I don't think lots of buyers know that the First Time Home Buyer Tax Credit EXPIRES November 30, 2009. If your purchase isn't closed by that date, you are out of luck, do not pass go, and certainly do not collect the $8,000 tax credit the federal government is handing out to savvy first time home buyers.
What does that mean? Well, let's work backwards on the time line and make a few assumptions:
- The offer date is NOT the critical date. The ratification date, the date the contract is accepted, is the date from which all critical next steps are measured;
- Initial offers, especially in this market, where buyers want to offer well below the list price, usually require negotiation, which can take one to four weeks;
- After the offer is accepted, the transaction must typically "clear" some critical contingencies, including (i) financing; (ii) inspection; and (iii) appraisal. ANY ONE OR MORE OF THESE CONTINGENCIES MAY HAVE TO BE NEGOTIATED, WHICH WILL ADD ADDITIONAL TIME TO THE CLOSING TIME LINE;
- The stupid Home Valuation Code of Conduct ("HVCC") will continue to wreak havoc with Fannie and Freddie insured loans;
- Lots of first time buyers will be using FHA financing, because it requires only 3.5% of the purchase price as down payment and has more generous credit score requirements, meaning your credit can be less than stellar;
- Other government loans that permit 100% financing, such as USDA and Veterans Administration ("VA") loans, will have even more onerous paperwork and "processing" requirements; and
- Frankly, even conventional financing - 20% down or more - is taking longer because of the HVCC and because of loan officer workloads with both sales and refinances.
SO, I think the lesson is, thirty (30) days from contract to closing in this environment is EXTREMELY ambitious, in light of the factors above. I think even sixty (60) days may be ambitious. I would not want to be the buyer who closed December 1, 2009 and essentially gave away $8,000 dollars. So I advise first time home buyers to give themselves at least ninety (90) days to close a deal.
And guess what that means? If you buy my analysis, you need to be making an offer by August 30, 2009. That's six weeks away. That seems to come as a shocker to lots of people, who think they have all the time in the world.
Don't miss the boat. Buyers right now don't seem to have any sense of urgency, and I feel like for many it's because they do not understand this time line. I'd sure as heck be kicking myself if I missed out on $8,000 because I waited too long to move on a house that I knew I wanted to buy. Time IS running out. Good luck, and may the force be with you!