The First Time Home Buyer Tax Credit deadline is quickly approaching. Those who signed contracts by April 30, 2010 have until June 30, 2010 to close on the deal in order to qualify for the tax credit. To recap, the First Time Home Buyer Tax Credit was initially extended in November 2009. At that time, the credit was also expanded for existing home owners as well. For first time home buyers the credit is $8,000 and for existing owners, buying new primary residences, the credit is $6,500.
Why Extend The Deadline?
Normally, two months is enough time to close on a contract. But with the volume of people who rushed to sign contracts by April 30th, it is becoming difficult for many to schedule closing dates before the June 30th deadline. From the Washington Post:
The National Association of Realtors said many home buyers will not be able to meet the June 30 closing deadline because of the surge in loan volume and delays related to home appraisals and short sales, transactions in which lenders allow struggling homeowners to sell their homes for less than they owe on them.
The association estimates that as many as 180,000 people who signed a contract by April 30 would not be able to meet the current closing deadline, said Lawrence Yun, the group’s chief economist. “Under normal market circumstances, most people would have been able to complete a deal in a two-month time span,” Yun said.
Closing on a home isn’t as simple as walking up to a cash register and making a payment. You have to line up a date, with a good block of time, for the attorneys to finalize the contract and the various transactions involved. I can’t speak for all states, but in NY this means getting together the seller’s attorney, buyer’s attorney, mortgage lender’s attorney, and the buyers and sellers all at one time and place. Since so many signed contracts before April 30th to get the credit, it is getting difficult to schedule parties to close. Add to that, mortgage lenders are now going through applications, paperwork, and appraisals with a fine tooth comb making sure everything is in order. Not that this is bad (that kind of due diligence could have changed our current economic climate if done a few years ago when the housing market was booming) but it is at the other extreme of a few years ago when mortgages were basically handed out en masse. Mortgage underwriters are making sure they don’t take on bad loans and are doing everything they can to justify their jobs, making the process to approve loans take longer. Also in demand are home appraisals and home insurance underwriting (some home insurers require a physical inspection of the home). All of this adds up to making it difficult for a home buyer to close before June 30th.
What’s Being Done
Senator Harry Reid recently proposed legislation that would extend the deadline, for those already in contract by April 30th, to September 30, 2010. The legislation is part of a larger tax bill that is being debated in Congress now.
My Take On Extending The Tax Credit
I argued in the past that the first time home buyer tax credit may not be as good as it sounds. I’m all for market prices dropping to reasonable levels and I think that the credit helped prop up prices which wasn’t beneficial for buyers. Still, the credit is out there, and if a person did everything they were supposed to do to earn the credit they shouldn’t be locked out of it because they weren’t able to close in time. The proposal wouldn’t open up the credit to new buyers, it just extends the deadline for those already in contract.
What do you think? Should the deadline for closing to qualify for the first time home buyer credit be extended?
Sources and further reading:
Bill would extend home buyers’ deadline for tax credit
UPDATE:Senate Votes To Defeat Attempt To End Debate On Tax, Benefit Bill
First-Time Homebuyer Tax-Credit May be Extended?
Will Congress Extend The June 30th Deadline To Close On Your Home And Receive Your Homebuyer Tax Credit?
{ 25 comments… read them below or add one }
I don’t have a huge issue with the extension of the credit as it isn’t allowing new people to take part, just ones that signed a sales contract before 4/30. I’m OK with people finalizing the credits for homes where they already thought they would receive the credit, but in the long run I don’t see how this credit is going to help anything. In my opinion it will do nothing more than artificially prop up the housing market – only to see things drop again once it is gone.
Agreed. It helps sellers hold prices and helps realtors, lenders, and everyone associated with housing. But I’d rather see the prices return to reasonable levels. Still, if you signed before April 30th I think you should be allowed to get the credit. If the credit weren’t in place then prices would probably be different. And the credit isn’t small change either!
I really dont think it’s that big of a deal to extend the law for the closing date at this point. The surge in volume was people rushing to make the cutoff and get 8k for free, now that that is over, sales volume has fallen. I say that they may as well extend the deadline, as people will most likely start to holler about it disappearing on them.
I think this credit was maybe an ok idea at best. It just shifted demand forward, and now that the credit is gone, housing starts are low and so is sales volume. I don’t really think the housing market is going to drop all that much – I think that’s mostly happened already. However, I could very well be wrong about that. Even so, in my area, this was never really a problem. No one took out outrageously expensive loans so prices here never went up — they never really went down either.
Prices certainly changed in our area. The house we are getting is only 5k more than what the owners paid for it about four years ago. Honestly, a few years ago we weren’t sure we’d be able to afford a house. We were thinking of perhaps a condo.
I would strongly discourage buying condos, as they are not only difficult to sale but you are not in control of the HOA fees being variable.
Absolutely. We sold our co-op and it was a PITA going through hoops to get the board to do their part. But a few years ago housing prices were such that buying a home for us wasn’t realistic. Now that prices have come down it makes more sense for us.
Interesting. I find it surely unwise to be thinking of an extension to this “credit”, when they still haven’t fixed the problem with the first round. For those of you not in the know, the first round all those taxpayers who qualified for the “Credit”, have to start paying it back.
Either change the ruling on that, or change the ruling on the credit ruling that followed.
Bruce,
Do you have a link that indicates the credit has to be paid back?
I haven’t seen anything about the credit having to be paid back.
The government needs to back off, supply and demand has worked just fine for all these years. $8,000 is a good amount of money, but if that is the deciding factor, for you to get a home. Then maybe you shouldn’t be buying one.
True supply and demand hasn’t been in play with housing for decades. Once you have government backed loans pure supply and demand is thrown out the window. If supply and demand were in place then homes would be much cheaper since we would probably need more money down in general.
Since the gov’t is offering the credit for those who signed contracts before 4/30, I don’t think it’s wrong to extend the closing dates. No new people can get in on the credit.
I actually think it was a good idea to boost sales, however, I don’t feel an extension should be granted if you were one of the ones who waited until April to find a home. However, many banks having short sales have made it quite impossible for prospective buyers by taking up to 5months to even give an okay to sale. In that case, its quite unfair. For example I put a contract on a home, and bank was not willing to assist with 6% closing help, which is allowable, and thus, I walked away right to the house next door. I closed in April, and how about the short sale previously contracted still has a for sale sign in the yard since January. Now the home I brought was not a short sale, and far better condition, but in cases like so when banks are not performing timely then certainly an extension is warranted. I just don’t believe until Sept is necessary.
To say someone waited until April to find a home sounds misleading. Sure, there was an incentive to sign before April 30th but it may have taken until April to find a home some people loved. We signed in April but it wasn’t like we decided to first find a home in April. That we were able to get in on the credit was some nice gravy but it wasn’t our only reason.
I have been hearing about big delays from banks and such. If a person signed a contract in good faith and has done what they can to close on time then they should be allowed an extension.
I don’t think that extending it will make any big difference at this point. How long can you keep extending it for really? You either have the money to purchase a home and found one that you liked with no issues or you didn’t.
I think the point is that due to the volume of people you signed contracts anticipating the credit, it’s become difficult to close. This doesn’t allow any new people to get the credit, just those who were in contract by April 30th.
I don’t think the government should be involved in giving out my tax money to help others get a home. Especially broke people who can’t afford the home in the first place.
$8000 really is not that much help in the first place. Our government is broke. They can’t afford to give out any money at this point.
That’s a bit of an extreme view, isn’t it? It’s not exactly fair to say that people who qualify for the credit are broke and couldn’t afford a home. I don’t think the credit’s purpose was to give housing to people who didn’t have enough money but rather to bolster sales and keep housing prices from falling further.
The $8k amount is relative to where a person is buying a home. For us it will help absorb closing costs (he credit is only $6500 for us) but for others, where housing is less expensive, the $8k can be a nice percentage of the cost of their home.
The comment was a bit extreme, but the intent I think is valid. When the government gives a tax credit, the money has to come from somewhere. The government’s income is our tax money. I would prefer they use my money to pay off debt instead of incurring more.
I agree that the credit is beneficial and some will receive the help with grace, but others will use it to get into a house before they are ready.
I can assure you NO ONE is getting a home before they are ready this go round. The criteria and the documentation, as well as verification is so tight and repeated, banks are under strict guideliness to assure persons buying a home ARE ready. They are not allowing the collapse that has happened and put this country in the condition its in will repeat itself. No one but God himself/herself can predict the unforeseen, i.e., reduction in income/divorce etc. So no, if you’re buying a home today a great percentage of mortgage companies are not putting themselves in the predicament of being shut down and fine. If you’re qualifying for a FHA which is government backed, they are going through your credibility with a fine tooth comb. You have to be credit worthy today to close, and they reverify 48-72 hrs prior to closing.
I found a home to purchase in August 2009 and signed a contract to purchase in November 2009. It was going to be a short sale if the bank allowed it. If the bank didn’t allow it, then the seller was going to make up the difference to my offering price (which was accepted by all parties involved). Due to “bank” issues, the home going through a sheriff’s sale, and other things that have arisen with the title company, the seller, etc., I still have not closed on this house. The title company has had to re-input the information into the bank’s system 3 times now. I do not think that this is my problem, as my realtor and I have done everything that has ever been asked of me. Therefore, I think I am MORE than entitled to this tax credit. At the end of August, it will be one year that we have been going through this process!!
To extend the credit is nothing more than buying votes. Home purchases would not increase. And the buyers and lenders knew the terms when they went into their deals. There is no reason to extend this date. If you agree, let your congressman know. Stop this money tap already.
The buyers and sellers knew the terms but they didn’t expect delays due to the volume of people needing closing dates towards the end of June.
I am not going to close in time and we did absolutely EVERYTHING in our power to expedite. Balls were dropped by our agent and the sellers agent. It was even a short sale! We will still close, but it won’t be in time and will be $8,000 which we were going to pour straight back into home improvements, into our local economy. Its a very sad day for me, I can’t demand the money from anyone even though it wasn’t our fault. There’s just nothing to be done about it. I found this site – searching for information about the extension. I’m praying that it passes. No one who did everything they could, should be punished.
My real estate agent just emailed me and said that congress has approved an extension to September 30 and that it should be coming out in the news shortly!
Actually the Senate has extended the tax credit closing deadline for buyers already under contract as of April 30, from June 30 to September 30. President Barack Obama recently signed into law a three-month extension on the deadline for home buyers to obtain a federal home buyer tax credit of up to 8,000.
Eligible taxpayers who contracted to buy a home, qualifying for the first-time home buyer tax credit before the end of April 2010, now have until September 30, 2010 to close the deal. To be eligible, buyers need to be in a binding contract that was in place by April 30.
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