Don’t miss the $8,000 home buyer tax credit expiring November 30!
This has been a hectic couple of weeks in San Diego. First-time home buyers are scrambling to take advantage of the first-time home buyer tax credit that is scheduled to expire on November 30, 2009. But time is getting tight. For all practical purposes, this means that anyone who wants to take advantage of the tax credit has only about a month to find a home.
Under ideal circumstances it takes a minimum of 30 to 45 days to buy a home in San Diego, CA. This includes the time required to identify the property (a week to 10 days would be fortunate), 5 days to negotiate offers and counter offers, followed by a 30-day escrow period. Delays have become very common at the end of the purchase transaction. These “Closing Delays” are typically the result of last-minute file reviews and bottlenecks with the Buyer’s mortgage lender. There can be other reasons, but delays with the mortgage loan are the most common.
Banks have become more thorough, to the point of knit-picking, with their underwriting review processes. It is completely understandable that the banks would want complete documentation of the borrower’s credit scores, bank accounts, account activity, debt payments, and the like. But it is amazing and discouraging when requests for additional information arrive just days prior to the planned date of Close of Escrow. The home Seller has moved out of the house, the Buyer’s moving van is out front, and a request comes in from the lender for Buyer’s most recent pay stubs or savings account statements. Even a simple request means a delay of a day or more before the bank sends loan documents to escrow.
If the home mortgage loan is not funded by the date of Close of Escrow that is specified in the purchase agreement, then the home buyer is technically in breach of contract. The standard California Residential Purchase Agreement allows the seller to give the buyer a written “Notice to Perform.” The recipient of a written Notice to Perform will then have 24-hours (or some other amount of time upon agreement), to “cure” their breach of contract. If there is no cure in the allotted time, then the Seller can cancel the purchase agreement. The Buyer’s good faith deposit becomes liquidated damages payable to the Seller.
Cancellation of a purchase agreement by a home seller is a worst-case scenario for a home buyer. Fortunately, most people who list their homes for sale in San Diego really do want to sell their property, not cancel a contract. So the Buyer’s Agent should notify the Seller’s Agent (Listing Agent) immediately at the first sign of delay of a mortgage loan. Even before trouble sets in, the Seller and the Listing Agent should be told that the Buyer will work diligently, but that delays related to banks and loan documents are common. Don’t assume that all home sellers and listing agents will automatically expect delays and be understanding when delays happen. A good Buyer’s Agent needs to work hard to make sure that everyone is on the same page.
To plan ahead and help our clients avoid delays with the mortgage loan at the end of the home buying transaction, we have a strategy. First, whichever San Diego mortgage lender our clients decide to use, we advise our clients to provide their lender with complete documentation as early as possible. The lender should have everything they need for loan approval, other than a property address. Then, when a property is identified, the lender should be immediately notified to begin loan processing and to order the appraisal.
Missing documents should be returned by the buyer within 24 hours after the lender’s request. I recently had a Buyer/Client tell me on day 14 of a 30-day escrow that the bank had requested a few more documents. It was Wednesday, and the client said she’d get the documents to the bank the next week; Bad idea. Delays with providing requested information will exasperate delays with processing, as inevitably the file will become buried on the loan underwriter’s desk after only a day or two of inaction. If the bank asks for documents, provide them right away.
Loan documents should be requested about a week before the scheduled close of escrow. If loan documents haven’t arrived 48 hours prior to close of escrow, expect delay with close of escrow. Loan documents are prepared by the bank and sent to the escrow company. The escrow company spends a day printing and organizing the loan documents and remaining escrow paperwork. The Buyer then goes to the escrow company office and signs the loan and escrow documents. The loan documents are then sent back to the bank, and the bank processor orders the loan to be funded. When the loan is funded, the Title Company is instructed to record the new title. Recording of property purchases at the San Diego County Recorder’s Office only happens once a day on most days, at 8:00am. So loans that are funded at noon won’t record and close escrow until the next day. All of this takes time, so it ideal to have the loan documents at escrow 5 to 7 days prior to the closing date.
We’ll often request a 45-day escrow in the purchase agreement, and then verbally inform the Buyer’s lender that the parties need to complete a 30-day escrow. The bank, of course, will have a copy of the purchase agreement, so we don’t mislead the bank in any way. But shooting for an early closing date will give some padding at the end of the transaction. That way if there are delays with the home loan there is no breach of contract by the home buyer.
The tax credit has done a great job of driving the real estate market in the Hemet – San Jacinto Valley. Buyers need to hurry though, because if they are not IN ESCROW in the next 30 days I don’t think they will be able to close on time – unless of course if there is an extension.
The entire home buying process has become such a headache over the last year. I do a lot of short sales in Las Vegas. When I get an approval I need to have the deal close on time because my written approval is only good for so long. I just had a deal that was approved by the lender on a short sale, with approval through August 20th. Today is now September 17th and we have not closed. The lender for the buyer did not get us docs until this week. I understand there can be delays, but the lenders need to get it together!
Buyers are going to need to concentrate on the bank owned homes if they are hoping for the tax credit. I am hoping they extend the tax credit to help people clear out all the inventory we have here.
The foot-dragging by the banks as they delay funding loans definitely seems unprofessional at a minimum, almost to the point of seeming suspicious. Sometimes it feels like the banks would really prefer not to give the loans. But they eventually concede.
Hopefully the First Time Home Buyer tax credit will receive an extension but potential Buyers should not count on it given the current mood of the country and our government’s preoccupation with health care.
Unfortunately, the recent drop in prices is primarily due to foreclosures, which means that someone had to lose their home for it to become affordable for someone else. And until foreclosures slow down, prices won’t stabilize. You can take advantage of foreclosed homes for sale by getting maximum bargains on your dream home. Foreclosures are an absolute steal at this time and the choice foreclosed homes are selling almost as quickly as they come on the market. There is a tool which finds best places to invest, identifies properties with the most value & will let you know if the property is really worth buying. Make appropriate use of these tools before final analysis as the tag price of the foreclosed homes for sale is still way less than the amount it could have been.
I surely hope the loans are being handed to qualified applicants and that the applicants are being screened appropriately to make sure they can afford to pay back these loans. This is how the US wound up in the last real estate crash! Lets not let this happen again.
I agree that it is important to have reasonable standards for borrowers. Loan guidelines are actually very strict right now. There are a lot of self-employed people, including Realtors, who cannot obtain mortgage loans in this environment. Hopefully HUD and others can set up an effective screening policy that is realistic about the creditworthiness of America’s entrepreneurs.
This credit is going to end soon, but there are a lot of powerful voices pushing for a new tax credit when this one expires. It’s going to be interesting to see how that goes, and if there is a new credit, it should definitely be for all buyers and not just first timers. Great read! Maybe your next blog can be on the debate of whether a new credit will be good for the economy or not? 🙂
Thanks Lisa. I agree that it would be a very good idea to extend the tax credit past November 30. The market has momentum, but little drops like home sales nationwide in August would indicate that there is no threat of overheating. Getting the housing market on stable ground should continue to be a high priority of the Obama Administration.
Since this tax credit has done such good in many states, let’s hope Uncle Sam renews it!!
Jeff Ragan
A tax break would be good to continue the growth we have had lately. I hope that it is put forth and passed. But there is so much going on (Health care) that I wonder if it would get the attention it would deserve.
Thanks for sharing this information. It makes interesting read and quite informative. I look forward to read more of your writings.
What about VA mortgages? Are they affected by the current tax credit? It seems in order to stimulate the real estate market again, the government should definitely make it a priority to keep credits in place and encourage new home buyers.
thanks for the sharing. this is a solutions to extend the tax credit the end of the month. I agree that credit is going to end soon, and there are a lot of powerful voices pushing for a new tax credit when this one expires. it is good advice for me!
There are a lot of self-employed people, including Realtors, who cannot obtain mortgage loans in this environment. Hopefully HUD and others can set up an effective screening policy.
potential Buyers should not count on it given the current mood of the country and our government’s preoccupation…Getting the housing market on stable ground should continue to be a high priority
– Jovel