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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3055 N Red Mountain Unit 77 Mesa, AZ 85207

$585,000

3 Beds

2 Baths

1,571 SqFt

Status Active

MLS # 6781421

Property Type Single Family Residence

Price Type --

Welcome home to this gorgeous single-story, 3BR/2BA split-level home situated on a north/south facing corner lot in the highly coveted community of Las Sendas! Enter to a light, bright and spacious home through a wide hallway leading to the extensive great room with vaulted ceilings, built-in book shelves, upgraded tile flooring and plenty of space to host family and friends. The beautiful kitchen opens to the great room and showcases a breakfast bar, gas range with dual ovens, plenty of cabinets plus an eat-in kitchen with bay window. Retreat in the evening to your expansive and stunning owner's suite w/private access to backyard and an exceptional owners bath complete with exquisitely upgraded vanity w/dual sinks, lighting and mirror; separate soaking tub & shower and a huge walk-in closet. The additional 2 bedrooms and guest bath are split from the owners suite, for maximum privacy. Plus one of the bedrooms has private access to the guest bath which exhibits a beautifully upgraded vanity, lighting and mirror. See Documents section for a complete list of home upgrades & features! Relax at days end in your private backyard oasis complete with a sparkling pool, large turf area, beautiful stamped concrete patio, large stepping stones and low maintenance landscaping throughout. BRAND NEW ROOF (Sept 2024) w/double underlayment and transferable 10-year warranty completes this amazing home! Home is walking distance to two of Las Sendas' largest parks featuring numerous amenities to suit every lifestyle. Minutes away from Saguaro Lake, Salt River, Tonto National Forest, Usury Park and Loop 202. Las Sendas offers activities for every age group, including hiking/biking trails, 2 heated pools and spas, fitness center, lighted tennis courts, basketball courts, volleyball courts, parks w/playgrounds, splashpad, bocce ball, pickleball courts, an 18-hole golf course designed by Robert Trent Jones Jr., and dining at the Las Sendas Patio & Grill which features breathtaking views of city lights and sunsets.

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10902 E Silver Mine Road Gold Canyon, AZ 85118

$585,000

2 Beds

2 Baths

1,838 SqFt

Status Active

MLS # 6724593

Property Type Single Family Residence

Price Type --

!! ASUMMABLE 4.5% Mortgage!!! Come take a look at this Immaculate home with breathtaking views of the Superstition Mountains on a cul-de-sac. This 2 bedroom home with den, and bonus room, with 2 bathrooms features tile flooring, large kitchen with granite countertops, stainless steel appliances, and breakfast bar, updated bathrooms as well as extended garage with built in cabinets. Whether it's morning coffee or an evening glass of wine. Your very own backyard oasis will not disappoint with heated pool and spa, putting green, BBQ, and AMAZING mountain views. All this in the gated community of Peralta Trail where you are close to amazing golf, hiking trails, mountain biking trails, off roading trails and much more. Come take a look. You'll be glad you did!!

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14450 N Thompson Peak Parkway Unit 216 Scottsdale, AZ 85260

$585,000

2 Beds

2 Baths

1,421 SqFt

Status Active

MLS # 6727148

Property Type Townhouse

Price Type --

Stunning 26 foot ceilings in this modern and elegant townhouse. Conveniently located off the 101 and Raintree with access to great shopping and all that Scottsdale has to offer. Two bedrooms and two bathrooms with updated kitchen, appliances, and bathrooms. 1 car attached garage with extra storage. Spacious loft perfect for a home office. Beautiful community pool and heated spa. Very private and quiet.

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6830 N 10th Place Phoenix, AZ 85014

$585,000

4 Beds

2 Baths

1,401 SqFt

Status Active

MLS # 6746114

Property Type Single Family Residence

Price Type --

Located in central Phoenix, this beautiful 4bd/2bt split floor plan offers a great room, upgraded stainless steel appliances, and granite countertops. The house features tile flooring throughout the home, lots of storage rooms, and a beautiful green/lush backyard with a large patio. This beautiful home is in Madison school district-2nd Best Elementary School District in Arizona - Ranking Arizona: Top 10 elementary school districts for 2024.

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901 S Smith Road Unit 1012 Tempe, AZ 85281

$585,000

3 Beds

2.5 Baths

1,805 SqFt

Status Active

MLS # 6758678

Property Type Townhouse

Price Type --

Welcome to modern living in Tempe. This lux beauty has 3 bedrooms with 2.5 baths and is conveniently located to all that Tempe has to offer. Looking to be close to ASU, but not in the thick of it, look no further. Or if having easy access to the 101 for commuting to other parts of the valley is important, then this is the place. You'll appreciate the gated access to the community and a two car garage with direct entry into your home. Other pluses are the downstairs guest bath and the upstairs laundry room where the bedrooms are located. You'll also enjoy your private backyard and the balcony off the primary suite. There's much to love about this place and its location!

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875 S Newport Street Chandler, AZ 85225

$585,000

3 Beds

2 Baths

1,488 SqFt

Status Active

MLS # 6760729

Property Type Single Family Residence

Price Type --

Welcome to your dream home in the desirable Willis Ranch community! This spacious three-bedroom, two-bathroom residence sits on a huge pie-shaped lot, offering a massive backyard that's perfect for outdoor gatherings. With ample room for gardening, play areas, or even a future outdoor kitchen, this backyard is a blank canvas for your creative vision. Located in a vibrant community with nearby parks and amenities, this home offers the perfect blend of comfort and leisure. Don't miss your chance to own this gem!

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7216 W Judy Lynn Lane Peoria, AZ 85382

$585,000

4 Beds

2.5 Baths

2,287 SqFt

Status Active

MLS # 6772487

Property Type Single Family Residence

Price Type --

This inviting 4-bedroom, 2.5-bathroom, 2-story home features recent updates and owned solar with loan assumption! With a family room, great room, and loft, this 2,287 sqft home offers ample living space. Updates include a fully remodeled kitchen in 2024, new flooring in 2021, new A/C and water heater unit in 2022, and fresh exterior paint in 2022, ensuring a move-in-ready experience. The bright and airy interior features tall ceilings and dual-pane windows. The split primary bedroom is conveniently located downstairs and includes a full ensuite bathroom and walk-in closet. The kitchen boasts a walk-in pantry, stunning quartz countertops and an island with a breakfast bar. The backyard has been transformed into an outdoor oasis, complete with a newly built BBQ with a bar, and a gorgeous pool with a waterfall feature and new pool equipment including pool filter (2020), pool pump (2020) and pool vacuum (2021). Don't miss out on this impeccable home!

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4711 N Greenview Circle Litchfield Park, AZ 85340

$585,000

3 Beds

2 Baths

1,897 SqFt

Status Active

MLS # 6762975

Property Type Single Family Residence

Price Type --

The search is over! Your dream home is here at Litchfield Greens! Inside this charming, recently renovated, 3 bedroom property, you'll find an open floor plan with soaring ceilings. It's functional design with soft paint, tile flooring, plantation shutters, stylish light fixtures, and recessed lighting promotes a modern, but comfortable feel. The elegant white kitchen showcases staggered cabinets with tall crown molding, custom tile backsplash, granite counters, SS appliances, and a dark-stained island with breakfast bar. The spacious owner's suite has direct access to the backyard and hosts a pristine ensuite with dual porcelain sinks, soaking tub, glass block window, step-in shower, and a walk-in closet. Outside you'll relax and enjoy your private pool and sitting areas. All this and walking distance to the Wigwam and downtown Litchfield Park. Attended security gate provides extra security for this prestigious community. Don't miss out. Act now!

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10438 S 45th Place Phoenix, AZ 85044

$585,000

4 Beds

2 Baths

1,507 SqFt

Status Active

MLS # 6766982

Property Type Single Family Residence

Price Type --

Welcome home! This amazing property features 4 bedrooms 2 baths and has been completely remodeled. Brand new kitchen including cabinets, counter tops, and appliances. All the bathrooms have been tastefully updated, stained concrete flooring throughout, and fresh exterior paint. Brand new high quality windows and sliders for efficiency including owned solar which will ensure low monthly utilities costs. Garage is equipped with a 220 volt outlet for your electric charging station. Located near the beautiful South Mountain preserve perfect for hiking and mountain bike riding, restaurants and shopping near by only 20 mins to the airport for your convenience. Ahwatukee's hidden gem awaits. Don't' hesitate to see this one today!

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8870 E Greenview Drive Gold Canyon, AZ 85118

$585,000

2 Beds

2 Baths

1,850 SqFt

Status Active

MLS # 6765808

Property Type Townhouse

Price Type --

Welcome To Gold Canyon's BEST Views % A STUNNING Remodeled Single Level Townhome In Premier Gated Fairway Views! Golf & Mountain Vistas In The Rear Greet You From The MOMENT You Enter The Front! GORGEOUS Travertine Flooring T/O, Including Front & Back Exterior, Vaulted Ceiling, Fireplace, Great Room Design, Granite Slabs in Kitchen & Corian Slabs In Baths, Skylights, Stainless Steel Apps, Custom Closet, Expanded Laundry/Pantry & More! NEW Roof in 2018, NEW H2O Heater in 2023 and NEW Softener in 2024! Patio Includes More Beautiful Travertine, Sparkling Fountain, Built In Bar & BBQ And The VIEWS That Go On Forever Showcasing #11 Green Of Gold Canyon Sidewinder Course, Dinosaur Mountain & Superstition Mountain! Home Offered Turnkey Furnished & 1 Year Home Warranty Provided To Buyer!

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2425 W Red Range Way Phoenix, AZ 85085

$585,000

3 Beds

2 Baths

2,131 SqFt

Status Active

MLS # 6777834

Property Type Single Family Residence

Price Type --

Welcome to Carefree Crossing...your serene desert retreat in North Phoenix, where convenience meets tranquility. Perfectly situated near Norterra shopping and dining, freeway access, hiking trails for outdoor enthusiasts, and just 4 miles from TSMC. Step into this well maintained home with an airy, open-concept layout and 10' ceilings. Top that off with a split primary suite with patio access. The third bedroom offers flexibility as a home office or additional guest space. And a bonus room, which is just that, a bonus with a multitude of uses! With coveted N/S exposure, a private pool and spa and a covered patio, this home is designed for year-round enjoyment of Arizona's beautiful weather. Freshly painted inside and out and move-in ready, make Carefree Crossing your new home today!

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25623 S Sossaman Road Queen Creek, AZ 85142

$585,000

3 Beds

2 Baths

1,904 SqFt

Status Active

MLS # 6772086

Property Type Manufactured Home

Price Type --

Here it is! Your desert dream! Whether you want farm life or an oasis, this has it all! 3 bed, private den/office, 2 bath, open kitchen and formal dining area. Stainless steel appliances, new blinds, new fans, light fixtures, brand new flooring throughout, exterior/interior paint. Completely remodeled master bath with a large closet, custom walk in shower, LED mirror with several light options and defogging options, fan connects to bluetooth to play music! Fireplace remodeled and custom barn door installed in living room to provide storage. BRAND NEW ROOF! All work done 2022/2023. Fabulous fenced in sparkling pool, 2 custom stalls for any animal built behind pool. Custom walk across bridge built to back land featuring another stall with entire property fenced in.

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