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What’s the deal with ‘tankless’ water heaters, credit ratings and mortgage tax credits?

DEAR MR. MYERS: I see a lot of advertisements for “tankless” water heaters, but they always seem to cost more than conventional water heaters. How do tankless heaters work? If I buy one, would it eventually save me money?

ANSWER: Tankless water heaters, sometimes called “instantaneous” or “demand” heaters, are much smaller than traditional heaters. Most are about the size of a small television.

When a hot-water tap that’s linked to a tankless heater is turned on, cold water is piped through the tankless gizmo and is quickly heated by either a gas burner, electric coil or similar element. That means that you don’t have to wait several seconds or even minutes for hot water to start flowing, which in turn cuts your water usage and also eliminates the expense of keeping the water inside a traditional 40- or 50-gallon tank that must constantly be warmed through the use of a gas-fueled pilot light or electric power source.

The cost of buying a tankless heater and then having it professionally installed starts at about $1,560, according to figures provided by cost-estimating website homewyse.com. That’s about $500 more than the cost of buying and installing a basic, conventional heater.

Despite that higher price, the U.S. Department of Energy reports that a certified “Energy Star” tankless heater can save the typical family $100 or more each year in utility expenses. Those annual savings can be compounded, the DOE adds, because a tankless heater typically lasts more than 20 years while a conventional heater usually lasts only 10 to 15 years.

Of course, there are drawbacks of going tankless, too. For example, the hot-water stream from a faucet that’s linked to a standard heater usually is much stronger, DOE says. And, you might have to buy two or more tankless units if you have a large family, a big house or if you like to run your dishwasher and clothes-washing machine at the same time – especially while also taking a hot shower.

REAL ESTATE TRIVIA: Owners of a typical single-family home spend $2,060 for their gas and electric bills, the Department of Energy says. About 29 percent is used for heating their home, and another 13 percent is used to heat their water.

DEAR MR. MYERS: We followed your advice and got pre-approved for a mortgage loan from our bank to buy our first home, but then decided we want to wait until November or December to buy because there aren’t any houses for sale today that we like. Will our pre-approval that we canceled hurt our credit score?

ANSWER: Yes, but not by much.

When you asked for pre-approval of the loan, the bank made a “hard” request for your credit history rather than a “soft” request that you might make to personally check your own credit record.

Hard requests by a bank or other lender are reported to the nation’s largest credit buraus, but soft requests that are made by you are not.

The hard inquiry that the lender made will stay on your record for about two years and likely reduce your credit score by five points or less, a spokesperson for credit-rating giant Fair Isaac Co. says. But your score will rebound sooner and grow even stronger if you keep paying your monthly bills on time.

DEAR MR. MYERS: My husband and I owned our house for 22 years, but he died in December. Now I’m thinking of buying a condominium in Florida or Texas, because a homeowners’ association would take care of mowing the lawn and doing other jobs that I’m too old to do. However, my friend says that I wouldn’t get any tax writeoffs for mortgage-interest payments if I bought a condo instead of a house. Is that true?

ANSWER: I am sorry for the loss of your husband. But with all due respect, it sounds as if your friend has been misinformed.

You can buy a condo or house and write off all your mortgage-interest payments on up to $750,000 in debt. A loan that size would allow you to buy a palatial condominium in most parts of either Florida or Texas.

Perhaps the confusion lies in the monthly dues that you would have to pay to the homeowners’ association itself. You can’t deduct the HOA dues if you live in the condo, but you may deduct them if you eventually rented the place to someone else.

David W. Myers’ column is distributed by Cowles Syndicate Inc.

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