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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5721 N 13th Street Phoenix, AZ 85014

$649,000

3 Beds

2 Baths

1,213 SqFt

Status Active

MLS # 6782306

Property Type Single Family Residence

Price Type --

This beautifully remodeled ranch-style home, located in the desirable north central corridor, offers 3 bedrooms and 2 bathrooms. Completely renovated in 2022, it boasts an open floor plan, custom cabinetry, stainless steel appliances, a gas stovetop, and a large center island - perfect for both cooking and entertaining. Both bathrooms have been tastefully updated. The home is adorned with new wood-look plank tile throughout, The backyard is a true retreat, complete with a large covered patio and a newly installed heated pool. Additional features include dual-pane windows, recessed lighting, a new AC unit (2022), new shutters, completely updated plumbing and electrical systems. located near the area's best dining and the highly sought-after Madison schools.

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1800 N 156th Drive Goodyear, AZ 85395

$649,000

3 Beds

3 Baths

2,558 SqFt

Status Active

MLS # 6782725

Property Type Single Family Residence

Price Type --

Check out that marble flooring! What a Grand entrance into this immaculate 3-bedroom, 3 bath home located in a cul-de-sac lot near a playground. This home features plantation shutters, a kitchen to delight any picky chef with so much space and extended granite counter tops to include a large enough breakfast bar to seat the family. The guest suite features a separate living space with living area, which includes separate washer, dryer hooks ups and separate bed and bath. To top it off the backyard is a blank canvas for completing your entertainment dreams.

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1424 E Coronado Road Phoenix, AZ 85006

$649,000

3 Beds

2 Baths

1,700 SqFt

Status Active

MLS # 6784755

Property Type Single Family Residence

Price Type --

Stunning 1700 Sq. Ft. (1412 main; 288 detached office) Spanish Craftsman Revival in Coronado. Fully renovated with 3 spacious bedrooms, 2 bathrooms, large dining room and brand New kitchen cabinets, countertops and backsplash. New updates include a brand new AC unit, Low-E Premium dual pane windows from Anlin, premium vinyl flooring, newer water heater, New 200Amp electrical panel, New copper electrical wiring with grounding in the entire house, new exterior and interior paint, and New ABS plumbing and sewer lines throughout the house and all the way outside to clean-outs. Both bathrooms have been remodeled with new flooring, cabinets and shower tile. No detail left untouched! +++This home includes a detached 288 Sq Ft office/studio/gym/yoga studio with a moving glass wall, 10 foot wide bi-fold door perfect for allowing the outdoor elements In when weather permits. Premium vinyl flooring and separate mini split AC unit. The attic has been closed and insulated.

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3233 S Lebanon Lane Tempe, AZ 85282

$649,000

3 Beds

2 Baths

1,626 SqFt

Status Active Under Contract

MLS # 6717336

Property Type Single Family Residence

Price Type --

Welcome to your new home in Tempe! This fully remodeled property has brand new flooring, gray quartz waterfall countertops, white shaker cabinets, new fans, and modern finishes throughout. The roof has a 5-year no-leak warranty, 20-year underlayment, and lifetime shingle warranty. Outside, enjoy a covered patio and a sparkling diving pool on a spacious lot. The home also features a newer AC and furnace, shingles replaced in 2018, no HOA, and excellent nearby schools. Visit this weekend before it's gone—homes in 85282 at this price don't last! The property includes 1,466 sq. ft. plus a 160 sq. ft. attached laundry room.

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235 W Liberty Lane Payson, AZ 85541

$649,000

3 Beds

2 Baths

1,378 SqFt

Status Active Under Contract

MLS # 6751212

Property Type Single Family Residence

Price Type --

Rural living but close to town amenities! Suburban ranchette features 2.65 acres fenced and cross fenced for horses and other live stock. Fenced organic garden area and orchard. Numerous storage buildings, fenced chicken compound with coup, tack shed, large craft/work shed, oversized two car garage. Private well on property, plus an interest in Community well. Round pen set up with walker.

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16234 E Links Drive Fountain Hills, AZ 85268

$649,000

2 Beds

2 Baths

1,878 SqFt

Status Active Under Contract

MLS # 6766788

Property Type Apartment

Price Type --

You'll love this 2 bed, 2 bath PLUS office single-level condo with golf course views & 2 car garage in Balera at Firerock! Step inside to an open greatroom with high ceilings. The kitchen is the heart of the condo with walls of cabinets, large island, stainless appliances, granite counters & tile backsplash. The main bedroom also has golf course views & large ensuite bath with dual vanity, soaking tub, walk-in shower & ample walk-in closet. The guest bedroom is split & offers direct access to the guest bath - making it a mini-ensuite. The 3rd room has pocket doors-perfect for office, bedroom or hobby room. Relax inside or on your patio while taking in the views of Firerock Golf Course. All this plus the gated lock-and-leave Balera Lifestyle with community pool & fitness room! View today!

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17201 E Rockwood Drive Fountain Hills, AZ 85268

$649,000

3 Beds

2 Baths

1,720 SqFt

Status Active

MLS # 6774894

Property Type Single Family Residence

Price Type --

Welcome to your private oasis! This beautifully updated 3-bedroom, 2-bath home features a stunning pool, serene yard with a tranquil waterfall and great Red Mountain Views!! Vaulted ceilings create an airy feel in the living and dining areas. The family room connects to an updated kitchen (2024) with granite countertops, new appliances, and a large island. The split bedroom layout ensures privacy, while the master bath boasts an updated dual vanity and stylish tile backsplash. Recent upgrades include a new R/O system (2023), hot water heater (2022), pool equipment (2020), HVAC (2018), and a partial remodel of the master bath (2024). Located in a well-maintained neighborhood with easy access to Shea, this home is a true gem!

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5115 E Zenith Lane Cave Creek, AZ 85331

$649,000

3 Beds

2 Baths

1,861 SqFt

Status Active

MLS # 6784366

Property Type Single Family Residence

Price Type --

This 3/4 acre lot has a single level 1,861 sqft., 3 bedroom/2 bathroom home and a detached 4 car garage with room to add on. Move in or put your own custom touches on it and enjoy your expansive lot with natural Arizona landscape including Saguaro's, fruit trees and mature trees. Park your RV on the lot and store your toys in the extended length area of the garage. Set in a great location in Cave Creek and not far from the shopping, restaurants and nightlife in famous Carefree.

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17621 N Eagle Crest Drive Surprise, AZ 85374

$649,000

2 Beds

2 Baths

2,273 SqFt

Status Active

MLS # 6761486

Property Type Single Family Residence

Price Type --

Sun City Grand 2 bed 2 bath w/Den on Granite Falls South Golf Course with a great view of #16 green. Quartz counter tops and maple cabinets at the kitchen, carpet and tile throughout. A gas fireplace at the living room, double sinks at master bath and bay at master bedroom. Closet shelving system at master closet. Shutters and honeycomb blinds for window coverings, Ceiling fans, solo tubes, & water softener. Extended 3 car garage w/cabinets and a work bench. Step onto the extended e facing patio for great views and a built in gas BBQ.

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8442 S 22nd Street Phoenix, AZ 85042

$649,000

4 Beds

3 Baths

2,915 SqFt

Status Active

MLS # 6776403

Property Type Single Family Residence

Price Type --

Welcome to your stunning 4-bedroom, 3-bath home near South Mountain! Enter through a charming front courtyard into a spacious living area w/ soaring ceilings, elegant wood-look flooring, and a captivating stone fireplace. The chef's kitchen features wood cabinetry, luxurious granite countertops, stainless steel appliances, and convenient breakfast bar island. The first-floor primary bedroom offers private outdoor access and a spa-like ensuite with dual sinks and a garden tub. Enjoy breathtaking views from multiple balconies. The air-conditioned 2nd garage is perfect for a workshop or future casita & includes a hidden wall safe. Nearby access to the Mormon Trailhead for outdoor adventures and close proximity to Phoenix amenities, this home perfectly blends comfort, luxury & adventure. Continue upstairs and into the cozy loft w/balcony access, where you can spend a relaxing Sunday afternoon! Secondary bedrooms all come w/plush carpet for added comfort! Lastly, the lovely backyard includes a covered patio, lush natural turf, and a seating area w/a pergola! Your new home is waiting for you, hurry and act now!

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22909 N Las Positas Drive Sun City West, AZ 85375

$649,000

2 Beds

2 Baths

1,837 SqFt

Status Active

MLS # 6776318

Property Type Single Family Residence

Price Type --

Discover luxurious living in this exquisite 2 bedroom, 2 bathroom + Den home, perfectly positioned within the exclusive Corte Bella Country Club. Offering privacy and elegance, this San Ysidro model spans 1,837 sq ft and is ideally situated with breathtaking views of the 13th fairway and green. The home features a redesigned kitchen with white cabinetry, designer backsplash, upgraded countertops, and a full stainless steel appliance package. Recent upgrades include a 2022 new A/C unit, a 2018 water heater, and a 2023 irrigation system overhaul. Enjoy a resort-style backyard providing a private escape with extended patios, multiple entertaining areas, fresh gravel, 2020 misters, and a newer BBQ Bar Top. Perfect for relaxing enjoying the views or hosting lively gatherings. The custom media wall with a fireplace and the den wall changed with entrance off the hallway enhance this home's charm and functionality, especially with den having its own private exit to patios. Secure your piece of paradise in this gated community, renowned for its seclusion and refined living. Don't miss out on this popular San Ysidro model with golf views from almost every room, a gem for those seeking luxury and comfort.

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25645 W Blue Sky Drive Wittmann, AZ 85361

$649,000

4 Beds

2 Baths

2,139 SqFt

Status Active

MLS # 6650375

Property Type Single Family Residence

Price Type --

Easy To Show, Over 1 Acre Horse Property on this beautiful 4 bedroom, 2 bathroom single family home located in Wittmann, AZ. Comes with a Separate Fenced Pool Area to cool off in the summer heat! A Split Floor Plan 2 40 foot Cargo Containers. 2 Horse Stalls, Covered RV Parking. and a 50 ft portable round Horse Exercise Ring. Beautiful backyard with trees to provide shade perfect for a family event. Has an open garage with lots of available space to leave your vehicles in, 2 RV Hook-ups and 2 Container Storage units, Leased Solar Panels to reduce Electric Bills, and Additional Storage Shed.

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