Running up credit card bills before closing can jeopardize that $8,000 tax break you were hoping would make you a first-time home buyer.
The credit, included the American Recovery and Reinvestment Act, was initially scheduled to expire Nov. 30, 2009, but will now extend to homebuyers who sign a contract by April 2010. Also new to the act are conditions that expand the credit to previous homeowners and those formerly outside the income requirements.
The expansion of the act was aimed to boost the housing market, and it appears to be working. According the National Association of Realtors, 47 percent of all Americans who bought a home this year had not owned one in the past three years. That number is up from 41 percent of sales in 2008 and 36 percent in 2006.
There are three new provisions in the act, according to an IRS press release:
- Future first-time homebuyers have more time to shop. Anyone looking to use the credit must enter a contract to buy a principal residence on or before April 30, 2010, and close on the home by June 30, 2010. A principal residence is the primary location that a person occupies. First-time buyers who haven’t owned a home in the past three years can qualify for the $8,000 credit. Homes costing more than of $800,000 do not qualify.
- Current homeowners can upgrade if they want. Those who have owned and lived in a single residence for at least five years out of the past eight can receive a credit of up to $6,500.
- More people qualify for the credit. Single buyers who earn up to $125,000 and married couples who earn up to $225,000 are eligible for the full credit. The credit phases out at higher income levels, disappearing at $145,000 for single buyers and at $245,000 for couples.
When faced with meeting all closing requirements by a very clear deadline, every detail must be checked as you could lose the credit if the deadline is missed. Here are four ways to help make sure you close on time:
1. Don’t supersize your credit card bill.
Sure, you need the new drapes, and you can’t wait to trade up from the Cheetos-stained recliner. But don’t do it just before closing. This is also not the time to miss a bill payment. In this tight credit market, underwriters are rechecking credit reports right up until closing to make sure the buyer still qualifies for the loan.
“Don’t rock the boat,” advises Brendon DeSimone, a Realtor for Paragon Real Estate Group in San Francisco. “Don’t make drastic changes like opening up or changing credit cards, buying a car or a computer. Banks are requiring more data. They may also want to see a final pay stub and recheck your employment status in this market.” Adding new debt, including co-signing for a loan, can throw off your debt-to-income ratio. Because it’s one of the qualifying ratios for a mortgage, that can derail your closing.
2. Don’t forget the holiday.
Buyers are facing lenders, inspectors, attorneys and title companies who are working with short staffs, reduced hours, closed offices and ballooning demand around Thanksgiving weekend, which ends the day before the deadline. Some municipalities have even scheduled a furlough day around the holiday to chip away at budget deficits.
Don’t underestimate the possible delays, says Brandon Green, principal broker for Keller Williams Capital Properties in Washington, D.C. “We had a case recently when an underwriter said, ‘I need a smoke detector on the wall.’ I said there are three on the ceiling and he said, ‘I want one on the wall.’ We went to Home Depot, bought a $20 smoke detector, stuck it on the wall and got the appraiser to come out and verify it, but that was a week delay.”
3. Make sure your documents are in order.
Don’t assume your agent or lawyer has everything covered. If you’re buying a foreclosure, for instance, check to make sure the trustee’s deed has been properly recorded by the foreclosing attorney, says Sam DeBord, broker-Realtor with Seattlehome.com.
“The buyer needs to be pressuring the realtor to make sure those things get done or do it themselves,” says DeBord.
And if your annual percentage rate has changed more than one-eighth of a percent from the original truth-in-lending statement, the amount must be re-disclosed, under the change instituted in July under the Mortgage Disclosure Improvement Act. A re-disclosure puts closing off a minimum of three days by law.
“Follow up with your lender to check your APR at least a week before closing,” DeBord says. “Also make sure you have a copy of your appraisal at least three days before closing. A lender has to have proof that they gave it to you in that amount of time.”
4. Do a last walk-through just before closing.
Check for surprises such as sellers taking the appliances or installed cabinets that your contract says belong to you. Also make sure agreed-upon repairs were completed and check for new damage that may affect your desire to close.
So what will happen if a last-minute problem is discovered with $8,000 in the balance? “People are going to lose out,” Green said. “There are going to be some casualties.”