Deadline looms for homebuyer credit

By MarketWatch

Tired of paying rent and enticed by a first-time-homebuyer tax credit, 25-year-old Garrett Rebel began his search for a home in August, scouring the suburbs of Dallas for a house to meet his current and future needs. Yet he's already running out of time.

The federal tax credit for first-time buyers is "a huge motivator" for Rebel, and he may end his search if the credit's Nov. 30 deadline arrives and he still hasn't closed on a deal.

Timing is everything for many first-time buyers today. For those who purchase a home this year, the tax credit is for 10% of the purchase price, up to $8,000. Those who have owned a home in the past three years aren't eligible. Buyers also have to meet eligibility requirements regarding income; the current credit begins to phase out for singles who make more than $75,000 and couples who make more than $150,000.

Unless Congress extends it, the credit will expire Nov. 30.

"We are seeing an increase in buyers wanting to get closed prior to the tax credit closing deadline," said real-estate agent Amy Downs, who represents Rebel. "We are seeing an increase in sellers wanting to get their homes on the market and closed by this deadline. I feel that if we can get the homes priced accordingly and a strong offer by mid-October, we can beat this deadline with a reputable lender working the buy side."

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Beat the clock: Close before Nov. 20

Some real-estate agents and mortgage brokers are recommending that first-time buyers close no later than the week before Thanksgiving to ensure that no holiday-related office closings or abbreviated schedules interfere with the process. That means finalizing a purchase on or before Nov. 20. In fact, to make sure you can take advantage of the credit, it's probably best to go under contract no later than the second week of October, said Jim Sahnger, a mortgage planner with Palm Beach Financial Network in Florida.

The National Association of Realtors reports that it's taking about two months to complete a home sale in the current market, as lenders scrutinize borrowers' paperwork and appraisal issues pop up. In short, first-time buyers probably need to select a property and make an offer in the next few days if they want to ensure that any snags are resolved by the credit deadline.

But rushing to meet that deadline is a double-edged sword. The purchase of a home -- let alone your first one -- isn't a decision that should be taken lightly.

"For anyone, the decision to buy a house has to be a right one," Sahnger said. "While the $8,000 can be great to have, I wouldn't let that force you into a decision. But if there is something that works and you want to take advantage of the credit, you can't afford to delay the decision."

Gambling on a credit extension

For buyers who don't make the deadline, there is a chance the credit will be extended. At least 20 bills have been drafted in Congress regarding the credit; one-third of them have been introduced recently, said Lucien Salvant, the managing director of public affairs for the Realtors group.

Some proposals not only would extend the first-time-buyer credit into next year but also would expand it to include all homebuyers, remove income restrictions and raise the maximum amount of the credit, up to $15,000.

Including all buyers could create a bigger ripple effect as more Americans spend money on the many items and services associated with making a move, said Jerry Howard, the president and CEO of the National Association of Home Builders. The homebuilders and Realtors groups have been lobbying heavily for the extension.

"The first priority is going to be to renew the $8,000 credit, but we have some good arguments for expanding it," said Jerry Giovaniello, the senior vice president and chief lobbyist for the Realtors group. He argues that the credit doesn't cost much but has a huge impact.

If you're a first-time buyer, however, waiting is a gamble.

"What you have in front of you now is a tax credit. After that, you don't know what you have," Salvant said. "This thing can go all different kinds of ways."

How to find a home quickly

According to Realtor.com, first-time buyers search 12 weeks, on average, before they find a home. But there are ways for buyers to expedite their journey to closing:

• Sign up for automatic alerts for properties that fit your criteria. Many buyers start their searches online, and e-mail services exist that alert you when properties that meet your criteria are added, Realtor.com points out. If you're working with a real-estate agent, he or she also may be able to register you for automatic alerts when homes are listed. But make sure the information you receive is fresh; you don't have time to look at unavailable homes.
• Do all you can to ensure a smooth mortgage process. Collect pay stubs, bank statements and tax returns to prove income. Get prequalified. And while your loan is in process, don't make major purchases on credit cards -- that could delay closing, said Julie Reynolds, a spokeswoman for Realtor.com.
• Prepare for closing costs early. Get your insurance company and, if applicable, your homeowners association, to forward a cost estimate to the escrow company early, Realtor.com recommends. In many states, closing costs must be paid -- in cash -- at closing.

There are only so many buyers

NAR estimates that about 1.8 million to 2 million first-time buyers will take advantage of the tax credit this year and says that roughly 350,000 sales wouldn't have taken place without the credit. But the effectiveness of the credit will eventually peter out because there are only so many potential first-time buyers, said Richard Green, the director of the Lusk Center for Real Estate at the University of Southern California. He said that the credit is likely getting many first-time buyers to make their purchases six months to a year earlier than they would have otherwise.

"In terms of how effective it is, I don't think it does any harm at this point. It's pushing sales forward that would have happened anyway," he said. "You're giving money to people who were going to buy anyway."

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Increasing the credit amount to $15,000 and expanding it to everyone, however, could end up translating to higher home prices, Green said.

Still, there is growing support on Capitol Hill for a credit extension. Washington Research Group, a unit of securities firm Concept Capital, recently put the chance of extension at 60%.

Yet with Congress currently focusing on other issues and concerns about the country's rising deficit, some wonder how difficult it will be for housing to garner attention anytime soon. "All eyes are on health care," said Bruce Hahn, the president of the American Homeowners Grassroots Alliance.

This article was reported by Amy Hoak for MarketWatch.