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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11064 E Reginald Avenue Mesa, AZ 85212

$554,900

3 Beds

2 Baths

2,112 SqFt

Status Active

MLS # 6718268

Property Type Single Family Residence

Price Type --

This spacious and stunning home offers 3 bedrooms with 2 baths in the lovely Nova Vista neighborhood. Your family will love the large Bonus/Gaming Room close to the split bedrooms. The home offers a large kitchen that opens up to the family room and dining room making this great for entertaining! Enjoy the backyard under the covered patio, or out in the grass! Front and back yard are low maintenance with great appeal. It is located close to schools, shopping and easy access to Highway 202. Easy access, come see it today!

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16572 W Lincoln Street Goodyear, AZ 85338

$554,900

5 Beds

3.5 Baths

3,452 SqFt

Status Active

MLS # 6725169

Property Type Single Family Residence

Price Type --

Discover this stunning 5-bedroom, 3.5-bath, 2-story home in a prime, strategic location. Boasting a massive 3,452 sqft of living space. This residence is filled with natural light, creating an airy, bright, and cozy atmosphere. The kitchen is a chef's dream with a double wall oven, granite countertops, and a spacious island. Step outside to the covered patio overlooking a private play pool, pavers, a charming gazebo, and a meticulously maintained backyard with trees and shrubs. Enjoy easy access to the 303 and I-10, and the convenience of being within walking distance to schools and abundant shopping. The community also features beautiful parks, perfect for outdoor activities!

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8448 E Cambridge Avenue Scottsdale, AZ 85257

$554,900

2 Beds

2 Baths

1,020 SqFt

Status Active

MLS # 6726694

Property Type Single Family Residence

Price Type --

WOW! This home has recently been remodeled by a licensed contractor. The home features new front half of roof, fresh paint, new flooring, and updated fixtures throughout. Walk in to a spacious living room filled with natural light. The kitchen has been completely redone with new white cabinets, quartz counter tops, stainless steel appliances, and new hardware. Both bedrooms boast new carpet, fresh paint, and new light fixtures. Both bathrooms have been updated with new vanities, counter tops, tiled showers, and fixtures. The backyard has a large covered patio and easy maintenance landscaping! No HOA!

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15971 N 91st Drive Peoria, AZ 85382

$554,900

4 Beds

2 Baths

2,310 SqFt

Status Active

MLS # 6739323

Property Type Single Family Residence

Price Type --

Beautiful Single Level Home Located in Desired Arrowhead Horizons area. This home features, a Formal Living & Dining Room w/Vaulted Ceilings, Open Kitchen w/Breakfast Bar, Appliances Included & Eat-In Dining Room w/4 Bedroom, 2 Bath. Spacious Family Room, Master Bedroom w/Walk-In Closet, Master Bathroom w/Dual Sinks & Separate Tub & Shower, Split Floor Plan, Wood Shutters Throughout, Covered Backyard Patio, Sparkling Swimming Pool, 2 Car Garage, RV Gate w/RV PARKING, NO HOA. Walking Distance to Desert Harbor Elementary & Within minutes to Centennial High School. Close to Loop 101, Arrowhead Mall and the Phoenix Cardinals Stadium and much, much more

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2830 S Arroyo Court Chandler, AZ 85286

$554,900

4 Beds

2 Baths

1,833 SqFt

Status Active

MLS # 6740804

Property Type Single Family Residence

Price Type --

Beautifully upgraded Clemente Ranch single-level home with bright and open floor plan. Large corner lot home located in a quiet cul-de-sac with 4 bedrooms and 2 bathrooms. No carpet! Hardwood floor in rooms! Brand new Quartz counter in kitchen and bathrooms. Newly finished cabinets. Updated lighting. Open spacious kitchen with separate formal and family room. Spacious backyard has an RV gate, extended driveway, covered patio, flagstone, and pebble tec pool, and ample space for your garden and perfect for entertaining. It's close to Intel, Chandler Mall, Wells Fargo, freeways, Ocotillo Village, etc. Perfect family-friendly neighborhood for your client! Walking distance from 2 children's parks: Chuparusa and Dobson Park!

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11490 N 162nd Lane Surprise, AZ 85379

$554,900

4 Beds

3.5 Baths

2,695 SqFt

Status Active

MLS # 6741317

Property Type Single Family Residence

Price Type --

Welcome to finer living in this beautifully appointed Shea Home. Featuring 4 bedrooms, 3.5 bathrooms, and 3 car garage. Equipped with a junior on-suite on the main floor for multigenerational living. Enjoy the well designed high end kitchen with KitchenAid appliances, white quartz countertops, and deluxe high end cabinetry. Formal living and family rooms along with a flex space provides ample space for comfortable living. The upstairs laundry room is convenient next to the large secondary bedrooms and guest bath. Let's not forget the huge owner's suite with super shower and large walk in closet. Fresh turf in the back with a large paver patio make this backyard complete and ready for those sweet backyard gatherings. Check out the mountain view and the convenience to Prasada Shopping!

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21667 S 225th Way Queen Creek, AZ 85142

$554,900

3 Beds

2 Baths

1,832 SqFt

Status Active

MLS # 6748269

Property Type Single Family Residence

Price Type --

Motivated sellers here!!!!Sellers just replaced majority carpeting for tile!!!! This stunning 3-bedroom home with an office, separate tech center, and teen room features seller-owned solar installed in October 2021 for over $40k. Say goodbye to high summer electric bills without the hassle of a lease. Step inside to discover the modern elegance of wood plank tile flooring in the main living areas and baths, creating a warm and inviting ambiance throughout. The kitchen boasts stainless steel appliances, granite countertops, and ample storage space. The master suite is a very spacious and. complete with a luxurious ensuite bathroom featuring dual sinks, a soaking tub , and a separate shower. Two additional bedrooms offer plenty of space, while the office and tech center provide ideal spaces for remote work or study. Outside, the beautifully landscaped backyard is a tranquil retreat, featuring synthetic grass for easy maintenance and a covered patio for outdoor dining and relaxation. Why wait to build when you can move right into this almost new home? Don't miss out on this opportunity to own a home that is not only beautiful but also environmentally friendly and cost-effective. Come check this out today and make this energy-efficient oasis your own!

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7031 W Morrow Drive Glendale, AZ 85308

Open House

$554,900

3 Beds

2 Baths

1,800 SqFt

Status Active

MLS # 6759901

Property Type Single Family Residence

Price Type --

This 3-bedroom home with a blue pool in Arrowhead Ranch exudes charm and comfort! A grassy front yard, 2-car garage, brick veneer, and code entry box in the front door are just the beginning. Discover an open layout with all-new double-pane windows and doors, vaulted ceilings, sunny bay windows, and a two-way fireplace. The kitchen offers stainless steel appliances, plenty of honey oak cabinets, granite counters, and tile backsplash. The main bedroom features backyard access, a fireplace, and a lavish bathroom with a jetted tub, glass enclosure shower, dual sinks, and a walk-in closet. In the backyard, you'll find a swimming pool with a heater and chiller, green grass, two covered patios, and a pool house with a/c. Plus, the roof is only 3 years old! You won't be disappointed!

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6516 W Tonto Drive Glendale, AZ 85308

Open House

$554,900

4 Beds

2 Baths

1,865 SqFt

Status Active

MLS # 6724766

Property Type Single Family Residence

Price Type --

Want a 4.25% - 4.99% interest rate and AFFORD this home? Seller to contribute to a 2-1 RATE BUY-DOWN! Only 5 mins from the new Phoenix Children's Hospital and 101 Fwy. This cute 4 bed/ 2 bath home has fresh interior neutral paint and new carpeting in all rooms, features vaulted ceilings, ample amount of cabinets for storage with tons of natural light with many windows! Island seating & an eat-in kitchen area for the open concept families like. Enjoy cozy evenings by the gas fireplace in the family room with natural plank wood flooring. Step outside to an extended covered patio overlooking a beautifully mature, tranquil landscaped backyard or the large front patio area. 2.5 car extended garage includes cabinets on both sides for plenty of organization. Walking distance to Dos Lagos Park. 2nd bathroom seller is offering a remodeling credit to convert the shower/tub if new buyer would like.

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21279 E Alyssa Road Queen Creek, AZ 85142

Open House

$554,500

4 Beds

2 Baths

2,240 SqFt

Status Active

MLS # 6742196

Property Type Single Family Residence

Price Type --

Now is your chance to have an amazing house at a GREAT price in Queen Creek, named the #1 BEST small city in AZ (by azcentral)! This 2240sf 4-bedroom home at the end of a quiet cul-de-sac offers TONS of upgrades, including a new AC w/ a 10yr warranty & maintenance plan, a water softener, reverse osmosis system, a lg walk-in master shower w/ 2 showerheads & much more. The lg open living area flows into a beautiful eat-in kitchen w/ SS appliances & formal dining. The inviting lush backyard oasis has a lg covered patio offering a misting system for those hot AZ days. Find your happy place amongst multiple trees & greenery, a flourishing garden, a cozy fire-pit, outdoor lighting, as well as an RV gate. The extended garage has a finished floor w/ extra storage, a MyQ camera/remote & MUCH MORE!

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10223 E Ulysses Avenue Mesa, AZ 85212

$554,379

3 Beds

2.5 Baths

1,994 SqFt

Status Active

MLS # 6769962

Property Type Single Family Residence

Price Type --

Welcome to this GORGEOUS 2024 home in the highly sought-after Medley at Avalon Crossing! Over $83k in UPGRADES! This FANTASTIC home combines modern elegance + thoughtful living spaces! GOURMET kitchen features quartz countertops + Whirlpool stainless appliance suite! The great room is perfect for entertaining, while the upstairs loft offers additional living space. Private primary suite w/ensuite bath! Balcony! Situated in a BEAUTIFUL community, residents can take advantage of wonderful amenities including a heated pool, playgrounds, bocce ball courts, and scenic walking paths lined with trees. Perfectly designed for modern living, this home offers luxury, comfort, and community all in one! WELCOME HOME!

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225 E Mclellan Road Mesa, AZ 85201

$554,000

3 Beds

2 Baths

1,850 SqFt

Status Active

MLS # 6746273

Property Type Single Family Residence

Price Type --

Do not miss this charming 3-bedroom 2 bath upgraded home. This is one of the best lots in the sub-division. Wonderful corner lot with greenbelt across the street. Your entry leads to a spacious great room with 10-foot ceilings and windows looking out to your resort style backyard. The kitchen has been highly upgraded with beautiful cabinets, massive island and quartz counters. Enjoy a breakfast room as well as a large breakfast bar. Your master suite has a walk-in shower, dble vanity, water closet and a large walk-in closet. Both secondary bedrooms are good sized and share a bathroom. Large backyard with a sparkling Pebble Tech pool and lots of privacy from this corner lot. Whole house filtration system and solar. Custom Wood Blinds Throughout.

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