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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1724 W Thomas Road Phoenix, AZ 85015

$599,999

4 Beds

3 Baths

2,593 SqFt

Status Active

MLS # 6720472

Property Type Single Family Residence

Price Type --

Motivated sellers!! The home features a modern open kitchen that flows seamlessly into a spacious family room with a cozy fireplace. The casita offers a comfortable and independent living space for guests or potential rental income.

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4337 E Vaughn Avenue Gilbert, AZ 85234

$599,999

5 Beds

3 Baths

2,556 SqFt

Status Active

MLS # 6722059

Property Type Single Family Residence

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You'll LOVE this remarkable 5-bed, 3-bath home in the desirable Morrison Ranch neighborhood! Gorgeous lake community with tree-lined streets, large green belts and parks. Fabulous interior showcases designer paint, layered crown molding and tons of natural light. Perfect for gatherings, you have a welcoming living/dining room combo and a large family room w/additional eating area! The impressive kitchen boasts sleek SS appliances, granite counters, a pantry and center island. Modern bathroom updates, water softener and whole home water system. One bedroom downstairs and four bedrooms upstairs along w/flexible loft upstairs! Sizable main bedroom has an ensuite with dual sinks, separate tub/shower, & a walk-in closet. Discover the backyard, ideal for relaxing ! A covered patio, well-laid pavers, synthetic lawn, & gazebo make this a must see!

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47970 N Navidad Court Gold Canyon, AZ 85118

$599,999

4 Beds

2 Baths

2,263 SqFt

Status Active

MLS # 6726998

Property Type Single Family Residence

Price Type --

Stunning 4-bedroom, 2-bathroom home with a spacious 3-car garage has everything you need and more. Enjoy breathtaking views of the Superstition Mountains and the vast open desert through the backyard view fence. The newly remodeled kitchen boasts white cabinets, white quartz countertops, stainless steel appliances, double ovens, a high-end built-in microwave, a newer cooktop, a large hood, and a tiled backsplash. The large center island features a striking waterfall countertop design, and there's a huge butler's pantry just off the kitchen. The entire interior has been beautifully updated, featuring luxury vinyl plank flooring laid straight throughout, new recessed lighting, and fixtures. A highlight of the living room is the backlit television wall, adding a touch of modern elegance.

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7453 E Almeria Road Scottsdale, AZ 85257

$599,999

3 Beds

2 Baths

1,498 SqFt

Status Active

MLS # 6738857

Property Type Single Family Residence

Price Type --

MUST SEE TODAY!!! Pride of ownership is shown in this fabulous turn-key residence nestled in Scottsdale! Discover an impressive interior showcasing tile flooring, a soothing palette throughout, plantation shutters, and recessed lighting. The spotless kitchen is ready for you to cook your favorite meals, offering white shaker cabinets, sleek granite counters, stainless steel appliances, and a center island complete with a convenient breakfast bar for casual dining. The master bedroom boasts a sliding-door closet and a private bathroom for added comfort. Host fun gatherings in the wonderful backyard, including a covered patio and a sparkling swimming pool! This is truly a turn key property, ready to go. Only a mile from old town Scottsdale!

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3981 N Hudson Drive Florence, AZ 85132

$599,999

2 Beds

2.5 Baths

2,554 SqFt

Status Active

MLS # 6741528

Property Type Single Family Residence

Price Type --

Wake up to stunning golf course views in this beautiful home within the 55+ Merrill Ranch community. Enjoy a gourmet Kitchen, a luxurious Master Suite with an $80,000 remodel, and a private courtyard, backyard outdoor BBQ. Relax in your library, work from your custom office, and benefit from energy-efficient features like solar panels and a tankless water heater. With a 2-car garage and a golf cart garage, this home offers Luxury and Comfort in every detail. Don't miss out on making it yours!!!

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1410 W Flintlock Way Chandler, AZ 85286

$599,999

3 Beds

2 Baths

2,132 SqFt

Status Active

MLS # 6742529

Property Type Single Family Residence

Price Type --

Excellent location! This 3 bed, 2 bath + office/den home boasts of 2 spacious living areas, open kitchen concept with a large island and new SS appliances (2024). The oasis backyard includes a heated pool and spa, and backs to a greenbelt. This home also features a 3-car AC'd garage that includes a 220V, 27 ton hydraulic system. With a New roof (2023), New HVAC (2022), New Tankless Water Heater (2022) and water filtration throughout the home, this place has it all. The property is centrally located near the 202 freeway, Chandler Fashion Center, Hospitals, A+ Chandler Schools, Restaurants, and Much, Much More, putting you in the heart of everything Chandler has to offer.

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3780 S Ashley Place Chandler, AZ 85286

$599,999

4 Beds

2 Baths

2,188 SqFt

Status Active

MLS # 6743456

Property Type Single Family Residence

Price Type --

Home, sweet home! This beautiful 4 bed, 2 bath residence now on the market is for you! Great curb appeal, a low-maintance front yard, and a 2 car garage & Brand New AC System! Discover spacious dining & living areas w/vaulted ceilings, soft carpet in all the right places, and custom palette throughout. The kitchen is equipped w/ample cabinet & counter space, a pantry, built-in appliances, recessed lighting, a prep island, a breakfast nook w/a lovely bay window, and a peninsula w/a breakfast bar. End your busy day in the primary bedroom, boasting a walk-in closet and a full ensuite w/dual sinks. Finally, the wonderful backyard includes a covered patio, extended seating area, artificial turf, and a sparkling blue pool perfect for the warm summer days! What are you waiting for? Act now

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22325 N 78th Drive Peoria, AZ 85383

$599,999

4 Beds

2 Baths

2,136 SqFt

Status Active

MLS # 6757376

Property Type Single Family Residence

Price Type --

NEWLY UPDATED 4-BEDROOM HOME IN THE FLETCHER HEIGHTS COMMUNITY! This home features updated flooring throughout. Quartz countertops in kitchen and bathrooms updating the home with a bright and airy atmosphere. Fresh paint throughout. The eat-in kitchen features ample cabinet space with a large island with breakfast bar seating. The primary bedroom features dual sinks, separate tub and shower, and walk-in closet. The other bedrooms are located away from the primary bedroom allowing privacy. The large back yard features a hot tub and ample space to create a beautiful low maintenance backyard oasis. A MUST SEE TO MAKE THIS YOUR HOME!

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16220 W Boulder Drive Surprise, AZ 85374

Open House

$599,999

2 Beds

2 Baths

1,834 SqFt

Status Active

MLS # 6767561

Property Type Single Family Residence

Price Type --

Stunning Palo Verde Del Webb model located on the #9 tee box of Granite Falls South Golf Course. This home features split bedrooms, ensuring privacy for both owner and guests. The spacious great room includes a custom DAGR media wall and fireplace. The kitchen is well-appointed with granite countertops, stainless steel appliances, and a bay window in the breakfast nook. Primary bath has 2 sinks, granite counters and Calif Closets. French doors, by Renewal by Andersen, lead to the backyard. Brand-new 2024 roof. Air conditioner replaced. Your outdoor sanctuary features a large, heated pool with water feature. The spa offers the ideal spot to relax after a round of golf or a game of pickleball. Move-in ready & waiting for its new owner!

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10511 S 47th Lane Laveen, AZ 85339

$599,995

3 Beds

2.5 Baths

2,390 SqFt

Status Active

MLS # 6720364

Property Type Single Family Residence

Price Type --

Boasting an open layout ready-made for entertaining, this Pinecrest plan centers around an expansive great room, 10' ceilings, a dining nook and an impressive gourmet kitchen boasting a convenient island, walk-in pantry, with white shaker cabinets, quartz counters, black matte fixtures and stone tile throughout, with carpeted bedrooms. The elegant primary suite is adjacent, showcasing an immense walk-in closet and a private deluxe bathroom with shower and separate tub. Two additional bedrooms, a study, a laundry and a covered patio round out the plan.

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17637 W Blue Sky Drive Surprise, AZ 85387

$599,995

3 Beds

2.5 Baths

2,390 SqFt

Status Active

MLS # 6740210

Property Type Single Family Residence

Price Type --

Explore this dynamic Deacon home, ready for quick move-in on a homesite boasting driveway pavers and front yard landscaping. Included features: an inviting covered entry; a versatile flex room; a gourmet kitchen offering 42'' cabinets, quartz countertops, stainless-steel appliances, a double oven, a walk-in pantry and a center island; a spacious great room; an elegant dining room with center-meet doors leading onto a relaxing covered patio; an impressive primary suite showcasing a generous walk-in closet and a private bath with cultured marble countertops; a convenient laundry; a tandem garage and an RV garage. This home also offers additional windows and ceiling fan prewiring in select rooms.

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310 S 4th Street Unit 806 Phoenix, AZ 85004

$599,995

2 Beds

2.5 Baths

1,426 SqFt

Status Active Under Contract

MLS # 6761931

Property Type Apartment

Price Type --

Sold out pre-construction because of its desired NE corner lot location with 180° views from City lights to NE Valley Mtn and ballpark! Splitmaster layout featuring floor to ceiling aluminum frame windows, powder rm, laundry rm and 230/ft wrap around balcony. Other features; engineered wood floors, granite kitchen w/bar overhang, Viking appliances. Freshly painted top to bottom and new carpets in bedrooms. HOA includes Cox Internet, water, sewer, trash, storage with other amenity conveniences such as, 24-hr desk/guard, 24 hr fitness center w/dry spa, locker rm, rooftop terrace clubhouse w/fire pit, heated 5th floor pool/hot tub and much more.. 806 comes with two full size side-by-side parking located steps from elevator door!

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