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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2849 N Heritage Street Buckeye, AZ 85396

$575,000

5 Beds

3.5 Baths

2,975 SqFt

Status Active

MLS # 6724962

Property Type Single Family Residence

Price Type --

Exceptional housing opportunity in the sought-after Verrado community! This nearly 3000 sq. ft. property features 4 bedrooms and a loft. It includes a rare 440 sq. ft. casita with a private entrance—ideal for extra rental income. The main house boasts durable wood and tile flooring, a well-appointed kitchen with granite countertops and brand new stainless steel appliances. The master suite offers a garden tub, separate shower, private toilet room, and walk-in closet. Fully paid-off solar panels reduce energy costs. Currently rented until May 2025, ensuring immediate rental income. The newly renovated casita adds tremendous value to this home. Don't miss this turn-key investment in Verrado!

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4115 S 75th Drive Phoenix, AZ 85043

$575,000

4 Beds

2 Baths

2,170 SqFt

Status Active

MLS # 6733896

Property Type Single Family Residence

Price Type --

Come take a look at this amazing home. It could be YOUR New Home Sweet Home. It is a corner lot with an oversize lot and huge backyard. You will appreciate the great curb appeal and attractive landscaping when you pull up. It has a split floor plan with 3 spacious secondary bedrooms on one side of the home and the primary bed on the other. Your new kitchen offers a breakfast bar, granite countertops, tile backsplash, and a ton of cabinet storage space. You will spend a lot of time in the oasis of a backyard which has covered patio, dog run, covered gazebo with built in BBQ, sparkling swimming pool, RV Parking, and a ton of room to play and entertain. You don't want to miss out on this amazing home so hurry and come take a look! You will love it.

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6841 N 15th Place Phoenix, AZ 85014

$575,000

3 Beds

3 Baths

2,125 SqFt

Status Active

MLS # 6783194

Property Type Single Family Residence

Price Type --

LOCATION, LOCATION, LOCATION. THIS 3 BEDROOM 3 BATH HOME IS READY FOR YOUR PERSONAL TOUCHES. INTERIOR FRESHLY PAINTED, TILE IN ALL ROOMS EXCEPT ROOM OFF OF LAUNDRY, PROPERTY HAS GREAT VEIWS OF THE MOUNTAINS. LARGE FENCED BACKYARD WITH COVERED PATIO, STORAGE, AND MATURE TREES. CLOSE TO SHOPPING, DINING AND ENTERTAINING AS WELL AS EASY ACCESS TO PUBLIC TRANSPORTATION

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18720 E Via Laguna -- Rio Verde, AZ 85263

$575,000

3 Beds

2 Baths

1,799 SqFt

Status Active

MLS # 6744613

Property Type Single Family Residence

Price Type --

Come enjoy resort style living in this sunny, turn key 3 bed/2 bath home nestled into a very quiet street in the active adult, golf community of Rio Verde. Incredible views of green fairways on Quail Run and the majestic Mazatzal Mountains from your very private North facing back patio. Plenty of room for outdoor entertaining on the extended, fenced in patio area. Wood burning fireplace to take the chill off a cool desert night. Eat in kitchen with separate dining area. Community lap and social pool, tennis and pickleball courts, billiards room, two clubhouse restaurants and our new community café/bodega next to the post office as a fun meet up place for breakfast and coffee. golf membership information upon request.

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39920 N River Bend Road Phoenix, AZ 85086

$575,000

5 Beds

2.5 Baths

2,168 SqFt

Status Active

MLS # 6747304

Property Type Single Family Residence

Price Type --

Your search is over!! LEASE TO OWN OR SELLER FINANCING with 0% DOWN and NO BANK QUALIFING!! This Beautiful 4 bedroom + office and loft RECENTLY REMODELED home is available in the much sought after community of Anthem. The kitchen has all new stainless steel appliances and new quartz counter tops. The primary suite has a large walk in closet, spa like bathroom with dual sinks with new quartz countertops and fixtures. The other three spacious bedrooms have new plush carpet and paint. The backyard is fully landscaped in an easy maintenance desert theme including a beautiful large custom fireplace feature. This truly is a MUST SEE! (please see documents for a complete list of remodeled features and Seller Financing Details) The backyard is fully landscaped in an easy maintenance desert theme including a beautiful large custom fireplace. This truly is a MUST SEE! (please see documents for a complete list of remodeled features and Seller Financing Details)

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1411 N Overfield Road Casa Grande, AZ 85194

$575,000

4 Beds

3 Baths

3,000 SqFt

Status Active

MLS # 6765465

Property Type Single Family Residence

Price Type --

Home on approx 1/2 acre $575,000, Home with 1 acre pasture, $650,000 LOT SPLIT IN ESCROW Seller will provide water from well located on the adjacent property.

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3616 E Ludlow Drive Phoenix, AZ 85032

$575,000

3 Beds

2 Baths

1,426 SqFt

Status Active

MLS # 6748475

Property Type Single Family Residence

Price Type --

Don't miss out on this large corner lot home with a huge 33,000 gallon diving pool, pavers, synthetic grass, and a built in BBQ in the backyard. Inside you'll find a lovingly cared for, fully remodeled home with tons of upgrades including custom white shaker cabinets in the kitchen and bathrooms. Kitchen has Quartz countertops, matching stainless steel appliances with stainless steel undermount sink. Barn door from dining room leads to a large laundry room with more than enough space to serve as a craft room or home office. Both bathrooms have beautifully tiled showers and entire home is tiled throughout for easy maintenance and upkeep. All doors and windows have been upgraded to dual pane for great energy efficiency. Great central location right off of the 51 and 101 Freeways.

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18997 N 74th Drive Glendale, AZ 85308

$575,000

4 Beds

2 Baths

2,058 SqFt

Status Active

MLS # 6754498

Property Type Single Family Residence

Price Type --

Discover your dream home in the serene Arrowhead neighborhood, where this stunning single-story gem awaits. With four spacious bedrooms and two elegantly upgraded bathrooms, this residence offers both comfort and style. The interior features hardwood floors and a gourmet kitchen with painted cabinets, a sleek stainless steel sink, and high-end stainless steel appliances with quartz countertops. Large windows throughout ensure abundant natural light. Step outside to your private oasis, complete with a newly resurfaced sparkling pool and meticulously landscaped gardens perfect for relaxation and entertaining. Additional upgrades include an epoxy-coated garage floor and a recently replaced water heater. Nestled near picturesque mountain trails for hiking and convenient shopping malls.

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23038 E Twilight Drive Queen Creek, AZ 85142

$575,000

3 Beds

2 Baths

2,243 SqFt

Status Active

MLS # 6763396

Property Type Single Family Residence

Price Type --

Welcome to your New Home in the prestigious master-planned lake community of Harvest Queen Creek! This beautiful property has over $40k in builder & seller upgrades! It features an open floor plan with 3 bedrooms, 2 bathrooms, and a versatile flex space perfect for a playroom, office, or teen retreat. The Great Room is highlighted by a builder-upgraded kitchen, complete with a gas range, an oversized island, and tasteful Roman shade window coverings. Modern light fixtures and ceiling fans add elegance and comfort throughout the space. Expansive 12-foot sliding doors open to an extended covered patio, overlooking one of the largest lots in Hacienda at Harvest, spanning 8,281 square feet. The Primary Suite offers privacy with a split-floor layout, featuring a spacious walk-in shower and a walk-in closet. Both secondary bedroom include walk-in closets and share a full bathroom. The home's exterior has an upgraded paver driveway, walkway, and entrance, leading to a 3-car tandem garage equipped with a commercial-grade, non-slip floor, backed by a lifetime warranty. As part of the Harvest community, you'll enjoy access to a variety of amenities, including a heated pool, children's playground, and scenic walking and biking paths around the catch & release lake. The home is within walking distance to Schnepf Elementary and is conveniently located near shopping, dining, and fun seasonal events. This property is a blank canvas, ready for you to transform into your dream indoor-outdoor oasis. Refrigerator, Washer, and Dryer are included! The Seller is willing to install rocks at backyard for the right Buyer.

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35314 N 31st Avenue Phoenix, AZ 85086

$575,000

4 Beds

2 Baths

2,258 SqFt

Status Active

MLS # 6760137

Property Type Single Family Residence

Price Type --

Wow, beautiful 4 bedroom Tramonto home, Updated with granite counters, sinks and faucets. Large private rear yard. 2+ car garage with storage. Newer carpet and paint. Wait to you see the newly completed master bathroom remodeled. Total renovation with massive shower. Tramonto offers community pools, tennis parks and miles of walking trails. Easy walk to highly rated grade and middle school. Near shopping and restaurants . True sense of community. Area becoming a technology center with Taiwan Chip factory near by. Vacant and easy to show

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10910 E Oro Avenue Mesa, AZ 85212

$575,000

2 Beds

2 Baths

1,922 SqFt

Status Active

MLS # 6766561

Property Type Single Family Residence

Price Type --

Discover the perfect retirement lifestyle in this inviting 2-bedroom, 2-bathroom home with a den, located in a sought-after 55+ community in Mesa, AZ. Designed with comfort and ease in mind, this home offers a relaxed and welcoming atmosphere ideal for those looking to enjoy their retirement years. This active adult community boasts incredible amenities, including a 27-hole executive golf course, perfect for both seasoned players and those just looking to enjoy a leisurely game. You'll also have access to top-tier recreational facilities, with clubs and activities tailored to your interests—whether it's Pickleball, Tennis, or Softball, there's something for everyone. Enjoy a vibrant social life, meet new friends, and participate in a variety of clubs and programs that keep your retirement to the fullest. This is more than just a homeit's your gateway to a fulfilling and active retirement!

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20502 N Date Palm Way Surprise, AZ 85387

$575,000

3 Beds

3 Baths

2,266 SqFt

Status Active

MLS # 6779625

Property Type Single Family Residence

Price Type --

Welcome to this stunning 3-bedroom, 3-bathroom residence, complete with a charming detached casita. This home has been well maintained, owned by original owners since its construction in 2004. Step inside the home to find a gourmet kitchen, featuring built-in wall ovens, a cozy breakfast nook, and a formal dining room. The spacious laundry offers cabinets for ample storage. You will love the 3 stall garage with cabinets. Located less than a mile from the Cimarron Clubhouse and Golf Course. The Grand has many amenities for residents to enjoy, including multiple pools, 4 golf courses, 2 clubhouses, tennis and pickleball courts, an indoor walking path, fishing lakes, and scenic biking and walking trails. Close to shopping, dining and Spring Training! Ask about the golf cart!

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