As most of you know, the government is currently offering an $8,000 tax credit for first-time home buyers. You likely qualify for the credit if you haven’t owned a primary residence in the past three years, subject to income restrictions and other guidelines. In order to obtain the credit, you must close on the purchase of a principal residence on or before November 30, 2009. What that means is that the deadline for finding and purchasing a home is quickly approaching. If you intend to take advantage of this credit, I will outline the timelines to be aware of.
The big question everyone is likely asking is whether or not the government will choose to extend the credit. As of now, there are no bills that have passed that will extend the credit. However, there is discussion in Congress to potentially extend the credit. I am not going to pretend to know the politics behind the possible extension. I think there will be discussion in Congress about the health of the housing market. If it is looking better, it wouldn’t surprise me if the credit lapses. But if the market is showing continued signs of struggle in the fall, there may be willingness in Congress to extend it. Jay Thompson had an interesting post about a variety of bills making their way through Congress that may impact the credit. For the moment, we need to assume that it will expire on December 1, 2009. If that is the case, let’s take a look at the timelines you need to start worrying about. We’ll work backwards through the deadlines.
- Required Closing Date: On or before November 30, 2009
- King County Furlough Days: The county recorder’s office is closed Nov 25-27 for Thanksgiving and furlough. You CANNOT close a transaction during those dates. I would also avoid Nov 23-24 because of many vacations planned for the short work week. This means the latest you should close is November 20, 2009.
- Build in a buffer: Home purchases are notorious for delays at the end of the process, particular if lenders are backed up with other first-time home buyers trying to take advantage of the credit. I would build in another week as a safety buffer, putting the target closing date at November 13, 2009.
- Loan approval: We are being told by lenders to allow for 45+ days from contract acceptance to closing. This is longer than the typical 30 day closings we are accustomed to, but there are new mortgage regulations that are slowing things down. This means that you should be under contract to purchase a home by ~Oct 1, 2009.
- Search for a home: Searching for the perfect home can be time consuming. Some buyers find a home right away, others can take months. Our typical buyer searches for a home between 3-6 weeks before purchase, meaning that you should start your home search by the last couple weeks of August.
So, if you intend to take advantage of the $8,000 first-time buyer tax credit, I would definitely start your home search during the next few weeks in August. Also remember, you should not be in a rush to purchase a home just to meet the tax credit deadlines. If you don’t find the right home for you, then keep looking. You will be far happier in years to come if you purchase the right house for you, even though you missed out on the $8,000 tax credit.
Also, you need to be aware of delays if the property you are considering is a short sale. If the short sale approval process is not already well underway with the bank, it is unlikely that you will achieve any of these deadlines in time for the tax credit. Most short sales require something like 60-120 days for bank approval, plus another 30-45 days for you to close, so you should probably steer clear of short sales unless you have reliable information that bank approval is underway or imminent. This is a case where your real estate agent needs to dig for more information. The last thing you want is to miss out on the tax credit because of bank delays in a short sale that you cannot control.