Is it too late for the 8 ?

The American Recovery and Reinvestment Act of 2009 provided for an $8,000 federal tax credit for first time home buyers (for purposes of this credit, a first time home buyer is defined as anyone who has not owned a home for the past three years).  The home has to close escrow before the last day of November 2009. The actual tax credit is equal to 10% of the purchase price with a maximum of $8,000 (which means the home has to have a sell price greater than or equal to $80,000 in value to claim the full credit). There’s been no definitive signal that this program will be extended. So, if you’re just hearing about this, have you waited too long? Possibly, it depends on which home you attempt to buy.

The typical escrow period for the purchase of a home in Southern California is thirty days for a sale between homeowners and buyers. It can be accomplished quicker if the lender, inspectors, title company and escrow company are all pulling together to make it happen. So you may be saying to yourself, it’s still September, I have plenty of time to take advantage of the tax credit. You may, but here are some thinks that might extend the escrow:

· You have to find a home that you want to buy and at a price you want to buy it for.

· The seller has to be willing and able to close within your requested escrow period (before November 30^th). Based upon my experience: here are things from the seller’s side that can affect your escrow period:

o     The Seller may need to find a new home (there are ways to negotiate a closing for a lease back-but the seller needs to be agreeable to this solution).

o     Who owns the home plays a key part in how long it will take to close.

§ If it’s the traditional Seller/Buyer sale it may still be possible to close by November 30^th but no one can “fumble the ball”. If the Buyer is using FHA or VA financing expect an additional one to three weeks depending on your lenders familiarity with the process for these types of loans. Still, a traditional owner sale still provides you the best chance of closing by November 30^th.

§ If it’s a bank-owned sale (REO), escrow closing can be accomplished within the same time period as a traditional sale but, it’s been my experience that it normally will take forty-five to sixty days. The seller is the bank in this instance.  If you go into contract within the next couple of weeks, you may be able to make this type of sale work for you.

§ If it’s a short sale and the package (sell price and conditions) has been approved by the bank (or banks), you should be able to complete the sale within forty-five to ninety days (again all parties need to cooperate). Everything would have to work perfectly for this to happen.

§ If it’s a short sale and the sell price has not been agreed upon by the bank, the escrow period could run three to four months depending on level of cooperation between the seller, bank and seller’s agent. This type of sale will probably not allow you time to take advantage of your tax credit.

Because of the remaining time constraint to take advantage of the tax credit, I’ve noticed a rush by buyers to put in offers for owner occupied and bank-owned properties. Our clients have been experiencing multiple-offer situations for these homes. This sounds like a good deal for the seller, but the tendency in a multiple offer situation is to drive up the selling price on the home. A problem can occur if the property does not appraise for enough to cover the mortgage. In this situation, the buyer would either have to put in more out-of-pocket monies to cover the difference between the appraised value and sell price or the buyer and seller would have to negotiate a new lower sell price. Either option takes time. If the buyer is willing to spend over appraised value for a home that they really want, the question becomes: Is the amount overpaid worth it in order to secure your tax credit?

Mack’s Advice:

There are two things that you can try that will improve your chances of closing before the end of November.

1.    If you have been on the losing end of multiple offer situations, there is a classification of home currently on the market that does not appear to be pulling in multiple offers. Traditional or bank-owned, tenant occupied homes.  A tenant occupied home is a little bit more complicated than a traditional sale (because the buyer is obligated to allow the tenant to live out their lease) and they are normally more difficult to view (you need to give the tenant notice to show). Because of these obstacles, many buyers shy away from considering them. In most cases, the sellers can accommodate a quick close (unless they are doing a 1031 exchange which is normally stated upfront)

2.    Some buyers I know have found good success using private banks and credit unions for their loans. In most cases, larger lending institutions have more departments that need to be involved. It’s been my experience that the smaller private lending institutions are usually more willing to expedite the process.

Finding a good agent, lender and escrow company are all your best bets for closing within this shortened time-line. With any luck, either the tax rebate will be extended and/or re-written to benefit all buyers.- Mack