EASING THE MORTGAGE PAYMENT PINCH

What Congress giveth, Congress taketh away. And so it was that on Jan. 1, most wage earners found themselves a little light in the paycheck.

The reason, of course, is that lawmakers late last year allowed the 2 percent cut in the employee portion of the FICA tax to expire. That benefit was enacted in 2010 to put more cash in taxpayers' wallets during the tough economic downturn.

But the greater tax burden doesn't mean would-be homebuyers need to put off taking advantage of some of the lowest mortgage rates in eons. You can raise your take-home pay to where it was -- or perhaps bring home even more money -- by simply increasing the number of allowances on the tax form you fill out at work.�Exactly how much more take-home pay depends on how much interest you pay on your mortgage and how much you pay in property taxes. But the more allowances you claim, the less federal income tax your employer will withhold.

Many people report only their dependents -- four, for example, in the case of a married couple with two children -- on Form W-4, the Employee's Withholding Allowance Certificate. And every April 15, these taxpayers have to settle up with Uncle Sam. Others claim no dependents whatsoever, even if they have several, preferring instead to pay more than their fair share of income taxes in advance and use the Treasury as a sort of forced savings account.

In either case, though, these people are using as their banker an institution that pays absolutely no interest. They are giving the government free use of their money -- money they could use to pay their bills, including their mortgage, or place in an interest-bearing savings account.

Savvy taxpayers try to match their withholding with their actual tax liability. To the best of their ability, they determine in advance how much they'll owe when the final tab is figured, and they adjust their withholding accordingly. That way, they maximize use of their earnings and meet their income tax obligations at the same time.

Even the Internal Revenue Service advises taxpayers to check to make sure their withholding matches their actual tax liability. "If not enough tax is withheld, you will owe tax at the end of the year and may have to pay interest and a penalty," the federal tax collector says. "If too much tax is withheld, you will lose the use of that money until you get a refund."

Form W-4 asks taxpayers to list their allowances so their employers can withhold the proper amount from their pay. But allowances are not only dependents. They also include deductions that can be taken for any number of expenses, including mortgage interest and property taxes.

To increase your cash flow, you can reduce the amount of income tax withheld each pay period by claiming special withholding allowances for every deduction you intend to take when you file your federal return.

All taxpayers are entitled to the actual number of exemptions claimed on their returns. A special withholding allowance of one additional exemption is allowed when the taxpayer is single and holds only one job, or is married and has one job and a spouse who does not work.

Additional allowances also are permitted for "excess itemized deductions," as long as they don't exceed the sum of last year's deductions and the amount of "determinable additional deductions" for the coming year. Determinable deductions are those that are attributable to an identifiable event during the year, such as a binding obligation to make payments. In other words, interest on a new or increased mortgage and property taxes.

Of course, you'll have to itemize to take advantage of these write-offs. If you claim the standard deduction, they won't do you any good. And if your total deductions don't exceed the standard one, there's no reason to take the trouble to fill out a long-form return.

But if itemizing makes sense, use the worksheet on the reverse side of the W-4 to determine the correct number of allowances. Currently, each allowance claimed frees $3,900 of annual wages from withholding.

Say, for example, that you purchased your first home on June 30 last year. On your 2012 tax return, you claimed itemized deductions of $6,600, which was the sum of the mortgage interest and property taxes you paid during the first six months of ownership.

Based on those amounts, you can expect to claim roughly $13,200 for those two deductions on your 2013 return. So, if you divide $13,200 by $3,900, you come up with three more allowances that you can use to increase your cash flow.

Now take the case of someone who bought a house three years ago with a three-year adjustable mortgage. On Jan. 1, the rate of his $200,000 loan, now paid down to $188,997, jumped the maximum 2 points, from 4 percent to 6 percent.

At the new rate of 6 percent, the total mortgage interest paid this year would be $11,261, compared with just $7,643 last year. That's an increase of $3,618, or one extra allowance.�But if this owner hadn't increased allowances during the time he had owned the house, he could boost his take-home pay even higher by claiming perhaps three more allowances. And that's not counting what he pays in property taxes.

The worksheet on the back of the W-4 will help you figure the maximum number of withholding allowances you are entitled to claim so the amount of tax taken out of your wages will match as closely as possible the total tax you will owe at the end of the year. IRS Publication 919 (available online at irs.gov) also contains more complicated worksheets you can use to project your withholding.

New homes may be new, but they are rarely perfect.

Houses are giant puzzles with hundreds of parts, all manufactured at different locations and carried to the building site. And try as they might to put together a flawless product, builders and their numerous subcontractors don't always get things right.

Luckily, buyers are more likely to have to deal with cosmetic defects than out-and-out structural failures. Scratched refrigerators, broken bathroom tiles and faulty electrical outlets are far more prevalent than badly cracked foundations or sagging roofs.

But structural defects do occur. According to recently released data from 2-10 Home Buyers Warranty, owners of new homes are as likely to experience major structural damage -- big cracks in the walls, windows and doors jammed shut, buckled floors -- as they are a major fire.

This isn't to warn buyers off new construction. Previous research has found that just one in 20 houses will experience a major structural hit over its lifetime. But one in every four will experience "some" structural distress.

Based on his review of more than 10,000 structural claims over a 32-year period, Walt Keaveny, chief risk manager of the Denver-based warranty company, says structural problems can occur from day one. But most claims are reported between four and seven years after initial occupancy.

Total losses are not common, but claims can be expensive. According to Keaveny's analysis, it costs $42,000 on average to investigate and repair a structural claim.

With this in mind, here's how this warranty company's chief management expert says homebuyers can best protect themselves from such catastrophes:

-- Deal only with builders who offer an insurance-backed new-home warranty from a reputable company. That may sound self-serving. After all, 2-10 HBW is the country's oldest and largest new-home warranty company. But it is wise advice. A 10-year warranty against structural defects is a must, especially in areas of expansive soil -- roughly half the country.

Most warranty companies underwrite builders to make sure they are qualified, which is another reason over and above the homeowners insurance protection to have a warranty. And with an insured warranty, if your builder should refuse to repair your house or go out of business, you still will be covered.

-- Coverage should start from the day you close on the house, and it should not exclude damage caused by soil movement. Researchers have found that active soils cause more property damage than floods, earthquakes, tornadoes and hurricanes combined.

The two main causes of structural damage are active soils that settle, heave or move laterally, and fill material that is not compacted to code requirements. Only 20 percent of structural claims have to do with framing; the rest concern foundations.

-- Ask if geotechnical engineers have been involved in your home's design. If so, says Keaveny, you are only up to half as likely to have a structural issue.

In a geotechnical investigation, subsurface conditions and geologic hazards are explored by drilling holes and pulling samples. These tests determine if the soil is expansive and if fill dirt has been properly compacted. Findings are given to the structural engineer so he is not working blindly when designing foundations to fit the conditions.

-- Consider hiring your own independent home inspector. Government inspectors might inspect the home, but they are making sure only that construction meets minimum code requirements.

An independent inspector should examine the house as it is constructed -- once just before concrete for the foundation is poured, again when the walls go up but before the drywall and insulation are installed, and finally when the place is completed.

Keaveny says his company requires its builders to have at least these three inspections. "If you wait," he says, "it's too late."

-- Check the grade around the house. It should fall at least 6 inches in the first 10 feet from the foundation. If it does not, water will flow back toward the foundation instead of away from it.

In areas with expansive soils, or if your house has a basement, it's best to use gutters and downspouts to carry rainwater at least 5 feet from the foundation.

If your property is graded properly, don't change it. One of the biggest mistakes owners make is to change the grade with flower beds and shrubs against the house.

-- Make sure you receive a copy of the warranty company's performance standards booklet. Controversies have arisen over the years about home warranty coverage. The booklet will spell out exactly what is considered a structural defect under your policy, so you will know exactly where you stand.

Absent this, purchase a copy of the National Association of Home Builders' "Residential Construction Performance Guidelines."

The latest numbers from the field are in, and the news is good. Housing prices were up almost everywhere across the country in 2012.

Of the 134 core-based statistical areas (CBSAs) that reported 500 or more sales last year, 123 saw gains, according to year-over-year data collected as of Dec. 31 by Pro Teck Valuation Services of Waltham, Mass. CBSAs are defined as "micropolitan" areas of at least 10,000 people who are tied to an urban center by commuting.

Some increases were exceptional, such as the nearly 35 percent jump in the price per square foot in the Phoenix CBSA and 25 percent each in San Jose, Calif., and Fort Myers, Fla. Others were minuscule, such as the 0.23 percent increase in Salem, Ore., or the 0.26 percent gain in Nassau County, N.Y.

But even those slight increases are welcome, and far better than the 10 percent drop in square-foot prices recorded in South Bend, Ind., which had the biggest decline among the 11 markets where prices are still falling.

Overall, the median increase in the price per square foot was up 5.85 percent nationally, from $81.08 in 2011 to $86.42 last year, according to Pro Teck, which takes its numbers at least daily from about 850 multiple listing services.

Since all real estate is local, the national median is useful only as headline material. What's more important is judging whether the real estate market is rising or falling in your market -- and not just your city or town, but your community, your neighborhood and sometimes even your block. Breaking down housing prices by CBSA is a step in the right direction.

Moreover, Pro Teck's median price per square foot is more helpful than other measures in gauging the path of housing prices. Most of the more popular indexes are influenced by product mix and the number of sales in a particular price range. Consequently, an unusually large number of sales of more expensive houses can result in false readings, sending the average or median price higher than it otherwise would be. The same phenomenon can occur when most sales are in the lower price brackets, pushing the announced figure lower.

But the median price per square foot tends to even things out. By normalizing for swings in the type and price of houses sold, it represents a truer picture of the market. In that sense, then, price per square foot -- let's call it PPSF -- is the great equalizer by which all houses can be judged and compared with one another.

It also is worth mentioning that Pro Teck's figures are more current. Whereas other indexes you might read or hear about are three and perhaps up to six months old, the numbers supplied by the Massachusetts valuation company in its latest report are as of year-end 2012. You can't get much more current than that.

With that said, let's take a look at what's happening throughout the country:

In 39 CBSAs, the PPSF rose by double digits in 2012, with Phoenix, San Jose and Fort Myers leading the way. Interestingly, those markets were three of the hardest-hit in the country during the downturn. But now they seem to be thriving.

So does Atlanta, another spot that took it on the chin from the recession. The PPSF there was up 19.35 percent last year.

The measure was up 18.85 percent in Bend, Ore., 18.67 percent in Tucson and 18.14 percent in Santa Rosa, Calif., and Flint, Mich.

On a PPSF basis, San Francisco is far and away the nation's most expensive housing CBSA. Expect to pay $492 and change per square foot in the Bay Area. That's a 16.1 percent jump from year-end 2011. By comparison, the current PPSF in San Jose is $454, and in Honolulu it is $409.

Nowhere else do housing costs come even close to those cities. The next most expensive place is the Santa Ana-Anaheim, Calif., CBSA, where the PPSF is $281.

Las Vegas is another strongly improving market. The PPSF there was $77, a year-over-year increase of 15.6 percent and a relative bargain compared with the West Coast. Even the Riverside, Calif., CBSA, at a PPSF of $114, is less expensive than, say, the San Diego CBSA, where the PPSF ended 2012 at $219.

In the nation's capital, the PPSF is $141, a jump of nearly 9 percent from a year ago. Surprisingly, the cost is the same in the Baltimore CBSA, which has always been considered a cheaper, albeit somewhat distant alternative, at least by East Coast standards.

The PPSF is relatively equal in Dallas and Houston, too. In Dallas, it's $81; in Houston, $75. Both are up about 7.5 percent from a year ago.

In New York, the PPSF is nearly $239, a jump of nearly 7 percent from year-end 2011. But in Chicago, it is only $96, a gain of about 3.5 percent.

The least expensive of the most active CBSAs? That would be Flint, Mich., where the median price per square foot of living space is an affordable $51 -- an 18 percent jump from Dec. 31, 2011.

As an alternative, consider South Bend, Ind., where the PPSF is just under $53 and falling.