Next hurdle for home buyers: Close by June 30 or lose tax credit
WASHINGTON — For thousands of home buyers who scrambled to meet the April 30 federal tax credit deadline for completed contracts, there's a new challenge looming: Can they nail down their mortgage financing and get to closing before the credit program terminates?
As a result of toughened underwriting standards, confusing new federal disclosure rules, appraisal regulations and other potential obstacles, meeting that deadline could be tougher than expected. In fact, mortgage industry leaders say some buyers who plan to pocket $8,000 or $6,500 tax credits won't get a cent because the clock will run out on them.
Under the extended first-time purchaser and repeat buyer credits — the former carries an $8,000 maximum amount, the latter $6,500 — all deals must close by June 30. This shouldn't be a problem for buyers who have already submitted their applications, or who apply and are approved in the coming week or two, lenders say.
But credit-seekers who assume that closings can be done in less than 45 days, as was often the case in recent years, can no longer count on that time frame. And if a borrower's needed turnaround time from application to settlement is 30 days or less, even the most resourceful lenders may not be able to deliver.
Based on discussions with national mortgage lenders, banks and mortgage brokers, all of whom are gearing up for a wave of applicants seeking to meet the June 30 deadline, here is a quick guide to what you need to know.
• Full documentation is now the rule. Assembling the docs you need can eat up a lot of time. Lenders want proof of everything — income, assets, tax returns, reserves, source of down payment cash, you name it. If part of your down payment is coming from family members or friends, a copy of a gift letter alone may not be enough. Underwriters may want to see hard proof that the gift-givers have the money to spare and aren't expecting it to be repaid as a short-term loan. Any omissions or seeming irregularities on income or assets will trigger red flags — and potentially add days to the process.
• Property types matter. If you're buying a condominium unit, make sure the building or project makes the grade under toughened Fannie Mae and Freddie Mac rules. If not, the lender may need to begin the time-consuming task of obtaining and reviewing the project's underlying legal documents, finances, unpaid homeowners association dues, investor percentage and other potential issues.
• Appraisals can be disasters. If an appraisal comes in low because distressed home sales and foreclosures were used as comps, it could scuttle financing or the sale. You may end up needing more than one appraisal.
• You're not alone. Anticipate massive traffic jams and regulation-driven snares at title, escrow and settlement firms in the weeks and days preceding the June 30 deadline. Peter Birnbaum, president and CEO of Attorneys' Title Guaranty Fund in Chicago, said new federal loan disclosure rules have the potential to delay closings nationwide. For example, if the final HUD-1 settlement sheet contains discrepancies from the good faith estimates issued by the lender upfront, expect delays, he said.
Jay Delmont, vice president of Freedmont Mortgage in Hunt Valley, Md., said home buyers who seriously want to close in time need to get the process moving with lenders immediately. The main concern, he said, "is that a lot of contracts are being written for a June 28 to June 30 settlement and people need to schedule a slot" with title or escrow agencies as early as possible.
Bear in mind, too, that the type of lender you choose could affect your ability to get to closing on time. Local brokers and small lenders typically cannot provide written guarantees that they can close loans by specific dates. But some mortgage banks and large national lenders — Wells Fargo, for example — are offering such commitments to credit-approved applicants. Greg Gwizdz, Wells Fargo executive vice president for mortgage operations, said the bank will pay one month of principal and interest if it fails to meet a closing deadline promise.
Ken Harney's e-mail address is firstname.lastname@example.org.