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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630 E Laguna Drive Tempe, AZ 85282

$649,999

5 Beds

2 Baths

2,112 SqFt

Status Active Under Contract

MLS # 6783954

Property Type Single Family Residence

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A stunning single-family home located in the heart of Phoenix has 5-bed, 2-bath with 2112 sqft, 2-carport, and covered patio. Brand new windows throughout. You will be greeted by a bright & airy floor plan that is perfect for entertaining. The kitchen comes with stainless steel appliances, quartz countertops & brand-new white & black shaker cabinets. Brand new vinyl wood & carpet flooring throughout the home. Enjoy the fully upgraded, spa like bathrooms with high end shower system, framed mirrors, shower niche, & custom vanities. No HOA. Walking distance to parks and bike paths. Do not miss out!

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1941 E Medlock Drive Phoenix, AZ 85016

$649,999

3 Beds

3 Baths

2,438 SqFt

Status Active

MLS # 6785564

Property Type Townhouse

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Discover this beautifully maintained mid-century gem at 1941 E. Medlock Dr., located in the highly desirable Camelback Corridor of Central Phoenix. This 3 bedroom, 3 bathroom townhome exudes character and charm, offering a perfect blend of classic details set in a spacious and open floor plan. The inviting living room space boasts vaulted ceilings, fireplace, and large windows that let in abundant natural light while the kitchen features granite countertops, beautiful appliances, and plenty of cabinet space. Whether you are looking to entertain friends and family or spend a quiet night in, this space is perfect for any occasion. Situated in a quiet, established neighborhood just minutes from Biltmore Fashion Park, top restaurants, and easy freeway access. Enjoy the best of urban living with quick access to downtown Phoenix and the Camelback Corridor.

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1628 E Magellan Drive New River, AZ 85087

$649,999

3 Beds

2 Baths

1,978 SqFt

Status Active

MLS # 6683844

Property Type Single Family Residence

Price Type --

Motivated Seller! Will look at all offers. LIKE NEW home. Voted BEST VALUE by Desert Hills New River tour agents! All the updated features. Large kithchen, with center counter. White cabinets and granite countertops. Open great room with lots of windows for the mountain views. 3 bedrooms 2 bath spllit floorplan. The garage is a large oversized 2 car with a space for your tools. Full one acre for your enjoyment. Shared newer well, 2 party. Plus a new rear yard fence to be sure your animals are safe. Central vac. You won't want to miss this well maintained home!

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3145 W Sandra Terrace Phoenix, AZ 85053

$649,999

4 Beds

3 Baths

3,601 SqFt

Status Active

MLS # 6736381

Property Type Single Family Residence

Price Type --

Discover the perfect home in a super convenient location! This beautifully maintained residence offers 4 spacious bedrooms, a huge den, and 3 bathrooms. Enjoy 3 expansive living rooms, one with a cozy fireplace, and a grand great room, ideal for family gatherings and entertaining. The heart of the home is the spacious island kitchen, perfect for meal prep and family time. Step outside to a huge backyard, ideal for children, gardening, or hosting get-togethers. Plus, enjoy the convenience of a 3-car garage. With 3,601 sqft of living space, this home provides ample room for everyone. Don't miss the opportunity to make this incredible home yours.

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7326 E Portland Street Scottsdale, AZ 85257

$649,999

4 Beds

2 Baths

1,741 SqFt

Status Active

MLS # 6744851

Property Type Single Family Residence

Price Type --

PERFECT Rental! This rare gem in Scottsdale boasts 4 bedrooms plus a den, a 2-car garage, and a refreshing pool. Inside, discover an inviting open-concept layout complemented by sleek concrete floors, exposed metal beams. The kitchen is a culinary paradise, featuring stainless steel countertops, backsplash, and appliances, along with ample white cabinetry. Renovated bathrooms offer modern tile work and fixtures. The spacious master suite grants access to the backyard oasis, complete with a sparkling pool, and covered patio with a bar area. Situated in downtown Scottsdale, it's conveniently close to Fashion Square, dining, entertainment, and major attractions like the botanical gardens and the Phoenix Zoo and spring training stadiums! A rare blend of luxury and convenience.

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2771 E State Route 260 Highway Overgaard, AZ 85933

$649,999

4 Beds

2.5 Baths

3,208 SqFt

Status Active

MLS # 6752564

Property Type Single Family Residence

Price Type --

Here's your opportunity to own a piece of nostalgia with the storied Irish Castle. The exterior retains its original castle charm, continuing to captivate passersby with its unique appeal. Inside, you'll find a completely renovated space that masterfully blends modern comforts with the exterior historic character. This landmark offers a distinctive blend of old-world charm & contemporary interior living. This would make an outstanding bed & breakfast or airbnb with 4 bedrooms, 2.5 baths, huge kitchen and separate gathering spaces. All updates have been done within the last 2 years which include items such as mini splits in each room, new roof, new septic, flooring, painting, windows, spray insulation &so much more. List of updates/upgrades attached. Only 219 a square foot!

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4232 N 161st Avenue Goodyear, AZ 85395

$649,999

4 Beds

3.5 Baths

3,122 SqFt

Status Active

MLS # 6756990

Property Type Single Family Residence

Price Type --

4 Bedroom 3.5 Bath, 3 Car Garage & RV GATE. Custom Iron Gate Entrance into Private Courtyard. Beautiful Custom Tiled Entrance as you enter. TILE T/O except bedrooms. Open Floor Plan W/ Large Open Dining Area & Den. Great Room & GOURMET KITCHEN. Kitchen Features Beautiful GRANITE Countertops, Island, Stainless Steel Appliances, GAS STOVE ,DOUBLE OVENS, HUGE WALK IN PANTRY & 42'' CABINETS for Storage. PLANTATION SHUTTERS. Spacious Primary Suite with gorgeous bathroom w/ a Glass WALK-IN SHOWER, Separate Tub & double Sinks w/ Granite Countertops. 8' Interior Doors & 3 Secondary Bedrooms w/ Generous Closets. Garage W/ Cabinets & Overhead Storage Racks. Large Backyard professionally landscaped with ARTIFICIAL TURF & covered patio

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21747 E Roundup Way Queen Creek, AZ 85142

$649,995

3 Beds

3 Baths

2,630 SqFt

Status Active

MLS # 6674425

Property Type Single Family Residence

Price Type --

Enjoy this beautiful Pomona Opportunity with Guest Suite! This true split floorplan provides space to spread out! Your guests will find the spacious Kitchen/Dining /Great Room area quite comfortable for making memories for years to come. Included features: Timeless Stone Creek Collection Interior Design with cool tones. Upgraded Shaker Cabinets, Quart Kitchen Counters, 6X35 Tile flooring, Carpet in Bedrooms. Matte Black Hardware. Insulated 3 Car Garage with 8' Garage Doors, Gas stub at patio, Gas Range at Kitchen, Gas Dryer Hook up, Paver driveway and courtyard and Tankless water heater included!! Elevate your lifestyle today with the Amazing Pomona Floorplan!

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21673 E Roundup Way Queen Creek, AZ 85142

$649,995

3 Beds

2.5 Baths

2,390 SqFt

Status Active

MLS # 6702202

Property Type Single Family Residence

Price Type --

Welcome to Light Sky Ranch and the Pinecrest plan! This 2390 square foot home epitomizes modern luxury and comfort, boasting a well-appointed design that caters to both relaxation and functionality. With three bedrooms, two and a half baths, and a dedicated study, there's ample space for both privacy and gathering. The gourmet kitchen stands as the focal point, featuring quartz counters, upgraded shaker cabinets, and a spacious center island ideal for culinary endeavors or casual meals. The master suite is a tranquil oasis, offering dual closets and a spa-inspired shower for indulgent relaxation. Enhanced by 10-foot ceilings and a multi-slide door, the home is flooded with natural light. Outside, a single-car garage and a 2-car garage offer ample storage for vehicles, outdoor gear, and more. With amenities such as a tankless water heater for efficiency and a charming paver driveway, this home seamlessly blends convenience with sophistication.

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20271 W Hollyhock Street Buckeye, AZ 85396

$649,995

4 Beds

3 Baths

2,630 SqFt

Status Active

MLS # 6717642

Property Type Single Family Residence

Price Type --

8760 sqft lot - Gourmet kitchen, quartz countertops, full tile backsplash, white cabinets w/extension at nook, pendant lights at island, stainless steel appliances w/pyramid hood & gas cooktop - Center-meet doors at great room - Walk-in shower at primary bath - Pre-plumb locations at laundry room, soft water loop, gas to patio - 9 x 35 tile floors throughout except for carpet in bedrooms - Matte black fixtures throughout - Ceiling fan pre-wires at bedrooms, patio and great room - 10-foot ceilings - Single additional gate non-garage side - Two-tone paint - Garage service door.

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21680 E Roundup Way Queen Creek, AZ 85142

$649,995

3 Beds

2.5 Baths

2,390 SqFt

Status Active

MLS # 6721113

Property Type Single Family Residence

Price Type --

This Pinecrest plan is on a generous sized lot with a South facing front and borders a community greenbelt in central Queen Creek. The smart floorplan is a 3 bedroom, 2.5 bath, 3 car garage. Interior finishes include 10' ceilings, Gourmet Kitchen appliances with a gas cooktop and a 36'' vent hood, beautifully designed separate tub and large shower with His and Hers closets in the Primary Bathroom, expansive multi-slide glass door system from the Great Room to the covered patio, and much more! Awesome location close to Queen Creek Marketplace, a brand new Costco and Fry's, and all that Queen Creek has to offer.

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21664 E Roundup Way Queen Creek, AZ 85142

$649,995

3 Beds

2.5 Baths

2,390 SqFt

Status Active

MLS # 6721119

Property Type Single Family Residence

Price Type --

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