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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8502 E Cave Creek Road Unit 39 Carefree, AZ 85377

$1,150,000

2 Beds

2 Baths

1,903 SqFt

Status Active

MLS # 6779829

Property Type Townhouse

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REMODELED TO PERFECTION! HIGH END FINISHES ; TIMELESS ARCHITECTURE ~ THIS IS AN EXTREMELY UNIQUE TOWNHOME IN GATED SKYRANCH COMMUNITY! IT IS ALL ONE LEVEL! 2 BD/2BA/2CG - 1900 SFT~ ON LG VIEW LOT!SOARING CEILINGS! TONS OF NATURAL LIGHT! CLERESTORY WINDOWS! OUTSTANDING GREATRM W/STACKED STONE ;GAS FIREPLACE!GORGEOUS VIEWS!! LG PRIMARY W/LG WALKIN SHOWER;DOUBLE SINKS;2 LED MIRRORS;CUSTOM CLOSET. GORGEOUS VIEWS! LOVELY GUEST BR W/PATIO; HALL BATH W/SHOWER.KITCHEN W/BOSCH STAINLESS APPLIANCES; GAS COOKTOP!QUARTZ COUNTERS;ALDER CABINETRY!CUSTOM LIGHTING; CEILING FANS & PORCELAIN WOOD PLANK FLOORS THROUGHOUT. MATURE DESERT LANDSCAPING~ 3 INVITING PATIOS, PERFECT FOR ENTERTAINING !ONE XTRA LG~ W/PAVERS & MNT VIEWS. COMMUNITY OFFERS HEATED POOL/SPA; DOG PARK;TENNIS COURTS .

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3659 E Louise Drive Phoenix, AZ 85050

$1,150,000

5 Beds

4 Baths

4,354 SqFt

Status Active

MLS # 6780864

Property Type Single Family Residence

Price Type --

Discover an incredible value in the highly sought-after N/E Phoenix community of Aviano at Desert Ridge! This upscale, master-planned community offers an unbeatable lifestyle & prime location with quick access to major freeways, top-rated schools, Scottsdale, airports, parks & recreation. Inside, enjoy expansive living spaces perfect for a multi-generational family, with a convenient main-floor bedroom & bath, plus four more bedrooms & three full baths upstairs. Stroll across the street to one of the many parks or take advantage of the world-class community center amenities. Built by Toll Brothers, this home showcases quality, upgraded finishes & has been lightly lived in & impeccably maintained. Don't miss the chance to explore all the premium upgrades in this beautiful spec home!

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11270 E Quarry Trail Scottsdale, AZ 85262

$1,150,000

4 Beds

3 Baths

2,938 SqFt

Status Active

MLS # 6780269

Property Type Single Family Residence

Price Type --

Looking for a new home? You've found it! This beautiful 4 bed, 3 bath residence in Troon Verde sits on a quiet cul-de-sac lot & features tasteful tone accents, split 4 car garage w/a stair lift, a low-care desert landscape, and a welcoming front porch. Inside you will find a spacious dining & living area perfect for entertaining. Soft carpet in all the right places, high ceilings, plantation shutters, and warm palette throughout. Continue into the cozy family room, boasting a fireplace to keep you warm during the coming winter months. The chef's kitchen is comprised of wood cabinetry w/crown moulding, a pantry, granite counters, built-in appliances, a prep island w/a breakfast bar, and a breakfast nook. Relax & unwind in the primary bedroom, showcasing private outdoor access, a walk-in closet, and a lavish ensuite w/dual vanities. Lastly, the lovely backyard includes a covered patio, flagstone seating area, a built-in BBQ, and a view fence! Don't wait any longer, act now!

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6448 E Slow Cattle Drive Prescott Valley, AZ 86314

$1,150,000

4 Beds

2.5 Baths

2,759 SqFt

Status Active

MLS # 6783368

Property Type Single Family Residence

Price Type --

Welcome to this stunning custom new build by Braden Homes, located in the highly desirable Stoneridge community in Prescott Valley. Designed with luxury and modern living in mind, this spacious home offers the flexibility of four bedrooms or three bedrooms plus a home office, along with 2.5 beautifully appointed bathrooms. The oversized four-car garage provides ample space for vehicles, storage, and hobbies. With panoramic views that can be enjoyed from nearly every room, this home is truly a luxury retreat. Completion is expected within the month, and fresh landscaping will be added in the coming weeks. As a member of the StoneRidge Community, you can enjoy an indoor and outdoor pool, a hot tub, tennis and sports courts, fitness facility, a banquet room and a packed activity calendar!

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6814 E Osborn Road Scottsdale, AZ 85251

$1,150,000

3 Beds

2 Baths

1,635 SqFt

Status Active

MLS # 6786803

Property Type Single Family Residence

Price Type --

Check out this beautiful home with a resort style back yard! A few of the great features are plank European oak wood flooring throughout, stainless Frigidaire Pro kitchen appliances, Trane 14 SEER split AC units, high efficiency dual pane Anderson windows and spray foam insulation throughout, tankless gas water heater, designer tile bathrooms, designer Phylrich and Moen matte black fixtures, quartz countertops, vaulted ceilings, custom steel gates...and the back yard! A thoughtful design making this outdoor living area one where you won't want to leave. Two gas fire places/pits, barbecue area, putting green, gas heated pool and spa, outdoor dining area...you need to check it out! Located in the heart of Old Town Scottsdale and close to everything! Makes a great home or short term rental.

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609 N Lindsay Road Gilbert, AZ 85234

$1,150,000

3 Beds

2 Baths

2,444 SqFt

Status Active

MLS # 6770915

Property Type Single Family Residence

Price Type --

Secluded, private, and quiet 1.5 acre irrigated horse property with a pull through RV garage in the heart of Gilbert. This one-owner, custom built block home has soaring high ceilings when you first walk in. Separate living and family rooms surround the heart of any home: the kitchen. A functional island and breakfast bar, built in SubZero fridge/freezer, and gleaming white cabinets offer plenty of storage. The primary bedroom is oversized and looks out at your expansive grounds with its own exit. The primary bath has a wealk-in shower and cedar lined walk-in closet. Outside there is a full-length patio which steps down into a beautiful courtyard with a fountain for relaxing in your private oasis. The RV garage/worskshop has dual electric openers and pull-through functionality as well as patios on both sides. It even contains it's own bathroom! The private road that serves as the driveway to this house only services this house. There is only one neighbor to the north but they do not share a driveway. The irrigation canal only serves two houses: no waking up in the middle of the night to follow complicated irrigation schedules. If you want to be close to downtown Gilbert but feel alone and secure on a house you cannot see from the road, this is it. There is no other property like this one. Don't miss it!

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6281 W Post Road Chandler, AZ 85226

$1,150,000

5 Beds

3 Baths

3,005 SqFt

Status Active Under Contract

MLS # 6768539

Property Type Single Family Residence

Price Type --

Stunning entire home renovation!! This beautiful Ray Ranch Estates home has been meticulously renovated with gorgeous organic modern finishes from top to bottom not missing a single detail. Step inside to find a spacious single story open concept layout, soaring 15 foot ceilings, plantation shutters, HUGE kitchen, and gorgeous floor to ceiling fireplace finished in ultra smooth stucco. Upon entry to the home you will notice the beautiful white oak hardwood floors in a herringbone pattern in the foyer, to your left a large office and across the way is a formal living room with beautiful lighting. You will notice European white oak floors throughout the entire home with modern tile in the walk-in pantry, laundry room and all the bathrooms. The huge kitchen has it all, including a large induction cooktop, convection wall oven, walk in pantry with beverage fridge, huge 6'x9' island, coffee bar and tons of cabinet space. This home has a split floorpan with 4 bedrooms, 1 full bath and 1/2 bath in the kids wing. The other side of the home features the primary bedroom with full bath and spacious walk-in closet. This corner lot home has a 3 car garage with epoxy floors and an RV gate with ample parking space. The house sits on a large lot with a spacious, grassy back yard full of shade tree's with plenty of privacy and a beautifully re- finished pebble-tec pool. Come see this stunning home in a prime location with top rated schools and shopping!

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4135 E Glenrosa Avenue Phoenix, AZ 85018

$1,150,000

3 Beds

2 Baths

1,511 SqFt

Status Active Under Contract

MLS # 6768902

Property Type Single Family Residence

Price Type --

A beautiful re-envisioned home for design minded buyers in a very sought after section of Arcadia Lite. Three bedroom, two baths with a separate casita with 3/4 bath. New floors and kitchen with new wolf range and paneled Sub Zero refrigerator, marble countertops and new cabinets. New upgrades in both bathrooms. Wall of windows with custom drapes in living room and dining room. Landscaping by TrueForm. Backyard oasis with pool, as well as a casita that can be used as an office or guest house. There is also a separate matching structure currently used as storage. Close to all that Arcadia has to offer. Walking distance to LGO, Postino's, Kachina park and nearby canal access for walks or bicycling.

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16431 N 57th Street Scottsdale, AZ 85254

$1,150,000

4 Beds

2 Baths

2,491 SqFt

Status Active Under Contract

MLS # 6780515

Property Type Single Family Residence

Price Type --

This stunning, turn-key home offers the pinnacle of luxury living, located in the highly sought-after 85254 ''magical zip code'' just minutes from Kierland, Scottsdale Quarter, and TPC Scottsdale. Extensively remodeled in 2024 with no HOA, this property is an entertainer's dream. The resort-style backyard boasts a remodeled saltwater pool, built-in BBQ, and lush landscaping. Inside, the chef's kitchen features white oak cabinets, a butler's pantry, a pot filler, and an expansive island perfect for gatherings. Custom metal doors throughout the home add a touch of modern elegance. Experience perfection in this prime Scottsdale location!

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3664 Stampede Drive Wickenburg, AZ 85390

$1,150,000

3 Beds

3.5 Baths

2,769 SqFt

Status Active Under Contract

MLS # 6784962

Property Type Single Family Residence

Price Type --

Spectacular Latigo w/Stunning Mtn Views to the South! Large sliding glass doors in primary bedroom lead to a Pergola covered patio, Bath has large soaking tub, tile shower enclosure, split vanities & 2 separate walk-in closets. Kitchen w/SS appliance, large center island, gas cook top & wall ovens. Great room w/corner rolling wall of glass leading to your stunning outdoor fireplace, pool (has heat pump that heats & cools water for year round enjoyment) and sauna. Guest suite in the main house and Casita in front courtyard w/own a/c heating unit. Look in your 3 car garage that has epoxy floors mini split a/c unit & built-in cabinets. Home comes w/whole home filtered water system, surround sound in GR & Back patio, Plantation Shutters, Window Shades and Curtains throughout home

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5202 E Emile Zola Avenue Scottsdale, AZ 85254

$1,150,000

4 Beds

3 Baths

2,936 SqFt

Status Active Under Contract

MLS # 6787632

Property Type Single Family Residence

Price Type --

Highly sought-after .875 acre Sunburst Farms corner lot! Home features double ovens, a new dishwasher, granite countertops, and recessed lighting. Have horses? This lot also accesses the bridal path which is also a tremendous walking/biking/running path. Sonrisa and Sereno Parks are both within walking distance as well as Desert Shadows Elementary/Middle Schools. Create the home of your dreams or enjoy this fully-functional and much loved family home as-is and re-make it your own over time. Tennis court and private pool also located on the grounds. Conveniently located close to the 51 and the 101 freeways, the Paradise Valley Mall redevelopment, Desert Ridge, Costco, and everything Scottsdale has to offer. This is truly a neighborhood/lot that can grow with your family for generations.

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12325 N Henrys Way Prescott, AZ 86305

$1,150,000

4 Beds

3 Baths

2,536 SqFt

Status Active

MLS # 6554719

Property Type Single Family Residence

Price Type --

We plan to build this Gorgeous 2536 Square Foot Home, w/3Bedrooms, 2.5Bathrooms/ 3CarGarage + Den on 4 ACRES +/- in Williamson Valley Heights. Home will have Stacked Stone Accents, Open/Split Floor Plan, GREAT ROOM Concept, Vaulted Ceilings, Luxury Vinyl Wood Planked Flooring, & Upgraded Lighting. Kitchen will be well appointed Knotty Alder Cabinetry, GRANITE Countertops, Island, Stainless Steel Appliances, Pantry, & under cupboard lighting. Master is Spacious, has dual Sinks, Jetted Garden Tub, Large Shower, & Large Walk in Closet. Additional Features include large Laundry Room adjacent to Master Bedroom, will include Paver Driveway/Walkway, Large Covered Patio & can include Detached RV Garage with plenty of room with a slight price adjustment. Completion Date is estimated at 12 months from Contract Acceptance !!! Photos are of a Previous Home we built but the VIEWS are the Real Thing from the actual lot!!!!! Build to Suit - Images are a sample of possible construction. Taxes listed are for vacant land only. Sale includes parcel numbers 306-35-298 & 306-35-256X.

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