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Building Permits & Zoning | Top of page
1. How do building codes work?
Building codes are established by local authorities to set out minimum
public-safety standards for building design, construction, quality, use
and occupancy, location and maintenance. There are specialized codes for
plumbing, electrical and fire, which usually involve separate
inspections and inspectors. All buildings must be issued a building
permit and a certificate of occupancy before it can be used. During
construction, housing inspectors must make checks at key points. Codes
are usually enforced by denying permits, occupancy certificates and by
imposing fines. Building codes also cover most remodeling projects. If
you are buying a house that has been significantly remodeled, ask for
proof of the permits involved before you purchase to avoid future
liability for fines.
2. When are building permits needed?
Building codes are established by local authorities to set out minimum
public-safety standards for building design, construction, quality, use
and occupancy, location and maintenance. There are specialized codes for
plumbing, electrical and fire, which usually involve separate
inspections and inspectors. All buildings must be issued a building
permit and a certificate of occupancy before it can be used. During
construction, housing inspectors must make checks at key points. Codes
are usually enforced by denying permits, occupancy certificates and by
imposing fines. Building codes also cover most remodeling projects. If
you are buying a house that has been significantly remodeled, ask for
proof of the permits involved before you purchase to avoid future
liability for fines.
3. Where do I get information on remodeling?
Remodeling Resources...
-
National Association of the Remodeling Industry, (800) 611-6274;
www.nari.org
-
"Rehab a Home With HUD's 203(K)," U.S. Dept of Housing and Urban
Development (202) 708-1112; www.hud.gov
-
"Cost vs. Value Report," by Remodeling magazine,
http://www.remodeling.hw.net
-
"The Do-able Renewable Home," a booklet published by the AARP,
www.homemods.org
Rehabilitation Finance | Top of page
1. Are there any special tax breaks for historic rehab?
Qualified rehabilitated buildings and certified historic structures
currently enjoy a 20 percent investment tax credit for qualified
rehabilitation expenses. A historic structure is one listed in the
National Register of Historic Places or so designated by an appropriate
state or local historic district also certified by the government. The
tax code does not allow deductions for the demolition or significant
alternation of a historic structure. Resources: * National Trust for
Historic Preservation, 1785 Massachusetts Ave, NW, Washington, DC
20036-2117; (202) 588-6000,
www.nationaltrust.org
2. Are there government programs for rehab?
The U.S. Department of Housing and Urban Development's Section 203 (K)
rehabilitation loan program is designed to facilitate major structural
rehabilitation of houses with one to four units that are more than one
year old. Condominiums are not eligible. The 203(K) loan is usually done
as a combination loan to purchase a fixer-upper property "as is" and
rehabilitate it, or to refinance a temporary loan to buy the property
and do the rehabilitation. It can also be done as a rehabilitation-only
loan. Plans and specifications for the proposed work must be submitted
for architectural review and cost estimation. Mortgage proceeds are
advanced periodically during the rehabilitation period to finance the
construction costs. For a list of participating lenders, call HUD at
(202) 708-1112. If you are a veteran, loans from the U.S. Department of
Veterans Affairs also can be used to buy a home, build a home, improve a
home or to refinance an existing loan. VA loans frequently offer lower
interest rates than ordinarily available with other kinds of loans. To
qualify for a loan, the first step is to apply for a Certificate of
Eligibility. Another program is the Federal Housing Administration's
Title 1 FHA loan program. Resources: * "Rehab a Home With HUD's 203(K)"
brochure, U.S. Department of Housing and Urban Development, Washington,
D.C.; brochure online. http://www.hud.gov
3. Can you deduct the cost of home improvements?
What you spend on permanent home improvements, such as new windows, can
be added into your home's cost basis, or amount of money invested in a
home, which reduces capital gains when it comes time to sell. Capital
gains are determined by the difference in price from the time a home is
purchased and the time it is sold, minus the cost of any permanent
improvements. However, the 1997 tax changes virtually eliminates the
capital gains tax for most homeowners (the exemption is $250,000 for
single homeowners and $500,000 for married homeowners.). Still, it is
worthwhile to save all receipts for permanent home improvements just in
case. They also can be useful documentation when it comes to marketing
your home when you sell.
4. How do building codes work?
Building codes are established by local authorities to set out minimum
public-safety standards for building design, construction, quality, use
and occupancy, location and maintenance. There are specialized codes for
plumbing, electrical and fire, which usually involve separate
inspections and inspectors. All buildings must be issued a building
permit and a certificate of occupancy before it can be used. During
construction, housing inspectors must make checks at key points. Codes
are usually enforced by denying permits, occupancy certificates and by
imposing fines. Building codes also cover most remodeling projects. If
you are buying a house that has been significantly remodeled, ask for
proof of the permits involved before you purchase to avoid future
liability for fines.
Hiring a Contractor | Top of page
1. How do I find a home inspector?
In order to find a home inspector, Dian Hymer, author of "Buying and
Selling a Home A Complete Guide," Chronicle Books, San Francisco; 1994,
advises looking for someone with demonstrable qualifications. "Ideally,
the general inspector you select should be either an engineer, an
architect, or a contractor. When possible, hire an inspector who belongs
to one of the home inspection trade organizations." The American Society
of Home Inspectors (ASHI) has developed formal inspection guidelines and
a professional code of ethics for its members. Membership to ASHI is not
automatic; proven field experience and technical knowledge of structures
and their various systems and appliances are a prerequisite. One can
usually find an inspector by looking in the phone book or by inquiring
at a real estate office or sometimes at an area Realtor association.
Rates for the service vary greatly. Many inspectors charge about $400,
but costs go up with the scope of the inspection.
2. What are some guidelines to follow when trying to find a
contractor?
While hiring contractors recommended by friends is usually a safe route,
never hire a construction professional without first checking him or her
out. If your state has a licensing board for contractors, call to find
out if there are any outstanding complaints against that license holder.
Also, call your local Better Business Bureau to see if there are any
complaints on file. If you are satisfied with the answers you find
there, interview the contractor candidates. Ask what kind of worker's
compensation insurance they carry and get policy and insurance company
phone numbers so you can verify the information. If they are not
covered, you could be liable for any work-related injury incurred during
the project. Also be sure that the contractor has an umbrella general
liability policy. If they pass the insurance hurdle, next check some of
their references. A good contractor will be happy to provide as many as
you want. Finally, don't let yourself be rushed into making a decision
no matter how competitive the market may seem. Also, never pay a deposit
to a contractor at the first meeting. You may end up losing your money.
3. Where do I get information on remodeling?
-
National Association of the Remodeling Industry, (800) 611-6274;
www.nari.org
-
"Rehab a Home With HUD's 203(K)," U.S. Dept of Housing and Urban
Development (202) 708-1112; www.hud.gov
-
"Cost vs. Value Report," by Remodeling magazine,
http://www.remodeling.hw.net
-
"The Do-able Renewable Home," a booklet published by the AARP,
www.homemods.org
Improving Your Real Estate | Top of page
1. Are there government programs for rehab?
The U.S. Department of Housing and Urban Development's Section 203 (K)
rehabilitation loan program is designed to facilitate major structural
rehabilitation of houses with one to four units that are more than one
year old. Condominiums are not eligible. The 203(K) loan is usually done
as a combination loan to purchase a fixer-upper property "as is" and
rehabilitate it, or to refinance a temporary loan to buy the property
and do the rehabilitation. It can also be done as a rehabilitation-only
loan. Plans and specifications for the proposed work must be submitted
for architectural review and cost estimation. Mortgage proceeds are
advanced periodically during the rehabilitation period to finance the
construction costs. For a list of participating lenders, call HUD at
(202) 708-1112. If you are a veteran, loans from the U.S. Department of
Veterans Affairs also can be used to buy a home, build a home, improve a
home or to refinance an existing loan. VA loans frequently offer lower
interest rates than ordinarily available with other kinds of loans. To
qualify for a loan, the first step is to apply for a Certificate of
Eligibility. Another program is the Federal Housing Administration's
Title 1 FHA loan program. Resources: * "Rehab a Home With HUD's 203(K)"
brochure, U.S. Department of Housing and Urban Development, Washington,
D.C.;
2. Can you deduct the cost of home improvements?
What you spend on permanent home improvements, such as new windows, can
be added into your home's cost basis, or amount of money invested in a
home, which reduces capital gains when it comes time to sell. Capital
gains are determined by the difference in price from the time a home is
purchased and the time it is sold, minus the cost of any permanent
improvements. However, the 1997 tax changes virtually eliminates the
capital gains tax for most homeowners (the exemption is $250,000 for
single homeowners and $500,000 for married homeowners.). Still, it is
worthwhile to save all receipts for permanent home improvements just in
case. They also can be useful documentation when it comes to marketing
your home when you sell.
3. How can I improve the value of my property?
The biggest factor outside of a homeowner's control is market
conditions. But other issues -- including the condition of the property,
specific home improvements and neighborhood stability and safety -- can
influence property values. The greatest rise in home prices occurs when
the economy is strong and the number of home sales is increasing. Though
markets vary, that has occurred several times in recent history --
including the early 1970s, late 1980s and late 1990s. Specific home
improvements can increase the value above the cost of the improvements.
According to Remodeling magazine, which publishes an annual "Cost vs.
Value" remodeling report, a remodeled bathroom returns 81 percent to the
owner, a bathroom addition, 89 percent and a master bedroom suite, 82
percent. Remember, quality pays. Well-planned and well-executed
remodeling jobs are a good investment while bad work seldom enhances
value or livability. The safety and security of a neighborhood can
affect property values, too. If you live in a high-crime area, an
organized community watch program not only will lower the crime rate but
give home values a boost, too.
4. How do you increase the value of your property?
The biggest factor that can affect property value -- market conditions
-- are outside of your control. But other factors -- including the
condition of the property, certain home improvements and neighborhood
stability and safety -- are not. For example, specific home improvements
can increase your property value above the cost of the improvements
themselves, such as remodeling a kitchen, adding a bathroom, finishing a
basement or upgrading landscaping. Just be sure that quality pays with
remodeling. A bad remodeling job will do little to boost your property
value. If you live in a high-crime area, an organized community watch
program not only will lower the crime rate but can enhance property
values, too. It also helps to live in an area where other homeowners are
upgrading their homes, which can help pull up your property value, too.
The bottom line is to measure the cost of any improvements you want to
make against the overall values in your neighborhood. If you over
improve for the neighborhood, you may not necessarily recover your costs
or boost your property value significantly.
6. How much will I spend on maintenance expenses?
Experts generally agree that you can plan on annually spend 1 percent of
the purchase price of your house on repairing gutters, caulking windows,
sealing your driveway and the myriad other maintenance chores that come
with the privilege of homeownership. Newer homes will cost less to
maintain than older homes. It also depends on how well the house has
been maintained over the years
7. Should I move or improve?
Consider the following questions before making a choice between adding
on to an existing home or moving up in the market to a bigger house:
-
What funds are available to remodel the current house?
-
How much additional space is required? Would the foundation support
a second floor or does the lot have room to expand on the ground
level?
-
What do local zoning and building ordinances permit?
-
How much equity already exists in the property?
-
Are there affordable properties for sale that would satisfy housing
needs?
Ultimately, the decision should be based on individual needs, the extent
of work involved and what will add the most value.
8. What are some guidelines to follow when trying to find a
contractor?
While hiring contractors recommended by friends is usually a safe route,
never hire a construction professional without first checking him or her
out. If your state has a licensing board for contractors, call to find
out if there are any outstanding complaints against that license holder.
Also, call your local Better Business Bureau to see if there are any
complaints on file. If you are satisfied with the answers you find
there, interview the contractor candidates. Ask what kind of worker's
compensation insurance they carry and get policy and insurance company
phone numbers so you can verify the information. If they are not
covered, you could be liable for any work-related injury incurred during
the project. Also be sure that the contractor has an umbrella general
liability policy. If they pass the insurance hurdle, next check some of
their references. A good contractor will be happy to provide as many as
you want. Finally, don't let yourself be rushed into making a decision
no matter how competitive the market may seem. Also, never pay a deposit
to a contractor at the first meeting. You may end up losing your money.
9. What informational resources are available for home improvements?
If you're getting ready to embark on a home improvement project
involving contracting help, "Ready, Set, Build: A Consumer's Guide to
Home Improvement Planning Contracts" lays out a road map for selecting
the right contractor, obtaining competitive bids up to what to include
in a contract. There also is information on consumer rights, liens and
financing. The book is available for $9.95 through Consumer Press and
Women's Publications, Inc., 13326 Southwest 28th St., Fort Lauderdale,
FL 33330-1102; (954) 370-9153. Another useful resource is
Remodeling
magazine annual "Cost vs. Value Report", available for a nominal fee
from the magazine. (717) 399-1900, ext. 146 or
visit Online
Store to order
10. What are the pros and cons of adding on or buying new?
Before making a choice between adding on to an existing home or buying a
larger one, consider these questions:
-
What funds are available to remodel your current house?
-
Would the foundation support a second floor or does the lot have
room to expand on the ground level?
-
What do local zoning and building ordinances permit?
-
How much equity already exists in the property?
-
Are there affordable properties for sale that would satisfy your
changing housing needs?
Ultimately, the decision should be based on individual needs, the extent
of work involved and what will add the most value. For more information,
check out "The Do-able Renewable Home," a booklet published by the
American Association of Retired Persons, available online at
www.homemods.org
11. What kind of return is there on remodeling jobs?
Remodeling
magazine produces an annual "Cost vs. Value Report" that answers
just that question. The most important point to remember is that
remodeling a home not only improves its livability for you but its curb
appeal with a potential buyer down the road. Most recently, the highest
remodeling paybacks have come from updating kitchens and baths,
home-office additions and extra amenities in older homes. While home
offices are a relatively new remodeling trend, for example, you could
expect to recoup 58 percent of the cost of adding a home office,
according to the survey.
12. What repairs should the seller make?
If you want to get top dollar for your property, you probably need to
make all minor repairs and selected major repairs before going on the
market. Nearly all purchase contracts include an inspection clause, a
buyer contingency that allows a buyer to back out if numerous defects
are found or negotiate their repair. The trick is not to overspend on
pre-sale repairs, especially if there are few houses on the market but
many buyers willing to buy at almost any price. On the other hand,
making such repairs may be the only way to sell your house in a down
market.
13. Where can I get a list of architects?
If you need an architect, contact a local chapter of the American
Institute of Architects or the national organization itself at 1735 New
York Avenue, N.W., Washington, DC 20006-5292; (800) AIA-3837;
www.aia.org Also contact friends
or colleagues who have recently worked with an architect for referrals.
Take the time to interview several before choosing an architect.
14. Where do I get information on remodeling?
Try these sources:
-
National Association of the Remodeling Industry, 780 Lee St., Ste
200, Dex Plaines, IL 60016; (800) 611-6274;
www.nari.org
-
"Rehab a Home With HUD?s 203(K)," published by the U.S. Department
of Housing and Urban Development, 451 7th St., Washington, DC 20410;
call (202) 708-1112; www.hud.gov
-
"Cost vs. Value Report," by
Remodeling
magazine, 1 Thomas Circle, N.W., Suite 600, Washington, DC
20005; www.remodeling.hw.net
(202) 736-3447 for credit card orders.
-
"The Do-able Renewable Home," a booklet published by the American
Association of Retired Persons, available online at
www.homemods.org
15. Will a neighbor problem reduce the value of my property?
While it may not reduce the actual value, a cluttered landscape next
door can detract from the positive aspects of your home. Review your
local laws, which should be on file at the public library, county law
library or City Hall. A typical "junk vehicle" ordinance, for example,
requires any disabled car to either be enclosed or placed behind a
fence. And most cities prohibit parking any vehicle on a city street too
long. It also may be worthwhile to check into local zoning ordinances.
An operator of a home-based business usually is required to obtain a
variance or permanent zoning change in residential areas. In addition,
if a neighbor's repair work produces loud noises, he may be breaking
local noise-control ordinances, which are enforced by the police
department. Before bringing in the authorities, you may want to make a
copy of the pertinent ordinance and give it to your neighbor to give
them a chance to correct the problem. Resource: "Neighbor Law: Fences,
Trees, Boundaries and Noise," Cora Jordan, Nolo Press, Berkeley, Calif.;
2001.
Insurance | Top of page
1. What is guaranteed replacement cost insurance?
Guaranteed replacement insurance is a more comprehensive policy. though
it tends to cost more, it promises to cover the complete costs, less
deductible, of replacing a destroyed house. With these sorts of
policies, limits on the policies are not as common, because complete
coverage is more explicit.
2. What kind of home insurance should I get?
A standard homeowners policy protects against fire, lightning, wind,
storms, hail, explosions, riots, aircraft wrecks, vehicle crashes,
smoke, vandalism, theft, breaking glass, falling objects, weight of snow
or sleet, collapsing buildings, freezing of plumbing fixtures,
electrical damage and water damage from plumbing, heating or air
conditioning systems, according to the Insurance Information Institute,
a Washington, D.C.-based nonprofit group for the insurance industry.
Such policies are "all-risk" policies, which cover everything except
earthquakes, floods, war and nuclear accidents. A basic policy can be
expanded to include additional coverage, such as for floods and
earthquakes and even workers' compensation for servants or contractors.
Home-based business-coverage, an increasingly popular rider, does not
cover liability associated with the business. Insurance experts
recommend that homeowners obtain insurance equal to the full replacement
value of the home. On a 2,000-square-foot home, for example, if the
replacement cost is $80 per square foot, the house should be insured for
at least $160,000. For personal items, homeowners can increase their
coverage beyond the depreciated value of items such as televisions or
furniture by purchasing a "replacement-cost endorsement" on personal
property. Some experts recommend an inflation rider, which increases
coverage as the home increases in value.
Contacts and Resources | Top of page
1. Where can I get a list of architects?
If you need an architect, contact a local chapter of the American
Institute of Architects or the national organization itself at 1735 New
York Avenue, N.W., Washington, DC 20006-5292; (800) AIA-3837; aia.org.
Also contact friends or colleagues who have recently worked with an
architect for referrals. Take the time to interview several before
choosing an architect.
2. Where do I get information on remodeling?
Remodeling resources...
Avoiding Foreclosure | Top of page
1. Can a home seller sell a home for less than its mortgage?
Yes, in some case you can sell your home for less than what you still
owe on the mortgage. But it is complicated and depends on the lender.
This situation is known as a "short sale." Sometimes a lender will be
willing to split the difference between the sale price and loan amount,
which still must be paid. A short sale may be more complicated if the
loan has been sold to the secondary market because then the lender will
have to get permission from Freddie Mac, the two major secondary-market
players. If the loan was a low down payment mortgage with private
mortgage insurance, then the lender also must involve the mortgage
insurance company that insured the low-down loan.
2. Can I protect my home from creditors?
Your state may provide you with special protection from creditors
through the filing of a homestead exemption, which exempts some or all
of the value of the owner's equity in the homestead from claims of
unsecured creditors. Deciding whether or not to file a homestead
exemption often depends on an individual's situation. Contact your
county recorder's office for details.
3. How bad is a previous foreclosure on credit?
A property foreclosure is one of the most damaging events in a
borrower's credit history. In terms of the effect on credit history, a
deed in lieu of foreclosure or a short sale is not as adverse an event
as is a forced foreclosure.
4. How does a home go into foreclosure?
Foreclosure proceedings usually begin after a borrower has skipped three
mortgage payments. The lender will record a notice of default against
the property. Unless the debt is satisfied, the lender will foreclose on
the mortgage and proceed to set up a trustee sale.
5. What happens at a trustee sale?
Trustee sales are advertised in advance and require an all-cash bid. The
sale is usually conducted by a sheriff, a constable or lawyer acting as
trustee. This kind of sale, which usually attracts savvy investors, is
not for the novice. In a trustee sale, the lender who holds the first
loan on the property starts the bidding at the amount of the loan being
foreclosed. Successful bidders receive a trustee's deed.
6. When does foreclosure begin?
Lenders will initiate foreclosure proceedings when homeowners become
delinquent in their mortgage obligations, usually after three payments
are missed. The lender will then notify the buyer in writing that he or
she is in default. The lender can request a trustee's sale or a judicial
foreclosure, in which the property is sold at public auction. A borrower
can cure the default by paying the overdue amount and the pending
payment after the notice of default is recorded, usually no later than a
few days before the property's sale. Some sales allow the successful
bidder to take possession immediately. If the former owner refuses to
vacate the premises, the court can issue an unlawful detainer that
allows the sheriff to come out and evict them Borrowers should do
everything they can to avoid foreclosure, which is one of the most
damaging events that can occur in an individual's credit history.
Value Appreciation |Top of page
1. How can I improve the value of my property?
The biggest factor outside of a homeowner's control is market
conditions. But other issues -- including the condition of the property,
specific home improvements and neighborhood stability and safety -- can
influence property values. The greatest rise in home prices occurs when
the economy is strong and the number of home sales is increasing. Though
markets vary, that has occurred several times in recent history --
including the early 1970s, late 1980s and late 1990s. Specific home
improvements can increase the value above the cost of the improvements.
According to Remodeling magazine, which publishes an annual "Cost vs.
Value" remodeling report, a remodeled bathroom returns 81 percent to the
owner, a bathroom addition, 89 percent and a master bedroom suite, 82
percent. Remember, quality pays. Well-planned and well-executed
remodeling jobs are a good investment while bad work seldom enhances
value or livability. The safety and security of a neighborhood can
affect property values, too. If you live in a high-crime area, an
organized community watch program not only will lower the crime rate but
give home values a boost, too.
2. What can impact the value of a property?
The biggest factor that can affects property value is market conditions.
Other factors include the condition of the property, certain home
improvements and neighborhood stability and safety. Example, specific
home improvements can increase your property value above the cost of the
improvements themselves, such as remodeling a kitchen, adding a
bathroom, finishing a basement or upgrading landscaping. Just be sure
that quality pays with remodeling. A bad remodeling job will do little
to boost your property value. If you live in a high-crime area, an
organized community watch program not only will lower the crime rate but
can enhance property values, too. It also helps to live in an area where
other homeowners are upgrading their homes, which can help pull up your
property value, too. The bottom line is to measure the cost of any
improvements you want to make against the overall values in your
neighborhood. If you over improve for the neighborhood, you may not
necessarily recover your costs or boost your property value
significantly.
3. Should I Move or Improve?
Consider these questions before making a choice between adding on to an
existing home or moving up in the market to a bigger house...
-
What financial resources are available to remodel the current home?
-
How much additional space is required?
-
Would the foundation support a second floor or does the lot have
room to expand on the ground level?
-
What do local zoning and building ordinances permit?
-
How much equity already exists in the property?
-
Are there affordable properties for sale that would satisfy your
housing needs?
The
decision should be based on your needs, the extent of work involved and
what will contribute the most value.
4. What is the difference between market value and appraised value?
The appraised value of a house is a certified appraiser's opinion of the
worth of a home at a given point in time. Lenders require appraisals as
part of the loan application process; fees range from $200 to $300.
Market value is what price the house will bring at a given point in
time. A comparative market analysis is an informal estimate of market
value, based on sales of comparable properties, performed by a real
estate agent or broker. Either an appraisal or a comparative market
analysis is the most accurate way to determine what your home is worth.
6. What kind of return is there on remodeling jobs?
Remodeling
magazine produces an annual "Cost vs. Value Report'' that answers
just that question. The most important point to remember is that
remodeling a home not only improves its livability for you but its curb
appeal with a potential buyer down the road. Most recently, the highest
remodeling paybacks have come from updating kitchens and baths,
home-office additions and extra amenities in older homes. While home
offices are a relatively new remodeling trend, for example, you could
expect to recoup 58 percent of the cost of adding a home office,
according to the survey.
7. Where do I get information on housing market stats?
A real estate agent is a good source for finding out the status of the
local housing market. So is your statewide association of Realtors, most
of which are continuously compiling such statistics from local real
estate boards. For overall housing statistics, U.S. Housing Markets
www.meyersgroup.com
regularly publishes quarterly reports on home building and home buying.
Your local builders association probably gets this report. Finally,
check with the U.S.
Bureau of the Census in Washington, D.C.; (301) 763-3199; census.gov.
The Chicago Title Company
also has published a pamphlet, "Who's Buying Homes in America." Write
Chicago Title 601 Riverside Ave., Jacksonville, FL 32204; (888)
934-3354; ctic.com.
Homeowner Associations | Top of page
1. Do condos have to be made accessible to the disabled?
The 1990 Americans with Disabilities Act does not require strictly
residential apartments and single-family homes to be made accessible.
But all new construction of public accommodations or commercial projects
(such as a government building or a shopping mall) must be accessible.
New multi-family construction also falls into this category. In all
states, the Federal Fair Housing Act provides protection against
discrimination for people with physical or mental disabilities.
Discrimination includes the refusal to make reasonable modifications to
buildings that aren't accessible to the disabled. Two educational
brochures, "Housing Rights" and "Discrimination is Against the Law," are
available through the
Department of Fair Employment and Housing by calling (916) 227-0551.
California residents can dial toll free (800) 884-1684. dfeh.ca.gov
2. How are fees and assessments figured in a homeowners association?
Homeowners association fees are considered personal living expenses and
are not tax-deductible. If, however, an association has a special
assessment to make one or more capital improvements, condo owners may be
able to add the expense to their cost basis. Cost basis is a term for
the money an owner spends for permanent improvements throughout their
time in the home and is used to reduce eventual capital gains taxes when
the property is sold. For example, if the association puts a new roof on
a building, the expense could be considered part of a condo owner's cost
basis only if they lived directly underneath it. Overall improvements to
common areas, such as the installation of a swimming pool, need to be
considered on a case-by-case basis but most can be included in the cost
basis of any owner who can show their home directly benefits from the
work. To find out more about how the IRS views condo association fees,
look online to IRS Publication 17, "Your Federal Income Tax," which
includes a section on condos. Or order a copy by calling (800) TAX-FORM.
3. What's a house worth?
A home ultimately is worth what someone will pay for it. Everything else
is an estimate of value. To determine a property's value, most people
turn to either an appraisal or a comparative market analysis. An
appraisal is a certified appraiser's estimate of the value of a home at
a given point in time. Appraisers consider square footage, construction
quality, design, floor plan, neighborhood and availability of
transportation, shopping and schools. Appraisers also take lot size,
topography, view and landscaping into account. Most appraisals cost
about $300. A comparative market analysis is a real estate broker's or
agent's informal estimate of a home's market value, based on sales of
comparable homes in a neighborhood. Most agents will give you a
comparative market analysis for free. You can do your own cost
comparison by looking up recent sales of comparable properties in public
records. These records are available at local recorder or assessor
offices, through private real estate information companies or on the
Internet.
4. Where do I get information on condo association laws?
Condo association resources...
5.
Where do I get information on condos?
The major interest group for condominium projects and other so-called
common-intereset developments is the non-profit
Community
Associations Institute, 225 Reinekers Lane, Suite 360, Alexandria,
VA 22314; (703) 548-8600; caionline.org.
Neighbor Disputes | Top of page
1.
Can a condo association ban pets?
A homeowners association can both enact and enforce such pet
restrictions. As the following case illustrates, it important to read a
development's covenants, conditions and restrictions (CC&Rs) before you
buy into it. Pet restrictions sometimes appear there. Also, if you have
talked to other owners, you will know whether or not there is tolerance
for pets. In the case of Nahrstedt v. Lakeside Village Condominium
Association, Natore Nahrstedt, a resident of Lakeside Village
Condominiums believed it was reasonable for her to keep three cats even
though her deed restrictions read, "No animals (which shall mean dogs
and cats), livestock, reptiles or poultry shall be kept in any unit."
Nahrstedt filed suit after the board assessed fines of $500 a month
against her. The California Supreme Court ruled in favor of the
association.
Property Taxes | Top of page
1. Are property taxes deductible?
Property taxes on all real estate, including those levied by state and
local governments and school districts, are fully deductible against
current income taxes.
2. Are taxes on second homes deductible?
Mortgage interest and property taxes are deductible on a second home if
you itemize. Check with your accountant or tax adviser for specifics.
3. How do property taxes work?
Property taxes are what most homeowners in the United States pay for the
privilege of owning a piece of real estate, on average 1.5 percent of
the property's current market value. These annual local assessments by
county or local authorities help pay for public services and are
calculated using a variety of formulas.
4. How is a home's value determined?
There are several ways to determine the value of a home... An appraisal
is a professional estimate of a property's market value, based on recent
sales of comparable properties, location, square footage and
construction quality. This service varies in cost depending on the price
of the home. On average, an appraisal costs about $300 for a $250,000
house. A comparative market analysis is an informal estimate of market
value performed by a real estate agent based on similar sales and
property attributes. Most agents offer free analyses in the hopes of
winning your business. You also can get a comparable sales report for a
fee from private companies that specialize in real estate data or find
comparable sales information available on various real estate Internet
sites.
5. What is an impound account?
An impound account is a trust account established by the lender to hold
money to pay for real estate taxes, and mortgage and homeowners
insurance premiums as they are received each month.
6. Where can I learn more about appealing my property taxes?
Contact your local tax assessor's office to see what procedures to
follow to appeal your property tax assessment. You may be able to appeal
your assessment informally. Mostly likely, however, you will have to go
through a formal tax-appeal processes, which begin with an appeal filed
with the appropriate assessment appeals board.
Reversed Annuity Mortgages (RAMs) | Top of page
1. What is a reverse mortgage loan?
A reverse mortgage is a special type of loan available only to older
homeowners with full or nearly full equity in their homes. Such owners
can borrow against the equity they have built up over the years, but no
repayment is necessary until the borrower sells the property or moves
elsewhere. If the borrower dies before the property is sold, the estate
repays the loan (plus any interest that has accrued. These loans have
become increasingly popular. If you believe you qualify for such a loan,
be sure to have the document reviewed by an attorney or financial
advisor.
Refinancing | Top of page
1. Can I refinance after bankruptcy?
Refinancing may be prudent but could be difficult after a bankruptcy. If
you're considering bankruptcy, you may want to go to your current lender
first and explain the situation. If you have been current on your
payments, the lender may be accommodating and refinance your loan,
easing your financial situation.
2. What about these ads for no-cost loans?
In many states, real estate regulatory agencies are cracking down on
such advertising. The very term, "no-cost" loan, is misleading because
borrowers are actually paying a higher interest rate in exchange for not
having to pay fees or closing costs up front when the loan is secured. A
"no-points" loan is one for which the lender does not charge points (one
point is equal to 1 percent of the loan amount). But there are other
fees involved in no-point loans, as with most loans.
3. When is the best time to refinance?
It depends on how long you plan to hold on to your house and if you have
to pay anything to refinance. In addition, it also depends on how far
along you are in paying off your current mortgage. If you are going to
be selling your house shortly, you probably will not recoup any costs
you incur to refinance your mortgage. If you are more than halfway
through paying your current mortgage, you probably will gain little by
refinancing. However, if you are going to own your home for at least
five years, that's probably long enough to recoup any refinancing costs
you incur and to realize real savings on lowering your monthly payment.
If it is going to cost you nothing to refinance, you can gain even more.
Many lenders will allow you to roll the costs of the refinancing into
the new note and still reduce the amount of the monthly payment. Also,
there are no-cost refinancing deals available. In any case, it pays to
consult your lender or financial advisor, or run the numbers yourself,
before you refinance.
4. Where do I get information on refinancing?
For information on refinancing, the following booklet may be helpful:
"A Consumer's Guide to Mortgage Refinancing." Available at the
Federal Citizen Information Center.
Tax Considerations | Top of page
1. Are points deductible?
If you are a buyer, and you or the seller pays points, they are
deductible for the year in which they are paid only. You also can deduct
any points you pay when you refinance your home, but you must do so
ratably over the life of the loan. Consult your tax or financial
advisor.
2. Are taxes on second homes deductible?
Mortgage interest and property taxes are deductible on a second home if
you itemize. Check with your accountant or tax adviser for specifics.
3. Are the costs of a natural disaster deductible?
Damage, destruction or loss of property from fires, floods, earthquakes
and other disasters are deductible from both state and federal income
taxes. In such a case, the IRS only allows a deduction less than or
equal to the fair-market value of the property before the disaster.
Losses on the sale of your own home are not deductible, through they are
deductible for rental properties.
4. Can I deduct the loss I suffered when I sold my home?
The Internal Revenue Service currently does not allow deductions for
losses on the sale of your own home. In fact there's no way to use a
loss on the sale of your principal residence to your advantage on your
income tax return.
5. Can you deduct the cost of home improvements?
What you spend on permanent home improvements, such as new windows, can
be added into your home's cost basis, or amount of money invested in a
home, which reduces capital gains when it comes time to sell. Capital
gains are determined by the difference in price from the time a home is
purchased and the time it is sold, minus the cost of any permanent
improvements. However, the 1997 tax changes virtually eliminates the
capital gains tax for most homeowners (the exemption is $250,000 for
single homeowners and $500,000 for married homeowners.) Still, it is
worthwhile to save all receipts for permanent home improvements just in
case. They also can be useful documentation when it comes to marketing
your home when you sell.
6. What is the home mortgage deduction?
The mortgage interest deduction entitles you to completely deduct the
interest on your home loan for the year in which you paid it. Mortgage
interest is not a dollar-for-dollar tax cut; it reduces taxable income.
You must itemize deductions in order to do this, which means your total
deductions must exceed the IRS's standard deduction. Another point to
remember is that the amount of interest on your loan goes down each year
you pay on your mortgage (all standard home-loan formulas pay off
interest first before significantly paying into principal). That's why
paying extra on your principal every year can help you pay off your loan
early.
7. How are fees and assessments figured in a homeowners association?
Homeowners association fees are considered personal living expenses and
are not tax-deductible. If, however, an association has a special
assessment to make one or more capital improvements, condo owners may be
able to add the expense to their cost basis. Cost basis is a term for
the money an owner spends for permanent improvements throughout their
time in the home and is used to reduce eventual capital gains taxes when
the property is sold. For example, if the association puts a new roof on
a building, the expense could be considered part of a condo owner's cost
basis only if they lived directly underneath it. Overall improvements to
common areas, such as the installation of a swimming pool, need to be
considered on a case-by-case basis but most can be included in the cost
basis of any owner who can show their home directly benefits from the
work. To find out more about how the IRS views condo association fees,
look online to
IRS
Publication 17, "Your Federal Income Tax," which includes a section
on condos. Or order a copy by calling (800) TAX-FORM.
8.
How do I contact the IRS?
Reach the Internal Revenue Service by calling (800) TAX-1040 or going to
www.irs.gov
9. How do I save on taxes?
Here are some considerations....
-
Mortgage interest on loans up to $1 million is completely deductible
for the year in which you pay it to buy, build or improve your
principal residence plus a second home.
-
Points, or loan origination fees, also are deductible no matter who
pays them, the buyer or the seller.
-
Most homeowners, except the wealthy and those living in high-priced
markets, no longer need to worry about capital gains taxes. The
exemption has been raised to $500,000 for married couples and
$250,000 for single owners. It can be taken every two years.
Homeowners should always keep all receipts of permanent home
improvements and of mortgage closing costs. If you do have to pay
capital gains taxes, these costs can be added to your adjusted cost
basis. Consult your tax adviser for more information. Resources:
"Tax Information for First-Time Homeowners," IRS Publication 530
and
"Selling Your Home," IRS Publication 523 . Call (800) TAX-FORM
to order or download from www.irs.gov
10. Should I buy a vacation home?
Today a vacation home can be purchased for investment purposes as well
as enjoyment. And yes, there are tax benefits. Some people buy a
vacation home with the idea of turning it into a permanent retirement
home down the road, which puts them ahead on their payments. Another
benefit is that the interest and property taxes are tax deductible,
which helps to offset the cost of paying for a second home. A vacation
home also can be depreciated if you live in it fewer than 14 days a
year, or 10 percent of the rented days - whichever is greater.
11. What are the rules on capital gains when inheriting a house?
When children inherit a home, the Internal Revenue Service determines
their basis in the property on the date of the owner's death. The cost
basis is not the amount the owner originally paid for the house, but the
property's fair-market value on the date of the parent's death. Cost
basis is a tax term for the dollar amount assigned to a property at the
time it is acquired, for the purpose of determining gain or loss when it
is sold. For example, one of the three siblings sold his or her share of
a property to be divided equally, he or she must pay capital gains tax
for whatever profit made over one-third of the new basis. Other tax
consequences include estate taxes. However, the estate must total
$675,000 or more for tax year 2001 before tax issues become a concern.
The IRS allow residents to pass on property, cash and other assets worth
up to a total of $675,000 for tax year 2001 before charging the heirs
any taxes. This figure will rise each year for the next several years.
Regarding the transfer of ownership, quit-claim deeds often are used
between family members in situations such as this when an heir is buying
out the other. All parties must be agreeable to dropping a name from the
title. For more information, consult
IRS
Publication 950, "Introduction to Estate and Gift Taxes." Order by
calling (800) TAX-FORM or download from
www.irs.gov
12. What home-buying costs are deductible?
Any points you or the seller pay to purchase your home loan are
deductible for that year. Property taxes and interest are deductible
every year. But while other home-buying costs (closing costs in
particular) are not immediately tax-deductible, they can be figured into
the adjusted cost basis of your home when you go to sell (any
significant home improvements also can be calculated into your basis).
These fees would include title insurance, loan-application fee, credit
report, appraisal fee, service fee, settlement or closing fees, bank
attorney's fee, attorney's fee, document preparation fee and recording
fees. Points paid when you refinance an existing mortgage must be
deducted ratably over the life of the new loan.
13. What tax benefits are there to homeowners?
Homeowners benefit from several generous tax advantages. The most
important benefit is the mortgage interest deduction. People may deduct
interest paid on mortgage loans totaling up to $1 million used to buy,
build or improve a principal residence plus a second home. The IRS calls
such loans acquisition debt. Points paid by the buyer or seller on a new
mortgage loan for the purchase or improvement of a principal residence
are deductible for the year in which the home was purchased. Any points
paid on a refinance mortgage, a loan to purchase a second home or a
mortgage on income property must be spread over the life of the loan.
Note that when obtaining a new mortgage, the borrower usually is asked
to pay interest from the closing date until the first of the next month.
Check whether that charge is included in the year-end report. Property
taxes on all real estate, including those levied by state and local
governments and school districts, are fully deductible against current
income. "A homeowner cannot deduct maintenance expenses, nor can he take
depreciation deductions on his personal residence," states the "Realty
Bluebook," 33rd Ed., Dearborn Real Estate Education; 2003. Some moving
expenses are deductible for people who changed jobs and relocated as a
result. The IRS requires that the new employment be located at least 50
miles away, among other considerations, said Analisa Collins-Sears, a
public affairs officer with the IRS' Bay Area office. Resources: * "Tax
Information for First-Time Homeowners," a free guide published by the
Internal Revenue Service. Order by calling (800) TAX-FORM.
Additional Resources | Top of page
1.
How do I reach the IRS?
To reach the Internal Revenue Service, call (800) TAX-1040;
www.irs.gov
2. Where do I get information about finding a real estate attorney?
To find a real estate attorney, contact your local bar association,
which may offer local referral services. You may also ask friends or
your real estate agent for their recommendations. When you have several
names, call each to find out about fees and their level of experience.
3. Where do I get information on homes with historic value?
For information about homes with historic value, contact the National
Trust for Historic Preservation, Washington, D.C. at (202) 588-6000;
www.nationaltrust.org .
4. Where do I get information on housing market stats?
A real estate agent is a good source for finding out the status of the
local housing market. So is your statewide association of Realtors, most
of which are continuously compiling such statistics from local real
estate boards. For overall housing statistics, U.S. Housing Markets
www.meyersgroup.com regularly
publishes quarterly reports on home building and home buying. Your local
builders association probably gets this report. Finally, check with the
U.S. Bureau of the Census in Washington, D.C.; (301) 763-3199;
www.census.gov The Chicago
Title company also has published a pamphlet, "Who's Buying Homes in
America." Write Chicago Title 601 Riverside Ave., Jacksonville, FL
32204; (888) 934-3354; www.ctic.com
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