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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2105 W Yucca Drive Wickenburg, AZ 85390

$595,000

3 Beds

2 Baths

1,846 SqFt

Status Active

MLS # 6783979

Property Type Single Family Residence

Price Type --

Welcome to this bright and airy home, where every room feels welcoming and filled with light. The large great room, complete with a cozy fireplace, is perfect for gatherings or quiet nights in, offering plenty of space for everyone to relax. Each bedroom is generously sized, giving you room to stretch out and create your own sanctuary. The layout flows beautifully, with natural light enhancing every corner and making the entire space feel open and inviting. Experience the ease of owned solar as you enjoy living in this fantastic home! Outside, this home continues to impress. Set on a larger lot, the property includes a fully fenced yard that offers both privacy and space to enjoy. The backyard is a true retreat, featuring a private pool for warm Arizona days and a lush grassy area ideal for greenery, adding character and charm to the outdoor space. Covered front and back porches extend your living area, perfect for morning coffee, evening unwinding, or hosting friends and family. For those with projects or hobbies, the property includes a 31' X 14' RV garage with 12' doors that includes electricity;a versatile space ready to meet any need. With room to breathe, beautiful views, and thoughtful details throughout, this home offers comfort and functionality, creating a welcoming retreat inside and out.

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7122 W Spur Drive Peoria, AZ 85383

$595,000

3 Beds

2 Baths

1,737 SqFt

Status Active

MLS # 6785445

Property Type Single Family Residence

Price Type --

Don't wait for a new build—you have it all in this 2020 built Pulte Sagebrush model! This stunning 3-bedroom, 2-bathroom home is perfectly situated on a desirable corner lot in the sought-after Aloravita neighborhood, featuring multiple playgrounds and beautiful green spaces for gathering with friends and family. The home boasts a thoughtfully designed floor plan with a stunning color palette throughout, a large covered patio for outdoor living, and a beautifully landscaped backyard with room for entertaining and children's play. Inside, you'll find a modern kitchen with quartz countertops and premium finishes, a spacious primary suite extended 2 feet in the bedroom and luxurious en-suite bathroom. The separate laundry room is complete with cabinets and a laundry sink. Additional upgrades include a tankless water heater and water softener. An ideal location near shopping, top-rated schools, and within a popular school district. This home offers comfort, style, and conveniencedon't miss this opportunity!

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40937 N Majesty Way Anthem, AZ 85086

$595,000

4 Beds

2.5 Baths

2,469 SqFt

Status Active Under Contract

MLS # 6750370

Property Type Single Family Residence

Price Type --

*VA ASSUMABLE LOAN AT 3%. LEASED SOLAR PAID OFF.* Location is everything! This home is settled in a quiet neighborhood with a trail entrance right next door connecting you to 13 miles of lush desert trails, 2 parks within a 5-minute trail walk, and the K-8 elementary school is just blocks away. Not to mention the one-of-a-kind comraderie and sense of community this neighborhood offers. This spacious ''Tradition'' floor plan is coveted for it's vaulted ceilings throughout the living space, and fluid layout perfect for hosting and family-time. The large kitchen island, pantry, and wall of cabinets creates the ultimate culinary experience. Conveniently located on the main floor, the extra large primary suite has private backyard access and a large walk in closet. Maintaining privacy, the 3 additional bedrooms and full bathroom are located upstairs. With the 3-car garage, overhead garage storage, multiple walk in closets, custom built-in bookcases, storage under the stairs, and an RV-gate, this property provides all the storage a family could need! This property is on a premium lot where you can enjoy the beautifully designed and low-maintenance backyard with synthetic grass, pavers, a large extended covered patio, and a view fence showing off stunning desert scenery and colorful sunsets!

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7701 E Palm Lane Scottsdale, AZ 85257

$595,000

3 Beds

2 Baths

1,575 SqFt

Status Active Under Contract

MLS # 6767591

Property Type Single Family Residence

Price Type --

Well cared for, a 3 bedroom home with 2baths ,2 car garage ,that is move in ready or ready for you to update to your liking! New AC and water heater in last 24 months, seller even had the sewer pipes sleeved as a preventative measure in the last year. Ample living space inside the home and a beautiful flagstone patio with built in grill and all around new patio covering . Wonderful opportunity in a highly desired Scottsdale subdivision brought to you at a bargain price. You cannot find a better price for a home in this condition with a wood burning fireplace to boot. Shopping within walking distance, and very near Old Town Scottsdale. Walk your dog, ride your bike, or play sports at El Dorado Park across the street. Owner occupied only. See lister for more details

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656 W Minton Drive Tempe, AZ 85282

$595,000

3 Beds

2.5 Baths

2,187 SqFt

Status Active Under Contract

MLS # 6768583

Property Type Single Family Residence

Price Type --

Move in ready super clean two-story home. Cheery and bright throughout with no carpet! This home has been freshly painted, and updated with new granite countertops, new kitchen sink, new light fixtures and faucets replaced. Great 3 bed 2.5 bath open spacious light & bright floorplan. Family room open to kitchen separate Formal living and dining. Ample storage space, Upstairs loft area with built in desk and shelving. Well laid out backyard with mature landscaping, pool and spa. RV gate and extra concrete slab on side of home. Home has a whole home water filtration system to be able to drink from any faucet. Must see home in a fabulous Tempe location near ASU, the I-10, the 60, the airport, and just minutes from Downtown, convenience is at your doorstep.

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7674 E Whispering Mesquite Lane Gold Canyon, AZ 85118

$595,000

2 Beds

2 Baths

1,922 SqFt

Status Active Under Contract

MLS # 6774751

Property Type Single Family Residence

Price Type --

Located in the desirable Mountainbrook Village community, this home offers stunning golf course and mountain views. This beautifully updated home features two primary bedrooms, vaulted ceilings, massive windows, and a spacious layout with high-end finishes like granite countertops and plantation shutters. Enjoy outdoor living with a tiled courtyard, covered patio, and air-conditioned garage with a separate workshop. With a central vacuum system, soft water, and RO systems, this home blends comfort and convenience, perfect for enjoying the best of Gold Canyon living. Mountainbrook Village is a scenic golf course community set against the stunning Superstition Mountains. It offers beautifully designed homes and resort-style amenities, including a golf course, fitness facilities, and social clubs. With a relaxed yet active lifestyle, it's perfect for those seeking a peaceful desert setting with plenty of recreational opportunities.

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7838 E Buena Terra Way Scottsdale, AZ 85250

$595,000

2 Beds

2.5 Baths

1,485 SqFt

Status Active Under Contract

MLS # 6775629

Property Type Townhouse

Price Type --

This gorgeous single level, move-in ready townhome has a split floor plan with two oversized bedrooms both ensuite, a gorgeous shady patio, 2 car attached garage, excellent curb appeal with a gated private front patio. Home is located directly next to the heated community pool and spa. Newer water heater (2020) roof has been completely resealed (2020), New A/C (2020) The updated eat-in kitchen offers upgraded cabinetry, quartz counters, tile backsplash, chrome hardware, and newer appliances and hood. The open great room has a vaulted ceiling with painted beams, fireplace, and wet bar with upgraded cabinetry and quartz counters. Other features include hexagon tile flooring, luxury vinyl flooring, upgraded porcelain tile bathroom flooring. No carpet throughout. Gorgeous lush patios.

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8874 S Grandview Drive Tempe, AZ 85284

$595,000

3 Beds

2 Baths

1,794 SqFt

Status Active

MLS # 6781939

Property Type Single Family Residence

Price Type --

Welcome home to this beautifully remodeled single-story property in Warner Ranch, designed with style and comfort in mind! This 3-bed, 2-bath, 1,794 sq ft residence highlights modern upgrades and an inviting layout with vaulted ceilings, a decorative stone fireplace, and spacious bedrooms. The NEW ROOF and NEWER HVAC unit provide invaluable peace of mind and energy efficiency, ensuring comfort for years to come. Additional improvements most recently completed encompass fresh paint, new quartz countertops in the kitchen and baths, elegant tile backsplashes, updated tiled tubs and showers, new flooring, and stylish plumbing and lighting fixtures. The private backyard is perfect for relaxation, while the HOA maintains a lush front yard. Located in the highly regarded Kyrene School District, this home is part of a quaint community with beautiful walking trails, a pool, and easy freeway access to I-10, 101, and 202, offering a seamless commute. Experience the perfect blend of convenience, charm, and modern design in this Warner Ranch gem!

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1341 Leisure World -- Mesa, AZ 85206

New

$595,000

3 Beds

2 Baths

1,882 SqFt

Status Active Under Contract

MLS # 6787238

Property Type Single Family Residence

Price Type --

Enjoy this Amazingly Beautiful FULLY REMODELED 3 Bedroom, 2 Bath, 2 Car Garage Home on #4 of Heron Lakes Golf Course! The front entrance with aluminum pergola is very inviting! Enter into the very open and spacious home with vaulted ceilings, recessed lighting and upgraded ceiling fans. Your Dream Kitchen w/large Peninsula style Island, Granite countertops, all 2024 Appliances is great for anyone who loves to cook and entertain! The living & Dining space have beautiful golf course views! The Large Primary Bedroom has a HUGE Closet done by Classy Closets! Enjoy Entertaining on the resort style back patio with travertine tiles. All this in the Premiere Active Adult Community of Leisure World with 36 holes of private golf, new tennis complex, pickle ball, swimming pools, library, and more!

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22033 N Golf Club Drive Sun City West, AZ 85375

$595,000

2 Beds

2.5 Baths

2,656 SqFt

Status Active

MLS # 6766525

Property Type Single Family Residence

Price Type --

Welcome to your dream home in the vibrant, active adult community of Sun City West! Perfectly located near the Palm Ridge Recreation Center and surrounded by multiple golf courses, this beautifully updated home offers the ideal blend of modern comfort and resort-style living. In 2024, the home received significant updates, including sleek granite countertops, most new appliances, and upgraded light and plumbing fixtures throughout. The majority of the home features elegant tile flooring, with plush carpet in the Den and master bedroom for added comfort. The updates also include taller baseboards and fresh interior paint, giving the entire space a crisp, modern feel. As you step inside, you're greeted by a grand entrance, soaring ceilings, and a spacious open floor plan filled with natural light. This clean, bright home offers plenty of room for both entertaining and relaxation. The 2.5-car garage provides ample space for parking and storage, making it ideal for your vehicles and hobbies. The home is situated on a quiet street with minimal traffic, offering peace and privacy. Outside, the fenced lot features an array of mature citrus trees, creating your own private oasis. With its close proximity to the Palm Ridge Recreation Center and numerous nearby golf courses, this home is perfectly positioned for an active, enjoyable lifestyle. Don't miss your chance to own this stunning, move-in-ready home!

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5336 N 20th Street Phoenix, AZ 85016

$595,000

2 Beds

2 Baths

1,965 SqFt

Status Active

MLS # 6775489

Property Type Single Family Residence

Price Type --

Perfectly positioned between North Central and Biltmore, this beautifully updated 2 bedroom, 2 bath townhome offers the perfect blend of modern upgrades and timeless charm. The front courtyard is perfect for quiet moments or entertaining guests, and leads to a great room with expansive celestory windows that bathe the living space in natural light. Enjoy a modernized kitchen with quartzite counters, shaker cabinets, and stainless steel appliances. Relax in fully updated bathrooms, including a jacuzzi tub in the primary suite. Enjoy peace of mind of ownership with major replacements already having been performed; HVAC (2020), roof (2022), windows & sliding glass door (2023). Situated in the highly sought-after Madison School District blocks away from Phoenix's top entertainiment options

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22 Pine Del Drive Flagstaff, AZ 86005

$595,000

3 Beds

2 Baths

1,704 SqFt

Status Active

MLS # 6638531

Property Type Single Family Residence

Price Type --

Huge Price Reduction, will go quick! Discover your new haven in the Pines! This beautifully updated 3-bedroom, 2-bath home boasts an open living area with luxury vinyl flooring throughout and cozy new carpet in all the bedrooms. Enjoy the comfort of new windows and a brand-new central heating and AC system. The modern kitchen features stainless steel appliances and stunning quartz countertops. With new lighting fixtures and fresh paint both inside and out, this mountain retreat is move-in ready!

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