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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9514 E San Carlos Way Globe, AZ 85501

$600,000

4 Beds

4 Baths

2,689 SqFt

Status Active

MLS # 6764529

Property Type Single Family Residence

Price Type --

Charming Country Home Coming Soon Discover your dream retreat in this beautiful 4-bedroom, 2 full 2 half-bathroom country home, boasting an expansive 2,689 sq. ft. of living space on a serene 1.43-acre lot. Enjoy the beauty of nature with multiple fruit trees and a convenient watering system. Relax and unwind as you take in the stunning views of Apache Peak from your own backyard. This property also features a detached garage, providing ample storage and workspace. Don't miss the opportunity to own this perfect blend of comfort and tranquility!

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3431 E Fairview Street Gilbert, AZ 85295

$600,000

3 Beds

2 Baths

1,862 SqFt

Status Active

MLS # 6770358

Property Type Single Family Residence

Price Type --

Location, location, location! Beautifully upgraded single-level home in the highly sought-after Pecos Park community of Gilbert! Offering 3 bedrooms and 2 baths, this residence boasts new interior paint, elegant light fixtures and fans, plantation shutters throughout, and more! The vaulted ceilings and seamless open floor plan allow for ample natural light, creating a bright and airy ambiance throughout the home. The gourmet kitchen is a chef's dream, featuring granite countertops, a spacious island with breakfast bar, stainless steel appliances, and recessed lighting. The primary suite offers dual vanities, a soaking tub, step-in shower, and a walk-in closet. Outside, enjoy your private oasis with mature trees and landscaping, and a large covered patio.

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1145 E Del Rio Street Gilbert, AZ 85295

$600,000

4 Beds

2.5 Baths

2,395 SqFt

Status Active

MLS # 6768818

Property Type Single Family Residence

Price Type --

Original owners! This well taken care of home. Home has 4 bedrooms (one bedroom downstairs) plus a loft and 2.5 baths. Downstairs bedroom has a minisplit AC unit in it. Bedroom #2 and #3 upstairs have walk-in closets. 2 car garage with epoxy floor, roll down screen door and side service door. Over 8,000 sf north/south lot has an easy maintenance front yard, grass backyard and play pool with removeable fence and variable speed motor/pump. Extra bonus is the RV gate with plenty of storage space on the east side of the house. 2 storage sheds in backyard will convey. Roof approximately 2 years old. NOTE: The section of the roof where the solar panels are was not reroofed. 5 year old AC units and air handlers. 7 yr. old water heater. Water softener. Solar is a prepaid lease.

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22788 E Orion Way Queen Creek, AZ 85142

$600,000

4 Beds

3 Baths

2,634 SqFt

Status Active

MLS # 6767865

Property Type Single Family Residence

Price Type --

Welcome to the Harvest Community in Queen Creek! This welcoming community has multiple parks, a children's playground, scenic lake, community pools and more. You can't miss Food Truck Wednesdays!You'll love the layout of this new construction home - four bedrooms PLUS a den/office, and 3 full bathrooms. The kitchen has been designed with Tahoe Maple Stained ''Coffee'' cabinets with 42' Uppers and a 4 1/2'' crown detail. Vahalla granite countertops, a 30'' gas cook top and large walk in pantry paired with an impressive great room. Upgraded flooring with EMS Baccarat 12x24 tile and Level 9 Cedar Grove berber carpet. Step into your primary retreat - great space, with a large en suite bathroom and walk in closet. Top it off with a 3 car tandem garage for plenty of storage. MUST see in person!

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1809 E Minnezona Avenue Phoenix, AZ 85016

$600,000

3 Beds

2 Baths

1,353 SqFt

Status Active

MLS # 6771653

Property Type Single Family Residence

Price Type --

This is already an income producing property as it grossed 51,288.32 over the last 12 months. A great investment opportunity for Builders or anyone looking to increase their home size and value! Approved building plans and permits to add a 2-stall garage and over 700 sq foot of additional living space will be included with the purchase of this property. The approved permits and plans would add an additional master suite, living room and laundry room. The original house was fully remodeled in 2023 and is has been a very successful rental property.

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1640 S Spruce Lane Show Low, AZ 85901

$600,000

3 Beds

2 Baths

1,540 SqFt

Status Active

MLS # 6775134

Property Type Single Family Residence

Price Type --

This adorable 3 bedroom, 2 bath home is the perfect fit for a weekend getaway or a long term solution to escape the AZ heat. The open kitchen with stainless appliances makes entertaining easy as it opens into the family room overlooking the back porch and tall pines. The master bath has a large shower with double sinks. Add a cul-de-sac lot and charming front porch to the long list of amenities this home has to offer! Enjoy the amenities that Torreon has to offer - golf, pool, family center, fishing pond, etc!

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566 S Mountain View Road Apache Junction, AZ 85119

$600,000

2 Beds

2 Baths

1,338 SqFt

Status Active

MLS # 6779141

Property Type Single Family Residence

Price Type --

***RARE FIND!!..AMAZING HORSE PROPERTY with INCREDIBLE MOUNTAIN VIEWS!!!*** This 2BED/2BATH MOVE-IN READY home is FULLY EQUIPPED for you AND YOUR HORSES!! Located only 5 MINUTES FROM US 60, in Apache Junction!! This OPEN FLOOR PLAN beauty is MATICULOUSLY MAINTANED & has LOADS of UPGRADES like STAINLESS STEEL APPLIANCES...TILE FLOORING...FULLY FINISHED AZ ROOM... NEW AC (2023)... NEW ROOF (2023) & more!!! Step outside to a BEAUTIFULLY FINISHED PATIO area w/ PUTTING GREEN & STUNNING SUPERSTITION MTN VIEWS!! SPACIOUS lot includes a 2nd EXTRA-DEEP GARAGE, RV PARKING spot w/ HOOKUPS...private ''park like'' sitting area, WORKSHOP, EXTRA STORAGE BUILDINGS & more. HORSE FACILITIES include 60' ROUND PEN, (2) COVERED STALLS w/ water & electricity. Riding Trails nearby!! HURRY, THIS WON'T LAST LONG

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11201 E Onza Avenue Mesa, AZ 85212

$600,000

2 Beds

2 Baths

2,004 SqFt

Status Active

MLS # 6777393

Property Type Single Family Residence

Price Type --

Welcome Home! This 2-bed/2-bath home + den is filled with upgrades and special touches. Enjoy the extra living space, complemented by an attached 70 sq ft storage area. The interior boasts plantation shutters and tile flooring throughout. The cozy eat-in kitchen is equipped with a double oven, Cambria quartz countertops, and convenient rollout shelves in the cabinets. Remote sun shades on the covered back patio create the perfect atmosphere for relaxation. Additional highlights include epoxy flooring in the garage and back patio, gutters, water softener, R/O, a sink in the garage, and a golf cart garage with its own A/C unit-perfect usage for a workshop. Home comes complete with washer, dryer, and refrigerator for your convenience. Don't miss out-see the upgrade list in Documents tab. Sunland Springs Village is a 55+ active adult community offering many amenities to its residents. From a 27 hole golf course to pickle ball courts, tennis courts, swimming pools and recreational facilities offering various programs and activities. You will have beautiful views of the Superstition Mountains and the neighborhood is close to shopping, dining, and to the highways.

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27181 W Potter Drive Buckeye, AZ 85396

$600,000

3 Beds

3 Baths

2,332 SqFt

Status Active

MLS # 6778768

Property Type Single Family Residence

Price Type --

Your Dream Awaits on a Premium Golf Course Lot with Private Casita! Enter through a tranquil front courtyard to discover a thoughtfully designed split floor plan. The spacious main living area is perfect for gatherings, with plenty of room for dining and entertaining. A gourmet kitchen shines with a large center island, granite countertops, tile backsplash, and natural gas cooking. The owner's suite offers a bay window with scenic views, a luxurious bath with double sinks and separate tub/shower, and a roomy walk-in closet. Guests enjoy privacy with a separate guest room, den, and bath, plus a private Casita that doubles as a retreat, office, or hobby space. Enjoy the stunning sunset views over the golf course and White Tank Mountains as you sit on the back covered patio. A rare find!

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7710 E Gainey Ranch Road Unit 142 Scottsdale, AZ 85258

$600,000

2 Beds

2.5 Baths

1,154 SqFt

Status Active

MLS # 6778206

Property Type Townhouse

Price Type --

Wonderful Gainey Ranch townhome! Two main bedrooms with baths, one downstairs and one upstairs, half bath and 1 car garage. Living room with wood burning fireplace and vaulted ceiling. Loft area with space for an office or sitting area. Downstairs opens to large patio area. Light and bright with shutters. Laundry is in garage. New HVAC 2021. Livable or potential for fantastic remodel. Gainey Ranch offers miles of golf course walking paths and beautiful surrounding lakes. Workout, tennis and pickle ball courts, two community pools estate club pools.

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29778 N 129th Glen Peoria, AZ 85383

$600,000

2 Beds

2 Baths

1,635 SqFt

Status Active

MLS # 6784213

Property Type Single Family Residence

Price Type --

PRIME LOCATION & RARE FIND - this one-of-a-kind TURN-KEY Flora (furniture included) is situated on an EXTREMELY PRIVATE HOMESITE w/ NATURAL DESERT VIEWS!! Beautiful curb appeal w/ STONE ACCENTS greets you before entering the charming FRONT PAVER COURTYARD. Step inside & you'll be impressed - the pride in ownership is noticed when opening the door - this home is PRISTINE! The EAT-IN Kitchen is equipped w/ Engineered STONE slab, under cabinet & pendant lighting & a PREP ISLAND w/ access to the front crt yrd!! OVERSIZED TILE installed on the diagonal in all the right areas & DEN DOORS w/ MURPHY BED is the perfect flex space!! Step outside to paradise and enjoy the spectacular resort backyard oasis! The HEATED POOL, PRIVATE SPA & ROCK WATER FEATURE is the perfect setting to enjoy the EXPANSIVE DESERT & MOUNTAIN VIEWS!! The EXTENDED COVERED PATIO features a STUNNING FIREPLACE WALL w/ Built-in BBQ - the perfect space to enjoy the Breathtaking Views. Additional upgrades: SUN SHADE off the back patio, Misting System, custom window treatments, RO, Soft Water, Temperature Controlled Garage w/ Storage, 3kw OWNED SOLAR and so much more - Don't miss the opportunity to call this home!!

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11602 N 32nd Place Phoenix, AZ 85028

$600,000

3 Beds

2 Baths

1,619 SqFt

Status Active

MLS # 6785371

Property Type Single Family Residence

Price Type --

A charming 3 bed, 2 bath residence in Cactus Park is now for sale! Nestled on an excellent corner lot and featuring a sizeable front yard w/natural turf, a 2 car garage, and a welcoming front porch. Inside you will find a living area w/elegant wood-look flooring and neutral palette. Continue into the cozy family room, showcasing stylish French doors. The fabulous eat-in kitchen is comprised of wood cabinetry w/granite counters, subway tile backsplash, track lighting, and all the SS appliances you'll need for home cooking. End your busy day in the primary bedroom, boasting a private ensuite w/direct outdoor access. Also including a wonderful backyard w/a covered patio, a lovely ramada, workshop/man-cave with A/C, a convenient storage shed, and a refreshing pool! Very nice home!!

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