Watch for Water Problems

With all the recent storms and heavy rains across the country, we thought it a good time to remind you of problems that could be hidden in that home you're thinking of buying, or even in the one you already own.

One of the "MUST DO" items we advise every client of ours to do is to get a home inspection before committing to purchasing a new or used home.

A home inspection involves hiring a professional home inspector to examine the house's major systems -- including heating and central air conditioning, interior plumbing, electrical systems, the roof, attic, visible insulation, walls, ceilings, floors, windows, foundations, and basements -- to let you know if there are any problems or defects.  If you suspect you may have a hidden water problem in a house you already own, it is in your best health interests to hire a professional contractor to sniff out the problem.

Water, even a constant drip gone unnoticed, can cause thousands of dollars worth of damage behind walls, on structural beams, and in the foundation.

Sometimes, particularly with first-time homebuyers, the more obvious cosmetic home concerns, such as landscaping, painting and flooring overshadow the more critical issues, such as water damage, which can have serious consequences and cost quite a bit to correct or repair.

Some of the water problems you and your inspector should keep an eye out for during the inspection include:

• Water seepage and wet basements.  If you have small cracks in the foundation and porous walls, heavy rains can potentially build up against the foundation and ultimately leak into your basement and could eventually cause serious and costly structural concerns.  How do you alleviate the problem?  Make sure those foundation cracks are sealed.  Also, surface water run-off should drain away from the house. Direct gutter downspouts away from the foundation.
   

• Roof leaks. The biggest problem area is the flashing, the areas where the roof plane changes, like at a chimney or plumbing vent. Regularly check your flashings. Check the interior of your roof at least once a season. If you have constant leaks in the attic, damage or mold growth in the insulation can occur.
   

• Poor water pressure. This can be a sign of water service supply deficiencies or costly piping upgrades.  First you should determine if the problem might be caused by blocked faucet aerators, partially closed or defective faucets.  If you have old galvanized piping in your house, the issue might be interior corrosion or deposit build-up.  The best thing you can do is replace the blocked sections of pipe. And perhaps the biggest water issue these days is mold, which can cause panic in homeowners and is prompting the number of insurance claims and amount of jury awards that are on the rise.  Mold always indicates excessive moisture and the source should be corrected immediately.

Once you have found the house of your dreams, the ASHI says the following steps should be taken to prevent mold growth:

• Wash mold off hard surfaces and then dry them completely. Absorbent materials, such as ceiling tiles and carpet, may have to be replaced.

• Keep drip pans in your air conditioner, refrigerator and dehumidifier clean and dry.

• Use exhaust fans or open windows in kitchens and bathrooms when showering, cooking or using the dishwasher.

• Place vents for clothes dryers and bathroom exhaust fans outside the home.

• Remove and replace flooded carpets and drywall.

• Maintain low indoor humidity, ideally between 30-50 percent relative humidity. Humidity levels can be measured by hygrometers, which can often be found at local hardware stores.

• Clean bathrooms with mold-killing products.

• When painting the home, add mold inhibitors to paint.

• Do not carpet bathrooms.

If the problem persists, or if anyone in the house is susceptible to mold and mildew, have the problem evaluated by an expert in mold/moisture intrusion.  

Home-Buying for Young People: How and Why to Plan Ahead

 Granted, few young people spend much time day-dreaming about buying their first home.  They're naturally preoccupied with academics, athletics, parties, dating and future career possibilities.  Nonetheless, there are a number of good reasons to start learning early in life about the costs of buying a home and the responsibilities of homeownership.  For example, a college student's misuse or abuse of credit cards can preclude his or her buying a home later on.  Here are five recommendations for young people who want to position themselves for homeownership:

1. Establish good credit habits and a favorable credit history.

Get a credit card and use it responsibly.  Apply for an automobile loan and make your payments on time every month.  If you're renting an apartment, put your own name on the lease and the utility bills and make sure the rent and the bills are paid every month.  If you're already struggling with credit card debt or have large student loans, take a free workshop from the non-profit Consumer Credit Counseling Service.  Call (800) 388-2227 for information.

2. Start saving for a down payment and closing costs.

It's possible to purchase a first home in many parts of the country without much in the way of savings.  But in high-cost housing areas, starting to save early can be enormously beneficial because you'll get the advantage of compounding interest and have a longer period of time to grow your investments.  Open a savings account or a stock brokerage investment account and make regular deposits.

3. Read some books.

Your local library and bookstore probably have at least a few shelves of books about financial management and buying a home.  Take notes.  Make a financial plan for yourself.  You can learn a lot about real estate, budgeting and credit on the Web too.  Check out BankRate.com and Quicken.com for starters.

4. Research where you'd like to live.

Many young people assume they'll continue living in their own home town when they get older, but people are more mobile than ever and chances are good you'll one day live in another city or even another state.  Again, the library, bookstore and Web can be excellent resources for information about housing costs and homeownership opportunities around the country.

5. Tap your relatives and real estate agent for advice.

Parents, grandparents, aunts, uncles, older cousins and local Real Estate agents can give you good information about the cost of housing in the area where you want to live and what it takes to buy a home.  Questions to ask: Is housing affordable in this area?  How much money would I need to save in order to buy a home?  What advice would you give me about planning my financial future?  Would you recommend some books that I might like to read about buying a home?  Don't be shy.  If you have a question, ask someone in a position to know the answer.

 

When is the Best Time to Buy a Home?

Knowing when to close your real estate purchase can work to your advantage at tax time.  And since we are heading into the home stretch on another tax year, you may want to consider postponing "end of the year" closings until January of next year, if (and ONLY if) it will benefit you on your tax return.  You may want to make doubly sure that you close THIS year.  You would make the determination of which is best for you in several ways.

 

First, you need to review your tax liabilities for the current tax year with your tax accountant or tax preparer and see if taking additional deductions in the current or future year would be most beneficial to you.  Next, you will need to understand which items in your closing will be tax-deductible and which items will added to the value of the property.  Keep in mind that if you close on December 31 rather than on January 2 (or the first business day after the New Year), you will be permitted to take the allowable deductions for your home purchase in the year purchased, even if your closing occurs on the last day of the year.  In many areas, September, or at the latest, October, is the time to purchase if you hope to close in the current calendar year.  If you want to increase your deductions for 2005, then you may want to choose to close in January. The normal allowable home purchase deductions will be the points, interest, and property taxes which you pay.

If you will be obtaining a mortgage on the property and will be paying points, this expense will be an allowable tax deduction.  A "point" is the fee which represents 1% of your loan amount and may be charged by your lender or mortgage broker.  The number of points you pay may vary from lender to lender.  Points are referred to as a "nonrecurring closing cost," and are fully deductible in the year paid.  You should be aware that points on a refinance loan are not deductible in the year paid, but rather must be amortized and deducted over the life of the loan.  There are certain other exceptions, such as the loan having to be secured by your main home, but generally, the points will be allowed as a deduction in the year paid.

Prepaid and prorated interest is also deductible in the year paid and refers to the interest you are charged from the date of your closing to the beginning of the period covered by your first mortgage payment.  As a reminder, keep in mind that mortgage interest and principal payments are paid in arrears.  For example, if your closing takes place on December 10th, your first monthly payment would begin to accrue on January 1st and would be payable the beginning of February.  You probably would be required to prepay the interest form December 10th through the end of December.  If your closing occurs later in the month, you would pay less at the closing than if you had closed the first of the month.  The amount of prorated interest you will be required to pay may be something for you to consider when choosing a closing date.  Your lender will send you a 1098 form at the end of the year which will list the interest paid for the year.  Be certain that it includes the prorated interest which you paid at closing.

Any prorated property taxes will also be an allowable expense item.  The property taxes on the new property which you are purchasing will be prorated at closing and your portion will be allowed to be deducted as an expense for income tax purposes.  Your escrow officer (or attorney) will calculate the tax prorations by dividing the taxes between you and the seller, based on the due date for the property taxes in your state.  If the seller has paid the property taxes beyond the date of closing, the seller will be credited for this expense.  If the taxes have not yet been paid, the amount owed will be charged to you and added to your closing costs.  Your lender may require that the taxes be paid in full at closing, or they may be certain that they collect enough to cover the taxes until the next pay period.  Any delinquent taxes which were due and which you may have agreed to pay, would not be a deductible expense.  You would need to treat any delinquent taxes which you pay as part of the cost of your home.  Keep in mind that some special government fees, such as water or sewer assessments, may not be deductible.  Check with your accountant or refer to the IRS Publication #530 for which law applies to your circumstances.

You will want to assess your tax liability for the current and future year, to determine if it is in your best interest to close in 2004 or 2005.  Keep in mind that once you purchase your property, you may want to choose to itemize your deductions on your tax return, if you have been taking the standard deduction previously.  If your itemized deductions, which includes your mortgage interest and property taxes, do not exceed the standard deductions, you may be better off taking the standard deduction.  Each individual has unique tax circumstances and your tax accountant or preparer will know what is best for you.

If you do decide to close on the last week of the month, be aware - this is typically the busiest time of the year for title and escrow companies.  Be sure to schedule your closing well in advance of your closing day and notify your attorney, lender, seller, escrow officer and any other participants in the closing of the closing date which you choose.