First Time Home Buyer Tax Credit - Strategies for Last-Minute Home BuyersThere's still time to take advantage of the federal homebuyer tax credit, but you've got to act quickly and proactively. These 8 tips are designed to help you take advantage of the credit before time runs out. Tip #1 - Remember these dates April 30, 2010 is the date by which the sale of the home must be completed OR the date by which you must enter into a binding sales contract for a home's purchase. Although not specifically defined in the tax credit law, in the real estate world a binding contract is generally considered a written agreement that includes property identification, purchase price, terms and conditions of sale, and signatures of all buyers and sellers. A deposit held in escrow typically accompanies this agreement. June 30, 2010 is the date by which the purchase of the home must be completed or closed. Some members of the foreign service, military and intelligence communities may be eligible for a 1-year homebuyer tax credit extension. For those who qualify, the dates for entering into a binding contract and closing on a home purchase are April 30, 2011 and June 30, 2011 respectively.
The homebuyer tax credit differs depending on whether you're a first-time or repeat home buyer. A first time buyer is anyone who has not owned a home in the three years prior to the new home's purchase date. If that's the case for you, you're eligible for a tax credit equal to 10% of a home's selling price, not to exceed $8,000. However, if you've owned a home for five consecutive years out of the eight years prior to the new home's purchase date, and the home was a primary residence that you occupied, you're considered a repeat or move-up buyer. In this case you're eligible for a tax credit equal to 10% of a home's selling price, not to exceed $6,500. Tip # 3 - Get Pre-approved Pre-approval gives you a head start by identifying early on potential financial or credit issues that could hold up the mortgage approval process. Pre-approval also provides you with a workable budget so you don't waste time looking at homes you can't afford. If you aren't already pre-approved for a mortgage you should initiate this process right away. Tip #4 - Get out there and start looking If you plan on taking advantage of the tax credit you can't wait to start home shopping until the weather improves. You can't waste time looking for homes that don't offer all of your "must-haves" and all of the features you want, either. Start talking with a realtor and be firm about what you want in a home and realistic about you budget. That way your realtor can focus on showing you all of the available homes that meet your criteria.
Signing a binding sales contract is one step of a multi-step process. To obtain mortgage approval you'll need to get a home inspection, a current appraisal and homeowner's insurance. Know in advance who you'll contact for each of these steps and have back-ups in place in case your lender wants a second appraisal (which more lenders are requiring), or an insurer is unable to write a new policy on the property because of underwriting guidelines, moratoriums or some other reason. Tip # 6 - Understand contract terms and conditions Including contingencies in your contract can buy you some much needed time to arrange things like financing and home inspections or to sell your existing home. Some buyers are even including tax-credit contingencies that enable them to call the deal off if the credit isn't available for some reason. Contingencies give you a legal "out" in case something that's a deal-killer can't be worked out. However, you shouldn't use contingencies as a way to delay a pending sale unnecessarily. Also understand that if exercised, there may be insufficient time to find, negotiate and purchase another property. Always make sure what's written in your contract gives you the best chance of closing before the impending homebuyer tax credit deadline. Tip #7 - Steer clear of short sales The prices on short sale homes are enticing. But the delays that go along with these homes could cause you to miss the upcoming deadlines. Besides you and the seller, the seller's lender is involved in this type of transaction since selling the home for less than the amount owed on the mortgage is subject to the lender's approval. Delays of 5 to 10 days are fairly common while the seller's lender makes a decision on the final closing statement. If you are determined to pursue a short sale, get with your realtor and agree on a firm deadline for decisions. If decisions don't happen by then, realize it's time to move on. Tip #8 - Keep abreast of IRS changes To claim your federal home buying tax credit you'll need to follow the instructions for completing a new form, Form 5405. |
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