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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948 N 87th Street Scottsdale, AZ 85257

$612,551

3 Beds

2 Baths

1,484 SqFt

Status Active

MLS # 6776414

Property Type Single Family Residence

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Prime Scottsdale Cul-de-Sac Home Near Old Town & Fashion Square Discover this stunning Scottsdale home, perfectly located near Old Town Scottsdale, Fashion Square, and top-rated restaurants. Enjoy elegant engineered hardwood floors and a spacious, open kitchen with scenic views, perfect for entertaining. The master bedroom features a private garden view and a luxurious walk-in tiled shower. The central courtyard enhances indoor-outdoor living, while the yard offers beautiful sunrise views. Additional features include a removable pool fence, energy-efficient windows (2016), and 220-volt outlets. Close to community trails and the Scottsdale wash trails, parks, and the vibrant Scottsdale lifestyle—don't miss this exceptional home!

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8133 E Sunwing Ridge Drive Hereford, AZ 85615

$612,000

4 Beds

4 Baths

3,268 SqFt

Status Active

MLS # 6781824

Property Type Single Family Residence

Price Type --

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10864 E Texas Avenue Mesa, AZ 85212

$611,888

4 Beds

3 Baths

2,358 SqFt

Status Active

MLS # 6761150

Property Type Single Family Residence

Price Type --

MLS#6761150 February Completion! Introducing the exquisite Paisley floor plan at La Mira Discovery, featuring 4 bedrooms, 3 bathrooms, a loft, and an attached 2-car garage. Step through the welcoming front porch and down the extended foyer to find a private bedroom and bath—ideal for guests or family. Beyond the staircase lies the expansive gathering room, a spacious kitchen with an island, and a connected dining area, perfect for everyday living and entertaining. Upstairs, you'll discover two additional bedrooms, a versatile loft, a convenient laundry room, and an impressive owner's suite. Structural options include: soft water loop, extended covered outdoor living, garden tub at primary, shower in lieu of tub at secondary bath, and paver front porch.

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4321 Sawbuck Way Wickenburg, AZ 85390

$611,595

3 Beds

2 Baths

1,828 SqFt

Status Active

MLS # 6770394

Property Type Single Family Residence

Price Type --

Flourish, Homestead, 2 bed 2 bath, Design materials and selections made personally by the talented Shea interior design team, Induction builtin appliance package, matte black accents throughout, heavy glass enclosure at primary bath, upgraded quartz counters at kitchen and both bath, custom designed mosaic tile at kitchen and both bath, cabinet pull outs and recycling with pull out drawers under cooktop, service door at garage, 15ft sliding wall of glass at living room, upgraded electrical throughout, over $23,000 in upgraded tile flooring throughout the house, 4ft garage extension, custom landscape and irrigation at front and back, under cabinet lighting at kitchen. Discover current incentives at Shea sales office.

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18370 W Goldenrod Street Goodyear, AZ 85338

$611,000

4 Beds

2.5 Baths

2,713 SqFt

Status Active

MLS # 6764487

Property Type Single Family Residence

Price Type --

Welcome to your new sanctuary nestled in the heart of the vibrant Master Planned Community of Estrella. Step inside this beautifully updated energy-efficient 4-bedroom, 2.5-bathroom home where modern elegance meets comfortable living. As you enter, you'll be greeted by a stylish grey color palette that sets the tone for the contemporary atmosphere throughout. The primary bedroom is a luxurious retreat, boasting private access to the back patio, complete with a sprawling ensuite featuring double vanities, a deep soaker tub, and an expansive walk-in tiled shower. The secondary bedrooms offer ample space and privacy, thoughtfully separated from the primary suite. The second full bath is a haven of relaxation, showcasing a walk-in tiled shower with sleek finishes. Prepare to be enchanted by the chef's dream kitchen, equipped with a large island, Wolf gas cooktop, stainless hood, granite counters, subway tiled backsplash, wall oven/microwave, and an oversized pantry to fulfill all your culinary desires. Convenience meets functionality with a mudroom strategically located at the garage entrance, providing the perfect spot to unload shoes and bags after a busy day. Outside, the private oversized backyard beckons with a sprawling side yard ideal for a dog run, complemented by artificial turf, a paver seating area, and a soothing hot tub - the ultimate oasis for relaxation and entertainment. With a spacious three-car tandem garage, parking dilemmas are a thing of the past. And when it comes to amenities, Estrella offers a plethora of resort-style options including two residents clubs, pools, fitness centers, a splash park, lakes, hiking/biking trails, and abundant parks - ensuring there's always something for everyone to enjoy. Don't miss this opportunity to embrace luxury living in a community designed for those who appreciate the finer things in life.

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14132 W Bent Tree Circle Litchfield Park, AZ 85340

$610,500

2 Beds

2 Baths

1,800 SqFt

Status Active

MLS # 6747586

Property Type Single Family Residence

Price Type --

Welcome to Luxury Living in an Exclusive Gated Community. Come view your fully remodeled dream home in our prestigious gated community, featuring a gorgeous 2-bedroom, 2 -bath residence with a den. This beautifully designed home features modern updates such as Spanish Porcelain flooring, Porcelain countertops, and even walk-in Marble showers with seated areas in both showers! As you step inside, you'll feel the love that was put into this home as it carries a cozy, warm feeling while still upholding a very modern and elegant interior. This home is ideal for both casual dining and entertaining guests with its custom built in dining table & butler's kitchen. This is not all this property features as you'll be able to enjoy your jacuzzi that is amazing for hosting or just giving yourself some personal relaxing time! Living in this gated community ensures privacy and security. The security cameras that are conveying with the home will also give you that reassurance needed as you're able to view your outside premises with one touch of a button! Don't miss out on this amazing opportunity to make this house, your home!

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22723 W Calle De Los Flores Drive Wittmann, AZ 85361

$610,000

4 Beds

2 Baths

2,194 SqFt

Status Active

MLS # 6769023

Property Type Single Family Residence

Price Type --

Experience luxury living in this custom-built Territorial home on a sprawling 1.2-acre lot, offering breathtaking mountain views. This highly upgraded gem boasts elegant maple cabinets, sleek granite countertops, and stylish tile flooring. Inside, the stunning wood vega poles add a touch of rustic charm, while expansive covered patios invite you to enjoy outdoor living at its finest. The home features a formal dining room and a spacious, open kitchen that flows seamlessly into the great room—perfect for entertaining. Retreat to the master suite, complete with a large soaking tub, double sinks, a generous walk-in closet, and split bedroom design for added privacy. With modern amenities like pre-wiring for security, satellite, and ceiling fans, plus an extended 3-car garage with extra storage, this property has everything you need. Best of all, there's no HOA, giving you the freedom to truly make this space your own. The 12x45 covered RV parking offers a fantastic opportunity for extra income during the winter months when the ropers are in town, or it can easily be transformed into horse facilities. This home is the perfect blend of luxury and versatility, designed to fit your lifestyle. Don't miss out on owning this desert oasis!

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12535 N 87th Drive Peoria, AZ 85381

$610,000

5 Beds

3 Baths

3,026 SqFt

Status Active

MLS # 6783306

Property Type Single Family Residence

Price Type --

This gorgeous 4 bed, 3 bath, tri-level residence now on the market is for you! Great curb appeal, a manicured landscape w/lush grass, a 3 car garage, and an RV gate are just the beginning. Discover a spacious dining & living area w/vaulted ceilings, perfect for entertaining. Soft carpet in all the right places, elegant light fixtures, and custom palette throughout! The lower level boasts a cozy family w/stylish wood-look flooring, plantation shutters, and a brick fireplace to keep you warm during the coming winter months. The fabulous eat-in kitchen is comprised of wood cabinetry w/granite counters, a pantry, stainless steel appliances, and an island complete w/a breakfast bar. New pool pump in 2020 & new RV pad and gate! You'll love the primary bedroom, featuring soft carpet, a walk-in closet, and a full ensuite w/dual sinks. Also including an expansive backyard w/a covered patio and a fenced pool, this home is a dream come true! Act now before it's gone!

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140 E Coronado Road Phoenix, AZ 85004

$610,000

3 Beds

3 Baths

2,650 SqFt

Status Active

MLS # 6752538

Property Type Apartment

Price Type --

RARE historic Villa del Coronado two units have been combined to bring you 2,650 bright & spacious livable square feet, 3 bedrooms & 3 bathrooms with 3 private view patios outside extensive walls of glass w/ pool & tree top views in this highly desired Central Phoenix location. The midcentury modern development was carefully designed and constructed by renowned real estate developer Lionel V. Mayell (known to be the pioneer of early midcentury garden living). It is positioned adjacent to the Phoenix Theatre & Art Museum. It is also minutes from the Heard Museum, Roosevelt Row Arts District, shopping, Light Rail, & in addition to iconic restaurants such as Durant's. Community features 2 large pools and expansive park-like grassy lawns where you can BBQ, relax, & enjoy beautiful sunny AZ afternoons. This home is inclusive of an inside laundry (accommodating full size washer/dryer), gas cooktop, 2 refrigerators, and 2 garage spaces w/ storage. The HOA covers all your utilities (gas, water, electric, sewer, trash, & exterior maintenance) & property taxes. The modern updated design is ready for move in - no work/remodeling needed. This is a step up from a regular cooperative, as each unit has its own Warranty Deed.

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2122 W Virginia Avenue Phoenix, AZ 85009

$610,000

5 Beds

2 Baths

2,150 SqFt

Status Active

MLS # 6760861

Property Type Single Family Residence

Price Type --

Come see this Newly Constructed, 4 bedrooms, 2 baths, New AC Units, A Casita, or Mother-in-law suite, near Encanto Park, Easy access to I -10 & I -17 Freeways, Shopping, Restaurants, Great Schools, Arizona State Fair Grounds, Downtown Phoenix's Vibrant Cultural Scene, Dining & Entertainment, Easy Access to Encanto 18 Golf Course

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5060 S Las Mananitas Trail Gold Canyon, AZ 85118

$610,000

3 Beds

2 Baths

2,184 SqFt

Status Active

MLS # 6767301

Property Type Single Family Residence

Price Type --

Superstition foothills beauty combines amazing mountain views with a tastefully furnished home. The soaring ceilings and louvred shutters afford natural light as desired. The huge primary suite contains a sitting room, spacious vanity, walk in closet and glass shower + tub. Sophisticated, open kitchen hosts stainless appliances, newer large granite island and lovely cabinetry with pull outs all around. Yard includes a refreshing pool with built in table, water fall, pergola with seating. and a fire pit for chilly winter nights Natural habitat between neighbors and fencing enhances your privacy. A built in BBQ, fridge, wet sink & burner and citrus trees complete the back. A 3 car garage contains more storage cabinetry and a sealed floor.

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3940 S Velero Street Chandler, AZ 85286

$610,000

4 Beds

2 Baths

2,120 SqFt

Status Active

MLS # 6767814

Property Type Single Family Residence

Price Type --

Location, location, location! This spacious home has it all! Four bedrooms, 2 full bathrooms, formal living & dining rooms, family room, 3 car tandem garage and sparkling pool! This home has lots of natural light and an open, split bedroom floor plan. The kitchen has a kitchen island with breakfast bar and overlooks the family room with gas fireplace. The kitchen range is currently gas; however, it is wired for an electric stove. Inside laundry with cabinets is off kitchen area. The Primary bedroom has an en suite bathroom with separate shower & tub, dual sink vanity and large walk-in closet. The low maintenance backyard has a covered patio and play pool. Community offers lush, landscaped greenbelts, playground and is within a convenient Chandler neighborhood near Loop 202 and near major shopping and dining. This home is being sold by the original owners and is a must see!!!!

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