- The Washington Times - Friday, March 5, 2010

Moving from renting to owning and from owning one home to another involves following a timeline that must match the end of a lease or the coordination of moving dates. This year, movers who want to take advantage of the federal tax credit for homebuyers face a new constraint.

To qualify for the credit, buyers must have their contract signed and accepted by April 30. Settlement must take place by June 30.

The process of applying for a loan, finding a Realtor, identifying a property to buy, negotiating the offer and reaching settlement sometimes can take months. If they haven’t already started, potential buyers intending to meet the tax-credit deadline need to begin the buying process immediately.

To qualify for the first-time homebuyer tax credit, buyers must meet these criteria:

• Have not owned a primary residence in the previous three years.

• Single taxpayers may earn up to $145,000; married taxpayers may earn up to $245,000. The credit phases out between $125,000 and $145,000 for singles and between $225,000 and $245,000 for couples.

• The tax credit is equal to 10 percent of the purchase price, up to $8,000.

To qualify for the repeat-buyers tax credit, the income limits are the same, but the buyers must meet these criteria:

• Have owned and occupied their primary residence for five consecutive years within the past eight years.

• The tax credit is equal to 10 percent of the purchase price, up to $6,500

In both cases, the tax credit is available for purchases of property valued at less than $800,000.

March: Meet with a lender

“Honestly, in order to meet the deadline, buyers should be looking for a house right now,” says Kelvin Carvana, renovation and construction finance manager for Monarch Bank in the District. “The market will naturally pick up in March anyway, but with the tax credit incentive and all the snow causing cabin fever, the competition for homes will be massive.”

Mr. Carvana says potential buyers should go to a lender before they do any home shopping so they know what they can afford.

“A preapproval for a loan can be given within 20 minutes or so if you go to a lender with an automated underwriting system,” Mr. Carvana says. “If someone is approved for a loan, we can generate a preapproval letter, and they can begin shopping for a home with confidence.”

A preapproval letter states that the buyer is qualified for a mortgage loan at a specific amount. The actual loan approval will be based on both the buyer qualifications and the appraised value of the property being purchased.

Doug Benner, a senior loan officer with Embrace Home Loans in Rockville, Md., agrees that borrowers can get a preapproval for a mortgage the same day they apply, but he says consumers need to be aware that credit requirements have tightened.

“There have been significant changes even within the last 45 days that can eliminate the ability of some borrowers to qualify for a loan or that can reduce the amount of money they can borrow,” Mr. Benner says. “The first thing anyone should do, whether they are first-time buyers or repeat buyers, is to meet with a lender to discuss loan programs. Buyers need to be prepared with documentation for their income and assets. Borrowers today should expect to need cash for a down payment and closing costs, and they also need decent credit.”

Mr. Benner says even a minor credit issue can keep borrowers from qualifying for a loan or from getting the best interest rates.

“Meeting with a lender is crucial so you know if you can qualify and to know your price range,” Mr. Benner says. “For conventional loans, if you have a credit score under 720, you may find that you must pay a higher interest rate. And nearly every mortgage requires a maximum overall debt-to-income ratio [all minimum monthly payments compared with your gross monthly income] of 45 percent.”

Realtor Christine Rich, with Long & Foster Real Estate in Arlington, Va., says, “It is possible to buy a house in four to eight weeks, so buyers who start the process now should be able to beat the tax-credit deadline. The hardest part is the financing, so the first step for everyone [is] going to a lender.”

The time required from meeting with a lender to making an offer on a home varies from buyer to buyer.

“I’ve seen it done in one weekend and over the course of a year,” Mr. Carvana says.

Ms. Rich says buyers should be prepared for competition in the local housing market, particularly for single-family homes priced from the $500,000s to the $700,000s and town homes and condominiums priced less than $400,000.

“Buyers may need to give themselves time to find more than one home to buy, since we are often experiencing multiple offers for good-value homes, in good condition and with the right price,” Ms. Rich says.

One way buyers can speed the process of home shopping is to communicate with their Realtor.

“More than 85 percent of homebuyers shop online for a home, and they should continue to do that,” Ms. Rich says. “Their agent also can look online to identify properties which meet their needs. The important thing is for the buyers to express their priorities and discuss with their agent what they are looking for and what they can afford. For example, I recently worked with buyers who wanted to buy a condo on [Metro’s] Orange Line, but ended up buying one in Pentagon City because we found that it was equally convenient and yet they were able to buy a larger place.”

Ms. Rich says it could take four to six weeks, at least, to visit homes and neighborhoods to evaluate what types of homes fall within a buyer’s price range.

Repeat buyers may find it more difficult to meet the tax-credit deadline because they must not only arrange for financing for their purchase, but also sell their current home.

“Repeat buyers need to sell their home or have the ability to carry both mortgages on their current home and the one they want to buy,” Mr. Benner says. “It used to be that homeowners could take out a home-equity loan on their property up to 100 percent of the value, but now borrowers will be lucky to borrow 80 percent of the value. It makes sense to meet with a lender to discuss your options, especially if you want to beat the tax credit.”

Mr. Carvana says homeowners must make their contract for the new-home contingent on the sale of their home if they cannot qualify for both mortgages.

“Homeowners need to have their house on the market in the beginning of March to catch the beginning of the spring market,” Mr. Carvana says. “They need to have it in pristine shape and priced right if they want to sell it quickly.”

Ms. Rich says the tax credit may be more meaningful to home sellers as an incentive for their buyers.

“It may be difficult for repeat buyers who have yet to put their home on the market to sell the home and get another home under contract by April 30,” Ms. Rich says. “It could take one to three weeks, depending on the condition of the property, just to get it prepared for the market. Sellers may want to focus on getting their home under contract by April 30 rather than attempt to find another. They can also opt to price and position their home as a fixer-upper if they think they can sell it faster that way.”

April: Make an offer

Realtors anticipate that the spring housing market could be frenzied in April, which means buyers may find more competition for homes.

“You really need to make an offer by the absolute latest before the last week in April, preferably by April 15, because negotiations between the buyer and seller can typically take at least a week,” Ms. Rich says. “Buyers should also think about the fact that there are likely to be other buyers attempting to beat that tax-credit deadline, so they should make an offer as soon as they are ready.”

Mr. Carvana says buyers should have an offer in place by the second week of April.

May, June: Keep in touch

As soon as the ratified offer is in place, the lender must be notified so that the final loan approval can take place.

“Borrowers have two choices when they apply for a loan,” Mr. Carvana says. “They can submit all their documentation for underwriting when they first apply, subject only to the actual sales contract and appraisal. But most people choose option two, which is to wait until they have found a house and then to submit all the documents. Under the first scenario, it can take only as little as 10 days for final loan approval, but as the market picks up, it could take 30 days or longer to get the approval if the documentation has not been submitted.”

Borrowers sometimes choose to wait so they are not locked into a loan too early. Mr. Carvana says the lowest interest rates usually require the shortest lock-in period, so buyers prefer to find a home first.

Once a contract is in place, buyers need to stay in close contact with their Realtor and lender so that they follow through on issues such as a home inspection, buying homeowners insurance, meeting deadlines required by the contract, providing documents as needed by the lender and arranging for a mover.

One of the most important steps is to make sure the settlement date is confirmed to take place before June 30, the final day settlements can occur before the tax-credit deadline expires.

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