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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73 Seneca Drive Flagstaff, AZ 86005

$650,000

3 Beds

2 Baths

1,568 SqFt

Status Active

MLS # 6785279

Property Type Single Family Residence

Price Type --

Nestled in the desirable Pine Del neighborhood, this fully remodeled 3-bed, 2-bath home offers a perfect mix of modern updates and outdoor tranquility. Inside, enjoy an open-concept design with a cozy brick fireplace, wood-burning stove, and custom bookshelf. The sleek kitchen and spacious living area flow to the backyard, ideal for entertaining or relaxing. With a greenhouse, two sheds, and a woodshed, there's plenty of space for hobbies and storage. The whole-house water filtration system ensures cleaner water and healthier plants and pets. Just minutes to hiking, biking, and Flagstaff Airport, and only 24 miles to Sedona. No HOA. Schedule your showing today—this gem won't last long! Charming, Fully Remodeled 3-Bedroom Home in the Private Pine Del Neighborhood Nestled in the highly sought-after Pine Del neighborhood, this beautifully remodeled 3-bedroom, 2-bathroom home offers an ideal blend of modern comfort and outdoor serenity. With a spacious open-concept layout, the home is designed to maximize natural light and create a warm, inviting atmosphere. Upon entering, you'll be greeted by a large brick fireplace with a cozy wood-burning stove, perfect for chilly Flagstaff nights. The custom-built bookshelf adds a personal touch, providing the perfect spot for a home library or displaying your favorite collections. The heart of the home features a sleek, updated kitchen and a generous living area that flows effortlessly to the outdoor spaces. The sizable backyard is an entertainer's dream, offering plenty of room for relaxation or gardening. Enjoy the Arizona sunshine from the covered patio, tend to your plants in the greenhouse, or store tools and equipment in one of two sheds or the woodshed. A whole-house water filtration system ensures the highest quality of water for your family, pets, and plants, addressing hard water concerns and optimizing your home's health. This home is perfectly positioned for those who enjoy outdoor adventures, with hiking trails, Tuthill Bike Park, and the Flagstaff Airport just minutes away. For weekend getaways, you'll be only 24 miles to the stunning Oak Creek Canyon and Sedona, and 20 miles to the slopes of Snowbowl. Downtown Flagstaff is just a short drive, offering a wealth of dining, shopping, and entertainment options. Located in a quiet, no-HOA neighborhood, this home offers flexibility and privacy, ideal for anyone looking to homestead, grow their family, or live a peaceful life with pets. Whether you're drawn to the beauty of the surrounding nature or the comfort of a well-appointed home, this is a must-see property that will not last long! Key Features: Completely remodeled 3-bedroom, 2-bathroom home Spacious backyard with greenhouse, woodshed, and 2 additional sheds Whole-house water filtration system for cleaner water and healthier plants, pets, and appliances Large brick fireplace with wood-burning stove Custom bookshelf for a home library Open-concept layout, ideal for entertaining Minutes from local hiking trails, Tuthill Bike Park, and Flagstaff Airport Just 24 miles to Sedona and 20 miles to Snowbowl No HOAperfect for homesteading, growing your family, or pet lovers This stunning home won't stay on the market for long! With its perfect blend of modern updates, outdoor space, and unbeatable location, it offers everything you're looking for and more. Don't miss your chance to make it yoursschedule a private showing today and discover all that this beautiful property has to offer before it's gone!

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19606 W Marshall Avenue Litchfield Park, AZ 85340

$650,000

4 Beds

4 Baths

3,554 SqFt

Status Active

MLS # 6782789

Property Type Single Family Residence

Price Type --

Nestled in the desirable Canyon Views community, this gently used, meticulously designed home offers an ideal blend of style, function, and comfort, with tasteful custom details throughout! As you enter, you'll be greeted by an open floor plan that seamlessly connects the chef's kitchen to the inviting family room. The kitchen is a dream for any home cook, featuring double ovens, a gas stove top, a large walk-in pantry, and a stunning waterfall edge island. The elegant tile backsplash ties everything together, making this space both beautiful and functional. The family room boasts vaulted ceilings, creating a light and airy atmosphere, and a gorgeous fireplace adds a touch of warmth and sophistication. This multigenerational home is designed for flexible living with a spacious bedroom and full bathroom located on the main floor, perfect for guests or extended family. Upstairs, you'll find a large, versatile loft that can serve as a playroom, office, theater, or additional living space. Two generous-sized bedrooms, a full bathroom, and a luxurious master suite complete the upper level. The master retreat includes double sinks, a walk-in shower, a private toilet room, and a spacious walk-in closet. Step outside to a beautifully manicured backyard, ideal for both relaxation and entertaining. A covered patio and gazebo provide shade for outdoor dining, while the built-in BBQ is perfect for summer cookouts. Artificial grass ensures a low-maintenance, lush landscape year-round. Move-in ready, this home is waiting for its next family to make it their own!

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3795 E Latham Court Gilbert, AZ 85297

$650,000

4 Beds

3 Baths

2,934 SqFt

Status Active

MLS # 6783589

Property Type Single Family Residence

Price Type --

This Gilbert 4 / 5 bedroom and 3 bathroom home with a loft, 3 car garage, and RV gate, is truly unique to Coronado Ranch. With custom rounded doors and attention added to the architecture, you will not want to miss making this your home. There is one bedroom and full bath downstairs as well as a front room and dining room. Upstairs you will find a large loft and 3 bedrooms, with a den built off the oversized master bedroom. The den can be enclosed to make this home a 5 bedroom home plus a loft and the added space downstairs. With an open kitchen and oversized wide lot that backs to a green belt, you have plenty of physical and visual space. Great community and location in Gilbert with fantastic amenities including a splash pad, parks, and more! amenities!

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36655 N 25th Street Cave Creek, AZ 85331

$650,000

4 Beds

3 Baths

2,350 SqFt

Status Active

MLS # 6702523

Property Type Single Family Residence

Price Type --

Spacious Home/ Great views on private Street on 1.6 acres, 4 beds/3baths, huge room, stunning rock fireplace in wood, big room with sitting rooms views in all directions.

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40 E Balboa Drive Tempe, AZ 85282

$650,000

4 Beds

2 Baths

2,714 SqFt

Status Active

MLS # 6785897

Property Type Single Family Residence

Price Type --

Discover a rare gem in Tempe with this exceptional home situated on nearly 1/3 acre (14,161 sq. ft.) of prime real estate. * New HVAC installed September, 2024. Properties with such expansive lots are a rare find in this sought-after area, making this home an incredible opportunity. This beautiful residence features 4 bedrooms and 2 bathrooms, perfect for families or those who desire extra space. The fully equipped kitchen boasts elegant maple wood cabinets, spacious quartz countertops, and stainless steel appliances. The home's interior is equally impressive, with wood and tile floors that add a touch of warmth and sophistication. The family room is a cozy haven with a charming fireplace, ideal for relaxing evenings.

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2225 S Olivewood -- Mesa, AZ 85209

$650,000

2 Beds

2.5 Baths

1,993 SqFt

Status Active

MLS # 6785829

Property Type Single Family Residence

Price Type --

Upon this GORGEOUS GOLF COURSE LOT located on the Four Peaks 7th tee box sits this beautifully REMODELED home! The massive living room is bathed in natural light with a huge picture window showcasing your amazing golf course/Superstition Mtn views! In November, 2024, the following was completed: New interior paint, new light fixtures and door handles, new carpeting, freshly painted bathroom cabinets, new mirrors and light fixtures, new pullout drawers in kitchen, new canned lighting throughout the home, new ceiling fans, baseboards, window coverings, and the list goes on! The tile flooring is must see! A/C regularly serviced. This home is a beauty! The well-sized den works as an office or a hobby room. The 2 car garage includes attached cabinetry, a work area, and a utility sink. The backyard overlooks the golf course; it offers an extended covered patio with a large pergola & epoxy floor, ideal for relaxing. This active adult community includes tennis courts, pool, workout facility, and more! Don't miss out on this gem. Act now!

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21425 N 142nd Drive Sun City West, AZ 85375

$650,000

2 Beds

2.5 Baths

2,580 SqFt

Status Active

MLS # 6702403

Property Type Single Family Residence

Price Type --

Fabulous Montecito model with 2 bedrooms, 2.5 bath & den w double doors, situated on a prime location on the 3rd hole of the Trail Ridge Golf Course, showcasing 2 separate lakes, mountain & fountain views! Enter through a private, front courtyard that opens to a spacious great room w plantation shutters, overlooking gorgeous greens & several patio areas. Open kitchen with Corian countertops, plenty of cabinets, Bosch cooktop, GE Profile appliances & separate built-in ice maker. Primary bedroom bay window, large walk-in closet, double vanity & separate shower & tub. Inside laundry w sink & updated GE washer & dryer. Half-bath for convenience. Large 2 car garage w extra golf cart garage, newer garage door opener. Water heater 2019, Two Trane units 2010. Roof underlayment #30 LB in 2010.

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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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5322 N Oro Vista Court Litchfield Park, AZ 85340

New

$650,000

5 Beds

3.5 Baths

4,457 SqFt

Status Active

MLS # 6789006

Property Type Single Family Residence

Price Type --

Beautiful 5-bedroom, 3.5-bathroom home in an exclusive Litchfield Park gated community. This 4,400 plus sq ft home is nestled in a cul-de-sac with an extra-large lot (17,094 sq ft) with a massive back yard enclosed by a block wall fence. Landscaping is elegantly done with multiple palm trees, front yard grass and many desert plants. The home features an enclosed outdoor bar/entertainment area in addition to a covered patio. The interior includes an extra-large eat-in kitchen, great room with wet bar, formal living and dining rooms, and a main floor bedroom with bathroom. All remaining bedrooms are upstairs with the main bedroom and ensuite separate from the other bedrooms and a large loft/game room. Seller offering $25,000 towards flooring/remodel, closing costs or rate buy down.

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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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