You still have time to take advantage of the 1st Time Homebuyers Tax Credit, but you’ve got to act quickly and strategically. You must close escrow by November 30, 2009, which means you really should enter into contract by October 15. (The government could extend this deadline, but you can’t count on it.) There’s a lot of bidding competition right now, and issues can come up during escrow, so you’ll want to give yourself as much time as possible. Even if the Tax Credit isn’t your main motivation, you can still cut down on lengthy searches and write fewer offers by following these strategic steps. Many of these you’ll do upfront, even before you start your actual search. It’s a lot like a great paint job—the best results come from the most diligent prep work.
1. YOUR LOAN—BE PREPARED. Clearly identify your loan amount, loan program, and source of any gift funds upfront. Switching programs midstream can cost you time and might result in the loss of an offer. You’ll need a preapproval from a direct lender, and one who is available to write new preapprovals as required (on weekends, too). Once you’ve found the lender you want to work with, stick with them. Loyalty is mutually beneficial. Be prepared to write an earnest money check for 1% of the purchase price –or more. You may also be required to put this money into escrow upon seller acceptance—even before the short sale is approved by the bank. Even if you’re paying cash, plan on showing proof of funds.
2. YOUR LOAN—STAY PREPARED. Keep all your paperwork close at hand and updated, including your FICO scores and proof of funds to close (down payment and closing costs). Scan it and have it ready, so if the seller requires you to prequalify with their lender too, you will have everything ready. They may also ask you for DU approval (desktop underwriting).Don't buy anything that will affect your credit score, especially big ticket items like furniture or a car. Your credit score may be rechecked up until the day of closing and a new purchase may affect your ability to get a loan.
3. YOUR SEARCH—BE $$$ REALISTIC. Have your REALTOR® pull the solds for the past 3 months in your desired neighborhood and pay particular attention to the past 30 days. If prices are on the rise, make sure this is still a realistic area for you. Keep in mind that most people are looking for the same thing—the nicest house in the best neighborhood for the lowest price. You’ve got competition!
4. YOUR SEARCH—TARGET IT. Zero in on just a few favorite neighborhoods. This is not the market to be looking all over the entire county. If prices are rising in your first choice community, switch quickly. Have a backup area in mind from the beginning.
5. YOUR SEARCH—REALLY KNOW WHAT YOU WANT. Sit down with all decision makers involved and have a heart-to-heart about which amenities and features you really need and want, and which you can live without. Don’t let your emotions get in the way. Be logical when you make your wish list; because as soon as you start looking at homes, your emotions will kick into high gear.
6. YOUR REALTOR®-- PUT THEM TO WORK. Full time professional REALTORS® love what they do, and will be your greatest asset in this turbulent market. Their connections, perseverance, hard work and loyalty will get you the results you want. Be prepared to sign a Buyer Broker Agreement, which spells out the specific duties of both parties. if you’re not willing to make a commitment, the best agents won’t take time away from their loyal clients to help you.
7. THINK OUTSIDE THE BOX. Do you really have to have 2 full baths? There’s less competition for homes with 1 bath, and you could add another one later, or get a rehab loan upfront. Or how about a 2-on-1 instead of a single family home? Extra space or rental income can be a great asset.
8. LOOK AT THE CONTINGENT/PENDING LISTINGS. Another reason for having a good REALTOR® at your side. A very high percentage of escrows do not close with the original buyer, so it pays to track these homes and put in a competitive backup offer . In San Diego we now have a “contingent” status, where a short sale seller has accepted the offer but the bank has not yet approved it. Many of these first-position buyers are putting in offers on several homes at once, so look for homes which have been in contingent/pending for at least 1 month or more. Chances are that many short sale listings will need a new buyer, and when they do, they will need one quickly.
9. LOOK FOR HOMES NOT ON THE MARKET YET. Your REALTOR® can help you here, too, by checking the recent NOD (notice of default) filings in your targeted neighborhoods. Another possibility—homes which are going to auction within the next few weeks. Many of these would have made great short sales but the seller stayed in denial too long, or perhaps didn’t’ get the loan mod they were seeking. If your agent can get a short sale listing from the seller, and you write a strong offer and present it to the bank, you have a shot at getting the house, and helping the seller salvage their credit.
10. PUT IN OFFERS ON BOTH SHORT SALES AND REOs (and regular sales). You never know which will pop first and it’s best to cover all your bases. The advantage with regular and REO sales is simple—you’re dealing with the owner (private seller or bank). The decision can be made relatively quickly, so you can get into escrow quickly. However, everyone else knows this too so the competition is fierce, with dozens of offers on almost every decent home. Short sales can take a long time and there’s a good chance the approval won’t come before your deadline. The good news is you still can get some tax benefits from selected home purchase related fees. If it’s the house you really want, in the long run you’ll be doing well.
If the First Time Homebuyers Tax Credit is your main goal, make sure you know all the basics, plus the IRS rules. http://www.irs.gov/newsroom/article/0,,id=204671,00.html. For more specifics on the difference between REOs and short sales, see my blog at http://activerain.com/blogs/barbfischer
Happy house-hunting to you!
10 Strategic Quick Escrow Tips ©2009 Barb Fischer San Diego