End looms for homebuyer tax credit
The spring rush is upon us, just in time for buyers to lock in interest rates before they're expected to rise.
Posted by Mai Ling at MSN Real Estate on Wednesday, March 17, 2010 12:21 PM
Go ahead and blame the late winter storms if you've let the April 30 deadline for the homebuyer 
Back in November when the tax credit was extended just before it was set to expire, buyers-to-be were probably eagerly awaiting the chance to shop for homes in sunny spring rather than in the chill of winter.
But Move.com warns that you had better be even further along in the process than that if you want to qualify for the credit, which requires buyers to be in contract for a home by the end of April, and for the deal to close by June 30.
The first step is to get pre-qualified for a loan -- there's little time to be looking at homes you can't afford if you find out later they're out of your price range.
And unfortunately, that alone isn't as easy as it used to be because of tighter lending standards, says The Wall Street Journal in an article outlining some of the problems for buyers who want to take advantage of the program, which offers up to $8,000 for first-time buyers and up to $6,500 for move-up buyers:
To qualify for a mortgage, you will need a job and at least two recent pay stubs. You also will be asked for two years of W-2 forms, proof of other assets and either your tax return or a form allowing the lender to get your return from the Internal Revenue Service. That means that items that reduce your adjusted gross income, like business expenses or IRA contributions, can reduce the loan for which you qualify.
That might sound basic to some of you, but with unemployment still hovering near 10%, it can be hard for some buyers -- such as freelance workers or those who make the majority of their pay in tips -- to prove their income.
And these tighter lending restrictions combined with an evolving real-estate market have created an even tougher situation for many homebuyers.
For instance, in the Sun Belt and other areas where home values have dropped tremendously, bidding warswith cash-rich investors have made it hard for traditional buyers to even find an affordable home, which also can make it a challenge for the agreed-upon price and the appraisal to meet.
If the appraisal comes in lower than the home price, somebody has to make up the difference for the buyer to qualify for the loan. And sometimes, the buyer will simply walk away from the deal, which this late in the taxcredit game can prevent you from qualifying for the program.
Another Wall Street Journal article also warns that buyers who don't find their dream home soon may be stuck with higher mortgage interest rates .
By the end of the year, rates could rise from their 5% range to close to 6%, some analysts say. From the article:
If rates do go up sharply, that will have a big effect on homebuyers. Richard Redmond, a mortgage adviser at All California Mortgage in Larkspur, Calif., offers the example of a couple with combined pretax income of $100,000 a year and debt obligations (excluding mortgage) of $500 a month. At a 5% mortgage rate, he figures, the couple could qualify for a loan big enough to buy a $590,000 house, assuming a 20% down payment. At 6%, that would fall to $540,000.
Of course, it's also been argued that the tax credit combined with low interest rates have artificially inflated home prices so that you could potentially get a better deal on a home after the tax credit expires.
But it's hard for some people to resist a tax credit, and if that's you, keep your eye on the calendar. Time's a tickin'.
