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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3510 S Verbena Road Casa Grande, AZ 85193

$650,000

2 Beds

2 Baths

1,240 SqFt

Status Active

MLS # 6711471

Property Type Single Family Residence

Price Type --

Unique opportunity! Check out this one-of-a-kind property less than a quarter mile from the Lucid Motors complex. 9.85 acres with a 2 bedroom 2 bath home, detached three car garage, two registered wells, a mobile home pad and a barn. Lots of possibilities for this property, what could you do with it?

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1208 W Random Way Payson, AZ 85541

$650,000

2 Beds

2 Baths

2,282 SqFt

Status Active

MLS # 6724003

Property Type Single Family Residence

Price Type --

For a quiet retreat with space to spread out on close to an acre. Need a place to park your RV? This home has plenty of room with the 2 car garage attached to the house and an additional 2 car garage/shop in the out building. Add to that a set up for covered RV parking. We have you covered...Don't forget the park and golfing down the street. Newly painted throughout with new flooring in kitchen, great room and hallway and new carpeting in bedrooms. New chain link fence as well. Green Valley Park and Payson Golf down the street. Take a peek in the utility room and see another storage area.....

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21545 S Camas Way Florence, AZ 85132

$650,000

2 Beds

2 Baths

1,971 SqFt

Status Active

MLS # 6737943

Property Type Single Family Residence

Price Type --

Magical Property! This beautiful rustic home is built with burnt adobe and is set on 10 acres adorned with majestic saguaros. There are views for miles, a wrap-around porch that you can sit and observe the local wildlife, and marvel at breathtaking views and spectacular sunsets. This home has stunning floors, gorgeous architecture features such as arched windows and doorways. The cozy the living room has a wood plank ceiling, exposed wood beams, a wood burning fireplace as well as a wood burning stove. The bathrooms even have lots of details you don't want to miss right down to the bronze faucets and designer towel bars. Come and explore the beauty of your next home.

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917 S Montezuma Avenue Phoenix, AZ 85003

$650,000

5 Beds

4 Baths

2,880 SqFt

Status Active

MLS # 6762354

Property Type Single Family Residence

Price Type --

Fantastic opportunity for Multi-Generation Home or a multi-unit Income Producing Investment Property in Central Phoenix! Beautifully updated Main Residence with 2 bedrooms & Ensuite Baths, Large Loft has cityscape & mountains views. Attached to Main House is a 1 bed/1 bath Apartment with separate entrance & patio. Property also has Casita / Guest House on separate meter featuring stunning updated kitchen, 2 beds/1 bath, laundry and private patio. Both Studio & Additional Home previously used as income producing short term rental units. Do not miss out on this unique opportunity close to City Central dining, shopping, events, and transportation!

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19700 N 76th Street Unit 2047 Scottsdale, AZ 85255

$650,000

3 Beds

2 Baths

1,729 SqFt

Status Active

MLS # 6751050

Property Type Apartment

Price Type --

Discover a rare opportunity to own a stunning residence in the highly sought-after gated community of Grayhawk Village. This exceptional 3-bedroom home offers breathtaking panoramic views of the McDowell Mountains, along with iconic Tom's Thumb, creating a serene backdrop for your daily life. Inside, the spacious floor plan includes an open kitchen that overlooks the family room and dining room. The generously sized primary and secondary bedrooms offer both comfort and convenience. Step outside onto the expansive outdoor terrace, where lush green grass and mature trees provide an oasis of privacy and tranquility. Whether you're sipping your morning coffee or entertaining guests, this space is your personal retreat. The community itself is rich with amenities, featuring tennis courts, heated pools, relaxing spas, a championship golf course, and Pickleball courtsideal for an active and vibrant lifestyle.This home is more than just a place to live; it's an invitation to experience the best of Scottsdale living in one of the most extraordinary locations Grayhawk Village has to offer.

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13399 W Tyler Trail Peoria, AZ 85383

$650,000

5 Beds

3 Baths

3,423 SqFt

Status Active

MLS # 6751314

Property Type Single Family Residence

Price Type --

Unbeatable 5 bedroom floorplan with extensive upgrades! This spacious home offers a formal living/dining, plus expansive greatroom layout at the back of the house, featuring gourmet kitchen with granite counters and staggered cabinetry, huge island with breakfast bar, dining room with bay window, and spacious living room. One bedroom and remodeled full bath downstairs, along with laundry. Enormous primary suite is upstairs along with 3rd full bath (also renovated), and 3 more bedrooms, each with walk in closets. Walnut finished plank flooring downstairs and plush carpet upstairs. Oversized premium lot with no rear neighbors. Extended back patio, grass area surrounded with curbing, rock accents, and mature plants/trees. Plenty of parking with 3 car garage and triple driveway.

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10523 E Simone Avenue Mesa, AZ 85212

$650,000

4 Beds

2.5 Baths

2,930 SqFt

Status Active

MLS # 6772714

Property Type Single Family Residence

Price Type --

*** EASTMARK BEAUTY!!!***...Don't miss this Stunning MOVE-IN READY...4 bed/2/5 bath home LOADED w/ UPGRADES!! Incredible OPEN FLOOR PLAN includes GORGEOUS KITCHEN w/ GRANITE COUNTER TOPS. CUSTOM CABINETS, STAINLESS STEEL APPLIANCES...including GAS RANGE, huge CENTER ISLAND & so much more! Ideal for a growing family, this home features plenty of room for everyone...INCLUDING AN UPSTAIRS LOFT perfect for a game room, entertainment center or den. Step outside through EXTENDED SLIDING GLASS DOORS to a LARGE back yard w/ PERGOLA COVERED AREA ideal for entertaing & family gatherings! Finishing touches include ENERGY-SAVING SOLAR PANELS, 3-car garage & cozy FRONT PORCH AREA. AWARD-WINNING EASTMARK AMENITIES & SCHOOLS along with restaurants, shopping & easy freeway access just MINUTES AWAY!!

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3630 N 372nd Lane Tonopah, AZ 85354

$650,000

4 Beds

2.5 Baths

2,472 SqFt

Status Active

MLS # 6759877

Property Type Single Family Residence

Price Type --

This is a rare opportunity to own a stunning 4-bedroom home on a fully fenced nearly 2-acre lot with breathtaking mountain views. The home exudes pride of ownership, featuring meticulously maintained desert rock landscaping, an extended driveway, fresh interior and exterior paint, abundant natural light, and elegant archways. The gourmet eat-in kitchen boasts SS appliances, granite countertops, tile flooring, recessed lighting, ample wood cabinetry, & a center island breakfast bar. Enjoy seamless indoor-outdoor living in the Arizona sunroom, complete with retractable windows and its own AC for year-round comfort. Take advantage of energy savings with paid-off solar panels & new AC unit. Check out the expansive backyard, offering a Pickle Ball court for sports enthusiasts! Also including 3 stalls along with a tack room and horse wash rack. PLUS! The other lot, with a huge RV garage & a corral, presents a remarkable chance for expansion, investment, or customization. Bring your toys, RVs, horses, & other animals - this property has plenty of space! Don't miss this excellent opportunity!

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2736 E Sourwood Drive Gilbert, AZ 85298

$650,000

4 Beds

2 Baths

2,138 SqFt

Status Active

MLS # 6760086

Property Type Single Family Residence

Price Type --

Nestled in the heart of Gilbert, in the coveted Freeman Farms community, this stunning single-story gem is where elegance meets everyday comfort. Boasting 4 spacious bedrooms, and two luxurious baths, this home is designed with an open floor plan that seamlessly blends living, dining, and kitchen spaces—perfect for both quiet evenings and lively gatherings. The 3-car garage offers ample room for all your vehicles and toys. The Primary suite provides direct access to the backyard, where the art of entertaining comes alive, with built-in BBQ and large covered patio. This is more than just a house; it's the lifestyle you've been dreaming of, in one of Gilbert's most sought-after neighborhoods... WELCOME HOME!

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356 Ancora Drive Litchfield Park, AZ 85340

$650,000

4 Beds

2 Baths

1,894 SqFt

Status Active

MLS # 6761307

Property Type Single Family Residence

Price Type --

Beautifully remodeled home with Heated Pool located in the heart of Litchfield Park. Not only is Litchfield Park pretty central to most of the West Valley such as West Gate and the Cardinals Stadium but here you are right down the street from award winning golf, restaurants, shopping and more. Inside the home you will notice a completely updated kitchen with Quartz countertops, new cabinets, stainless steel appliances, and gas stove. The home also features 3 spacious secondary bedrooms and a large Master Bedroom complete with a beautiful en suite with dual sinks and walk in shower. Both bathrooms have also been updated. Clean Modern style throughout the home.

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16118 W Hualapai Street Goodyear, AZ 85338

$650,000

4 Beds

4 Baths

3,565 SqFt

Status Active

MLS # 6762552

Property Type Single Family Residence

Price Type --

Welcome to this impeccably maintained, one-owner home, complete with an outdoor oasis. As you step inside, you're greeted by soaring 10-ft ceilings and an inviting open floor plan featuring a spacious family room, formal dining, and a versatile office/den. The heart of the home boasts stunning wood flooring and a wall of windows that fill the kitchen, dining, and living areas with abundant natural light. Enjoy evenings by the natural gas fire pit, whip up meals on the built-in gas grill, or take a dip in the heated pool and spa. A lush grassy area, extra storage shed, and RV gate with a parking pad complete this backyard haven, all while overlooking a peaceful park setting. When it's time to unwind, the upper level features 4 bd (each with w/in closet)/3ba, fitness room, and a media room. Welcome to this impeccably maintained, one-owner home that offers both elegance and comfort, complete with an outdoor oasis that's truly a must-see. As you step inside, you're greeted by soaring 10-foot ceilings and an inviting open floor plan featuring a spacious family room, formal dining area, and a versatile office/den. The heart of the home boasts stunning wood flooring and a wall of windows that fill the kitchen, dining, and living areas with abundant natural light. This seamless transition to the outdoors reveals a private sanctuary perfect for entertaining and relaxation. Enjoy evenings by the natural gas fire pit, whip up meals on the built-in gas grill, or take a dip in the heated pool and spa. A lush grassy area, an extra storage shed, and an RV gate with a parking pad for your toys complete this backyard haven, all while overlooking a peaceful park setting. When it's time to unwind, head upstairs to your personal retreat. The upper level features 4 spacious bedrooms, each with its own walk-in closet, along with 3 bathrooms, a fitness room, and a media room. This exceptional property combines luxurious living with thoughtful details inside and outdon't let this opportunity pass you by!

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18238 N 43rd Drive Glendale, AZ 85308

$650,000

5 Beds

3 Baths

2,813 SqFt

Status Active

MLS # 6761922

Property Type Single Family Residence

Price Type --

Multi-Generational home on one of Bellair's 10 Largest Lots! Of over 1100 homes in Bellair, there are only 10 lots this size. Four bedrooms in main house, including main bedroom with en suite bathroom, private exit and TWO closets. Next-Gen suite offers private bathroom with walk-in shower, wider door frames, no steps, Living Room, Kitchenette, Laundry hook-up, Bedroom and private exit. Huge 14,111 square foot lot offers sparkling play pool, two separate grassy yards, mature landscaping, citrus tree, patio that extends length of home. Entertain in either the Great Room with updated kitchen or Formal Living Room adjacent to Dining Room. Vaulted ceilings and custom flooring are enhanced by stainless steel appliances, custom paint and beautiful granite countertops. Unique Find!

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