, making this the ideal haven for those seeking both serenity and convenience. Step out onto the sprawling deck, ideal for entertaining, complete with an outdoor kitchen and grill, all while overlooking the magnificent panorama of Four Peaks. The primary suite is a private oasis, featuring his-and-hers closets, plus a third closet for extra storage. The elegant ensuite bath is equipped with a large walk-in shower, a luxurious soaking tub, double vanities, and a dedicated makeup space. The suite also includes a sitting area with direct access to the deck, offering serene views at any time of day. Two additional ensuite bedrooms, each with walk-in closets and private bathrooms, ensure plenty of space and privacy for family or guests. The study, accessed through double doors, overlooks a peaceful front courtyard and is adjacent to a convenient half-bath. The utility room, thoughtfully designed for efficiency, comes equipped with a brand-new washer and dryer, a spacious wash tub, and generous counter space for folding laundry. Rounding out this home is an oversized 3-car garage with a circular driveway and optional drop-down attic access for even more storage. This exceptional home, designed for luxury and comfort, is ready for its very first owners to enjoy a lifestyle of elegance, peaceful views, and modern convenienceall within a short drive of the city.

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3619 N 87th Street Scottsdale, AZ 85251

$1,155,000

4 Beds

2 Baths

1,993 SqFt

Status Active

MLS # 6750485

Property Type Single Family Residence

Price Type --

Experience luxurious living in this stunningly designed Scottsdale home, where quality finishes and thoughtful details shine throughout. The dream kitchen is a culinary masterpiece, featuring an oversized island, quartz countertops, custom Italian cabinetry, a coffee bar, beverage center, and stainless steel appliances. The expansive primary suite offers a walk-in closet, plus an additional closet, and a spa-like ensuite with a double vanity. Each bedroom boasts custom-designed closets with built-in drawers, ensuring ample storage. Step outside to your private oasis—an entertainer's dream backyard with a new (2023) pool as the centerpiece. The oversized baja shelf is perfect for lounging, while the built-in fire pit table and BBQ area provide ideal spots for gatherings. The property also includes an RV gate with access from the back cul-de-sac, offering plenty of space and convenience. Completely redesigned in 2022, this home features new windows, doors, a sliding glass door, roof, water heater, electric panel, updated plumbing, flooring, and state-of-the-art appliances.Every detail has been thoughtfully curated for a modern lifestyle. Don't miss this extraordinary Scottsdale gem!

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34010 S State Route 89 Highway Wickenburg, AZ 85390

$1,150,000

4 Beds

4 Baths

2,836 SqFt

Status Active

MLS # 6749793

Property Type Single Family Residence

Price Type --

TO BE BUILT... Beautiful custom home on 4+ acres of horse property. Open concept floor plan with large chef's kitchen, walk-in pantry, and laundry room with sink. Main house consists of 3 en-suite bedrooms with an additional flex bedroom/office. Primary bedroom has dual vanity sinks with massive walk-in closet and oversized shower. Attached casita, accessible through the main house or separate exterior door. Casita has private kitchenette, full bathroom and walk-in closet. Giant 4-car garage with enough room for all your toys. Horse arena will be roughed in with option for homeowner to purchase complete package. Don't miss this opportunity for the perfect home in Wickenburg.

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34146 S State Route 89 Highway Wickenburg, AZ 85390

$1,150,000

4 Beds

4 Baths

2,836 SqFt

Status Active

MLS # 6749794

Property Type Single Family Residence

Price Type --

TO BE BUILT... Beautiful custom home on 4+ acres of horse property. Open concept floor plan with large chef's kitchen, walk-in pantry, and laundry room with sink. Main house consists of 3 en-suite bedrooms with an additional flex bedroom/office. Primary bedroom has dual vanity sinks with massive walk-in closet and oversized shower. Attached casita, accessible through the main house or separate exterior door. Casita has private kitchenette, full bathroom and walk-in closet. Giant 4-car garage with enough room for all your toys. Horse arena will be roughed in with option for homeowner to purchase complete package. Don't miss this opportunity for the perfect home in Wickenburg.

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5548 E Seven Palms Drive Cave Creek, AZ 85331

$1,150,000

3 Beds

2.5 Baths

2,501 SqFt

Status Active

MLS # 6667040

Property Type Single Family Residence

Price Type --

Another NEXTGEN Builders luxury home: 3 BD, 2.5 BA, plus office/den w/closet for 4th, high quality built home with many upgrades, 2-Gar with 8' tall overhead door and 49' RV Gar with 12x14 RV door. No HOA. Dbl door entry, paver front sidewalk and 23' driveway apron, large kitchen island, upgraded appliances, convection oven/microwave built-in combo, Gas cooktop, quartz counter tops throughout. All bedrooms have walk-in closets. Master bath has large entry shower with standalone tub and double sinks. 8' doors throughout, nicely finished. Energy efficient Spray foam insulation, 2x6 frame exterior, fully sheathed exterior, post tension foundation, Black Mtn. views, Buyer to verify all facts and spec. Block fence to be installed, back yard pad to be extended and room for pool. Move-in ready!

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509 E Adamanda Court Phoenix, AZ 85086

$1,150,000

3 Beds

2.5 Baths

2,191 SqFt

Status Active

MLS # 6703349

Property Type Single Family Residence

Price Type --

WOW! This charming home in the serene Desert Hills Estates sits on a spacious cul-de-sac lot, welcoming you with a circular driveway and a massive concrete extension, a massive five-car garage AND a 2400 sq ft detached garage that can be used for a RV garage. With a built-in wood shop inside this is truly the craftsman dream space. Interior features include an attractive solid red oak flooring, recessed lighting, and a spacious living room with wall niches, pre-wired surround sound, and a cozy fireplace. Family room offers a perfect space to unwind, while the well-appointed kitchen boasts ample cabinets, quartz counters, a tile backsplash and SS appliances including a wine cooler. Expansive main bedroom includes abundant cabinetry and a private bathroom with dual sinks. Outside, the tranquil backyard offers a covered patio, paver patio, built-in BBQ, and breathtaking mountain views. This exceptional horse property is a must-see!

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2329 W Speer Trail Phoenix, AZ 85086

$1,150,000

3 Beds

3 Baths

3,137 SqFt

Status Active

MLS # 6726118

Property Type Single Family Residence

Price Type --

Welcome to your desert oasis in Arizona! This stunning property offers luxury living on a one-acre lot, providing ample space and privacy. The house features 3 spacious bedrooms and 3 bathrooms, perfect for accommodating family and guests. With a generous 3,137 square feet of living space, there is plenty of room for relaxation and entertainment. The home also includes a convenient car garage for working on your next car rebuild plus ample storage! There is over 7,200 roof covered space! Enjoy the tranquility and breathtaking views of the desert landscape from your own backyard. Whether you're watching sunsets or stargazing at night, this property offers a peaceful retreat away from the hustle and bustle of city life. Priced at $1,150,000.

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2534 N 52nd Street Phoenix, AZ 85008

$1,150,000

5 Beds

4 Baths

3,174 SqFt

Status Active

MLS # 6737826

Property Type Single Family Residence

Price Type --

Welcome to this unique investment opportunity! This property features a spacious, fully renovated charming house at the front and a duplex at the rear, offering a total of three units on one expansive lot. Ideal for investors or multi-generational living, each unit presents distinct living spaces and successful rental income. The property is located in Arcadia lite, near the best shopping and conveniently situated near freeways for an easy drive to downtown. Just 10 minutes from ASU, Tempe, and old town Scottsdale, and close to amenities and major thoroughfares, this property is a must-see for those seeking versatility and value. House is 1636 sqft plus garage and 2 back units at 769 sqft each, each with its own carport. Don't miss out !

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33317 N 71st Street Scottsdale, AZ 85266

$1,150,000

3 Beds

2 Baths

2,303 SqFt

Status Active

MLS # 6734451

Property Type Single Family Residence

Price Type --

Enjoy the Terravita Lifestyle in this gorgeous three Bedroom Caelum Model. The Great Room shows a Stone Fireplace and Wood Plank Tile Flooring. Master Bath and Junior Bath are remodeled as well as the Kitchen with high Quality Cabinets, Granite Countertops and built-in Wine Bar. The spacious Office has Alderwood built-in Bookcase and Desk. Watch the Sun and the Moor rise in your Resort Like Back Yard with View of Winfield Mountain, heated Pool, Putting Green, built-in Barbeque and Fireplace.

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9285 W Juniper Road Pine, AZ 85544

$1,150,000

4 Beds

4 Baths

3,826 SqFt

Status Active

MLS # 6750019

Property Type Single Family Residence

Price Type --

Welcome to this enchanting French Country farmhouse on 2.23 fenced acres suitable for horses and featuring two separate living quarters. All of this is nestled amidst a beautifully landscaped country garden with mature shade and fruit trees. The main living quarters offers 3 bedrooms, 2 full bathrooms, a spacious open loft with a half bath, a gorgeous kitchen with travertine flooring and granite countertops, a large wood-burning fireplace and access to a serene back patio. The second living quarters includes 1 bedroom, a ¾ bath, an updated kitchen with granite countertops, a cozy gas fireplace and a charming covered balcony overlooking a panoramic view of Strawberry Mountain. The property also boasts a large, attached garage with custom wood doors and a detached 24X48 ft combination PEACEFUL ESTATE COMBINES LUXURY LIVING WITH OUTDOOR CHARM

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