Winter 2011

Create a financial plan for your home
Mortgage interest deduction pays dividents for home owners
Your guide to outdoor maintenance

Create a financial plan for your home

By ________________________ (Board President’s Name Here)

____________________________ Board/Association of REALTORS

Your home is probably your biggest investment. To manage it, create a financial plan that takes into account repairs, upgrades, mortgages, insurance, and taxes, says (NAME, BOARD)

Create a home financial plan budget worksheet, and start by writing a list of expenses, such as:

  • Mortgage
  • Taxes
  • Home insurance, including liability
  • Repairs and maintenance, such as new furnace, roof, painting
  • Voluntary upgrades, such as a swimming pool, a premium range, a new powder room
  • What will you learn from this home financial plan weekend exercise?
  • How much you have to spend
  • How much you need to allot in the short- and long-term for necessary maintenance and voluntary improvements

With this newfound grip on your home’s expenses, you can create a home financial plan that’ll help you there for years with maximum enjoyment and minimum anxiety.

The mortgage: Pay it–and then some
Yup, you already shell out a lot for your mortgage, but can you pay more? Even a little extra each month can add up to an earlier payoff. Let’s say you have $200,000 in outstanding principal and a 20-year fixed-rate mortgage at 5%. Your monthly payment is $1,319.91. But if you can manage to pay another $100 a month, you’ll save $14,887 in interest.

Homeowner’s insurance
Basic coverage for your home and everything in it costs an average of $636 per year.

Liability coverage. Protects you from a lawsuit if someone gets hurt on your property, for example. Your best bet: An umbrella policy. For about $300 a year you can by a typical $1 million policy.

Various disaster insurance policies. Optional policies cover flood, earthquake, and hurricane damage. As part of your home financial plan, you have to research to see what disaster coverage, if any, you need in your area, and what your standard policy already covers. For $540 a year you can buy flood insurance, for example.

Don’t under- or overbuy insurance
For your basic policy, get homeowners insurance with full replacement coverage in case your house burns to the ground.

That sounds simple, but heads up on calculation. Remember that you own a house as well as the land on which it sits. So even though you bought your home for $300,000, it may cost only $100,000 to rebuild it. Your policy limits should reflect this.

Another heads up: Don’t make the common and potentially disastrous mistake of thinking that because your home has fallen in value you need less insurance. If you bought a $1.2 million townhouse during the boom, it’s true it now may only sell for $600,000. But the replacement cost of the townhouse hasn’t changed much, so you can’t improve your home financial plan by cutting insurance costs that way.

Other ways to cut your insurance budget:

  • If you make structural improvements, such as adding storm shutters, your insurer may give you a break.
  • If you belong to certain groups, such as AARP or veterans’ organizations, your premiums may be lower.

Repairs and renovations: By choice or necessity
You own a home, so you’ll be spending money on everything from a new faucet to–surprise!–a new roof. Freddie Mac and other authorities say as part of your home financial plan, you should be prepared to spend 1% to 3% of the market value of the home annually on maintenance. To be extra-prudent, open a savings account and make regular payments until your account reaches 1% to 3% of your home’s current value.

To help you budget start with the inspection report you received when you bought the house. Did the inspector indicate that you would need a new roof in five years? A new furnace in 10?

Keep a log of your major appliances’ age so you can estimate when they’ll need replacing. Some estimated life spans:

  • Roof: 20-25 years
  • Heating systems: 15-20 years
  • Range/ovens: 11-15 years
  • Water heaters: 8- 13 years

Then get estimates on what replacements will cost and start saving.

Resist the siren call of the home equity loan to take care of everything. That just defeats your efforts to pay off the mortgage early.

Taxes: (Almost) no way around them
Even if your lender handles your property taxes from an escrow account, you need to budget for them in your home financial plan. They creep up almost every year, it seems. Take responsibility for tracking the changes in your area: Look over past tax bills to get a sense of how quickly they’ve risen in the past.

Or if your lender handles escrow and you haven’t saved your bills, ask for an accounting.

You can generally deduct property taxes on your federal return. A tax pro can tell you how much of a tax break you’ll get, to help you fine tune your home financial plan.

You may be able to reduce your tax burden by getting a reassessment. Do your homework first: Are comparable houses taxed less than yours? Ask the local assessor what formula is used to set tax rates. You can challenge the assessed value and get yourself a rollback.

And don’t forget, when your ready to buy or sell a home, contact a REALTOR.

If you’re in the market for a new home…or thinking about selling your current home, contact a REALTOR. Their value and expertise will ensure a professional home buying/selling experience.

Mortgage interest deduction pays dividents for home owners

By ________________________ (Board President’s Name Here)

____________________________ Board/Association of REALTORS

Although recent reports of plans to eliminate or modify the mortgage interest deduction are widely exaggerated, REALTORS nationwide will remain actively engaged to ensure that the nation’s 75 million home owners will continue to receive this important benefit.

The Deficit Reduction Commission has released its recommendations toward reducing the U.S. deficit, which include modifying a number of popular tax breaks, including the mortgage interest deduction. President Obama created the 18-member, bipartisan commission earlier this year to identify ways to balance the budget by 2015. The commission does not have any legislative power, and (full name of your local REALTOR association) says that the commission’s report is just the first step of a lengthy process.

“Now that the report has been published, it is reviewed by members of Congress who will decide if they want to incorporate any recommendations into legislation, although they are not required to do so,” said (full name and title of your local spokesperson).

“If altering the MID ever becomes a discussion point in Congress, the REALTOR community stands ready to defend it. The MID is both a powerful incentive for home ownership and one of the simplest provisions in the tax code.”

The MID allows an individual to deduct mortgage interest paid on mortgage debt of up to $1 million. The deduction is available for interest on mortgages for a principal residence and one additional property. Individuals claiming the MID also must itemize their taxes.

The ability to deduct the interest paid on a mortgage can translate into significant savings at tax time. For example, a family who bought a home this year with a $200,000, 30-year, fixed-rate mortgage, assuming an interest rate of 4.5 percent, could save nearly $3,500 in federal taxes when they file next year.

According to the most recent IRS tax return data available, 65 percent of families who claim the MID earn less than $100,000 per year. The MID saves the average home owner thousands of dollars at tax time and helps American home buyers get into their first house.

“In today’s market, eight out of 10 home buyers must borrow money to buy a home,” said (last name of your local spokesperson). “For aspiring home owners who don’t have hundreds of thousands of dollars in savings to buy a home outright, tax benefits like the mortgage interest deduction help them begin building their future through home ownership.”

If you’re in the market for a new home…or thinking about selling your current home, contact a REALTOR. Their value and expertise will ensure a professional home buying/selling experience.

Your guide to outdoor maintenance

By ________________________ (Board President’s Name Here)

____________________________ Board/Association of REALTORS

Ohioans must learn to prevent problems and preserve the value of your property with proactive outdoor maintenance, says (NAME/BOARD)

Each spring, check your sprinkler system to make sure all parts of the yard are getting watered evenly.

Substantial snowmelt and heavy spring rains signal the onset of summer’s heat and humidity–extreme conditions that put stress on the exterior of a house and other features, such as driveways and fences. Routine outdoor maintenance helps ensure that your property withstands nature’s challenges while preserving the value of your investment.

Maintain proper drainage
Controlling water around the perimeter of the house. The midwest sees a lot of expansive clay soil. Bad drainage around the house can cause foundation problems and basement wetness issues, as well as mold.

That means you’ll need proper grading and gutters that are in good repair and cleared of debris, and adequate downspout extensions. None of these is an expensive fix, but the price of neglect is high: $3,000 or more to stabilize bowing in a block foundation; $10,000 or more to straighten it.

Clean the gutters
Jammed gutters can send water cascading down walls and saturating soil next to the foundation. The force of the accumulated water, known as hydrostatic pressure, can crack the foundation, eventually causing it to bulge inward. Rid your gutters of blockages using a gutter scoop. Use a garden hose to flush out loose granules–the sand-like coating that protects asphalt shingles–and a plumber’s snake to clear downspouts. Cost: $4 to $7 for a gutter scoop. Allow about 4 hours to clear the gutters and downspouts.

Repair the gutters
Leaks at joints, missing hangers, or inadequate pitch can lead to overflowing water that damages plantings and threatens your foundation. Most gutter repairs are relatively simple. Also check that the screws used in assembling the downspout were cut off, so they won’t catch debris.

Correct the grade
The grade should slope away from the house at least 6 inches for every 10 feet. If possible, use soil with some clay content to divert the water.

Or, lay down plastic sheeting, making sure it slopes away from the house. Adhere the edge of the plastic to the foundation with silicone caulk. Cover the plastic with soil, sand, or mulch. Keep the final grade at least 6 inches away from any siding or trim.

Carpenter ants
Carpenter ants emerge in the early spring. Look for them in areas of clutter near the house, especially woodpiles. If you have a crawlspace, look wherever there might be warmth–under the water heater, kitchen range, or space heaters. You may find the ants themselves, as well as telltale piles of shavings similar to those from a pencil sharpener.

It’s possible to get rid of a small infestation by applying insecticide powders and gels, but pros know how to get to the nests to eradicate the problem. Cost: $40 for insecticide powder or gel. Allow as much time as necessary to clear away woody debris that harbors the ants.

Clearing debris will hinder termite infestations as well. However, short of finding piles of old wings or sighting an emerging swarm, it’s hard to be sure you have an infestation. If you suspect a termite problem, call in a pro. You’ll pay $65 to $100 for a termite inspection.

Sprinkler & spigot maintenance
Turn on your system and check for damaged or misdirected sprinkler heads. Look for puddles, a sign that there’s an underground leak in the system. Check for dry areas too; you may have a blocked pipe that needs flushing, or a kinked supply line.

If a hose bib or spigot is left undrained and unprotected through the winter, the pipe can freeze and crack, creating a leak inside the wall. Repair the pipe and install a frost-proof hose bib or inside shutoff for draining.

Inspect your siding
Trees and bushes may be crowding your house, creating a situation bound to foster mold and, eventually, rot. Trim back bushes and trees until there’s at least a 3-foot gap between the plantings and the house.

Fences and gates
Check fence stiles and pickets for damage and replace as needed, using galvanized fasteners. Push and pull on each post for signs of rot at its base. If the post moves easily, make sure the soil around the base of the post is firmly packed.

If the soil seems firm and the post still moves, it’s probably rotted. Replace or repair it. For a quick fix, pound in a steel post alongside it and wrap the two with wire.

Gate hinges and latches typically don’t wear out, but their fasteners can loosen, causing the gate to sag or be difficult to latch. Relocate them up or down a bit.

Sidewalks and driveways
Concrete and asphalt cracks no wider that ½-inch can be repaired with crack filler. Larger damage should be repaired with patch material. If a section of concrete walkway has tilted, there’s no easy solution–hire a pro to hydraulically reposition the slab. Expect to pay $350 to $800 to level a portion of tilted or sunken walkway.

Clean the deck
Sweep away leaves and twigs and clean any debris from between the planks. For a wood deck, use a deck cleaner. (Cedar, redwood, and mahogany produce tannins that require special cleaning product.)

Give the deck a light sanding and apply a sealer to set it up for the summer.

If you’re in the market for a new home…or thinking about selling your current home, contact a REALTOR. Their value and expertise will ensure a professional home buying/selling experience.