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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21783 E Roundup Way Queen Creek, AZ 85142

$619,995

3 Beds

2.5 Baths

2,510 SqFt

Status Active

MLS # 6666441

Property Type Single Family Residence

Price Type --

Welcome to this stunning three-bedroom, 2.5-bathroom home that exudes elegance and functionality! Step inside to discover a teen room, study, and a three-car garage, providing ample space for all your needs. This home offers a desirable north-south exposure and a paver driveway, adding to its curb appeal. The kitchen is a chef's delight with 42-inch regal white kitchen uppers, quartz countertops, an oversize island, and upgraded stainless steel appliances including a professional gas range. The contemporary interior design features a 6 x 35 wood tile throughout, creating a seamless and stylish look. Unwind in the primary bath's tile walk-in shower or enjoy the convenience of a kitchen pantry for storage. The upgraded paint package in agreeable gray adds a touch of sophistication! Located conveniently near Highway 24, this home is also close to dining, entertainment, and shopping options, making it a prime location for a vibrant lifestyle. Don't miss out on the opportunity to own this gorgeous home, experience luxury living at its finest!

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4836 W Stargazer Place Laveen, AZ 85339

$619,995

3 Beds

3 Baths

2,630 SqFt

Status Active

MLS # 6679937

Property Type Single Family Residence

Price Type --

An inviting covered porch welcomes guests to the charming Pomona plan. A spacious great room is at the heart of the open layout, adjacent to a roomy nook and impressive gourmet kitchen with a walk-in pantry, center island, Stainless steel appliances. This home will be built with either a study and Guest suit option complete with separate living room, wet bar and separate laundry. There is also an additional bedroom and full bathroom, The lavish primary suite offers a generous walk-in closet and a private bath with double sinks and oversized walk-in shower. A convenient laundry and covered back patio are also included. This home will also feature a 3-car garage and 10ft ceilings.

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4813 W Stargazer Place Laveen, AZ 85339

$619,995

3 Beds

2.5 Baths

2,390 SqFt

Status Active

MLS # 6700009

Property Type Single Family Residence

Price Type --

The Deacon plan includes an attached RV garage, plus two tandem garage bays! Inside, a well-appointed Gourmet kitchen with a walk-in pantry is flanked by a great room and a dining room with covered patio access. You'll also appreciate an elegant primary suite with a private bathroom and ample walk-in closet space. A mudroom, a convenient laundry and a flex room.

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10515 S 47th Lane Laveen, AZ 85339

$619,995

4 Beds

3 Baths

2,630 SqFt

Status Active

MLS # 6720382

Property Type Single Family Residence

Price Type --

An inviting covered porch welcomes guests to the charming Pomona plan. A spacious great room is at the heart of the open layout, boasting 10' ceilings throughout, adjacent to a roomy nook and an impressive gourmet kitchen with white shaker cabinets, quartz counters, satin nickel fixtures, with a walk-in pantry and center island. This home has stone tile throughout with carpeted bedrooms. The lavish primary suite offers a generous walk-in closet and a private bath with double sinks. A convenient laundry, covered patio, and separate study are also included.

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10512 S 48th Glen Laveen, AZ 85339

$619,995

3 Beds

3 Baths

2,630 SqFt

Status Active

MLS # 6728638

Property Type Single Family Residence

Price Type --

An inviting covered porch welcomes guests to this charming Pomona home with 10' ceilings throughout. A spacious great room is at the heart of the open layout, adjacent to a roomy nook and an impressive gourmet kitchen, 42'' white shaker cabinets, quartz countertops, gas stove, with a walk-in pantry and center island. This home will be built with a space to use for a study or formal dining room. The lavish primary suite offers a generous walk-in closet, a private bath with deluxe shower #2, and double sinks. A convenient laundry and covered patio are also included.

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21726 E Lords Way Queen Creek, AZ 85142

$619,995

3 Beds

2.5 Baths

2,390 SqFt

Status Active

MLS # 6702133

Property Type Single Family Residence

Price Type --

Introducing this exquisite home featuring the interior Bermuda Linen collection features timeless 42'' white regal upper cabinetry in the kitchen perfectly complements the sleek blanco maple quartz kitchen countertops & island, making it a chef's dream. The kitchen is adorned with a subway tile backsplash, wood laminate flooring throughout the main living areas, tile in the baths. Enjoy the gourmet kitchen's built-in single oven and microwave, gas cooktop stove, and stove-pipe pyramid stainless steel vented hood. With 10-foot ceilings, this home feels open, airy, and full of natural light. The three bedrooms, 2.5 baths, study & 3-car split garage provides ample space for comfortable living. This move-in ready gem offers a north-south exposure, ideal for enjoying bright and sunny days! With amenities like a tankless water heater for efficiency and a charming paver driveway, this home harmoniously blends convenience and sophistication.

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21856 E Saddle Court Queen Creek, AZ 85142

$619,995

3 Beds

2.5 Baths

2,500 SqFt

Status Active

MLS # 6730743

Property Type Single Family Residence

Price Type --

The single-story Cassandra plan showcases an open layout with a great room with a multi-sliding glass door, a breakfast nook, a large gourmet kitchen and a 2-car garage. The primary suite is adjacent, and boasts a generous walk-in closet and an attached bath with a large walk-in shower. Two additional bedrooms flank a full bath, and the nearby study.

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21849 E Saddle Court Queen Creek, AZ 85142

$619,995

3 Beds

2.5 Baths

2,500 SqFt

Status Active

MLS # 6730780

Property Type Single Family Residence

Price Type --

The single-story Cassandra plan showcases an open layout with a great room with a multi-sliding glass door, a breakfast nook, a large gourmet kitchen and a 2-car garage. The primary suite is adjacent, and boasts a generous walk-in closet and an attached bath with a large walk-in shower. Two additional bedrooms flank a full bath, and the nearby study.

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17225 W Calle Lejos -- Surprise, AZ 85387

$619,995

3 Beds

3 Baths

2,630 SqFt

Status Active

MLS # 6731947

Property Type Single Family Residence

Price Type --

Experience luxury in The Pomona, located on a prime corner lot with stunning mountain views. This home features a guest suite, a three-car garage, and a gourmet kitchen featuring Quartz countertops -end appliances. Enjoy 10-foot ceilings, a deluxe primary bathroom with a massive super shower, 3 car garage, paver driveway, RV Gate and 15-foot Center meet doors that open to an oversized 8,750 sq ft lot.

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791 W Rock Needle Trail Apache Junction, AZ 85120

$619,990

3 Beds

2.5 Baths

2,473 SqFt

Status Active

MLS # 6730540

Property Type Single Family Residence

Price Type --

Up to 3% of base price or total purchase price, whichever is less, is available through preferred lender plus additional 2% of base price or total purchase price, whichever is less, is available to be used toward closing costs, pre-paids, rate buy downs, and/or price adjustments. This exquisite Parklane model, priced for a quick sale and set for August completion, offers 3 bedrooms, 2.5 baths, and a versatile den. The chef's kitchen with a 36'' gas cooktop, wall oven, and pearl white quartz countertops is perfect for entertaining. Additional features include a 2' garage extension, 3-car tandem garage, and a luxury shower with dual shower heads in the owner's bath.

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26851 N 67th Drive Peoria, AZ 85383

$619,990

3 Beds

2.5 Baths

2,051 SqFt

Status Active

MLS # 6711432

Property Type Single Family Residence

Price Type --

READY NOW-turn key! Experience the charm of Aloravita, nestled within the scenic mountains of Peoria. This community boasts breathtaking views and is conveniently located minutes away from shopping, dining, hiking trails and more! Our popular 'El Dorado' floorplan features 3 full bedrooms, 2.5 bathrooms, 2 Car-Garage and a private yard with views! Designer selected finish includes Burlap Cabinetry, Quartz Kitchen Countertops, Wood Like Tile Throughout, and Plush Carpet in all the bedrooms. This beautiful home will have it all including 9' ceilings, Gourmet Gas Kitchen, Smudge Proof Stainless Steel Appliances, Blinds, Pre-Plumb for Soft Water, and Smart Home Technology. Photos and virtual tour of similar spec home, options may vary**

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6728 N 190th Drive Waddell, AZ 85355

$619,990

3 Beds

2.5 Baths

2,397 SqFt

Status Active

MLS # 6739349

Property Type Single Family Residence

Price Type --

QUICK MOVE-IN HOME! MOVE INTO YOUR NEW HOME BEFORE THE HOLIDAYS! SPECIAL FINANCING WITH BELOW MARKET INTEREST RATES AVAILABLE! MOVE-IN PACKAGES AVAILABLE! PLEASE INQUIRE ABOUT THESE SPECIALS ON THIS QUICK MOVE-IN HOME AND OTHERS. ACT SOON BEFORE IT IS TOO LATE! It's the very spacious Carmona on a LARGE LOT. 3 bedrooms + study, 2.5 baths, Multi slide door perfect for entertaining off of the extended covered patio. Large walk in shower at owner's bath. Brick pavers at porch, drive, and walk. Garage service door for easy access to the backyard. Stainless steel gas appliance package with 36'' cooktop and canopy hood for the cook in the family. Slate (gray) cabinets with 42'' kitchen uppers and pull out trash drawer. AZT Himalaya white granite tops in kitchen and at the enhanced kitchen island. Upgrade flooring includes EMS Novales 12x24 Astra tile in all areas of the home except bedrooms & closets. Please verify all information with onsite agent. Thank you!

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