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Just 8 More Days Before The Federal Tax Credit Clock Strikes Midnight

April 23rd, 2010 categories: Buying

Only 8 More DaysThe federal tax credit program has been around so long that it’s almost hard to remember when first-time buyers didn’t have Uncle Sam’s handout waiting for them the moment escrow closed.

Yet, in just 8 days, the first-time and move-up buyer federal tax credits will fade into the sunset.

If you’re a prospective buyer who’s eligible for the credit, keep in mind that you don’t have to close escrow by next Friday in order to be eligible for the $8,000 or $6,500 credit.

You only have to be in contract by April 30. As long as you have a binding contract by 11:59 pm on the 30th, you can close escrow all the way up until the end of June and still claim your share.

For first-time buyers, the credit is for 10% of the purchase price, up to $8,000. For move-up buyers who have lived in their homes for at least 5 of the past 8 years, the credit is  also for 10% of the purchase price, but only up to $6,500. There are income and purchase price limits, too. For more specifics, contact your tax professional or visit the IRS web site.

So the real key between now and April 30 is getting yourself into contract. That means the buyer and seller have come to terms and the contract is fully accepted. It doesn’t mean submitting an offer by April 30. It must be a fully executed/rafitied contract.

Eight days doesn’t seem like a lot of time. But when a buyer finds the right home, things can happen quickly. Today, for example, I showed a client a home at 10:30 a.m. and by 8 p.m. they and the seller had entered into a binding contract.

So even if you look for a home on April 29, as long as the seller is able to respond quickly, you still have a chance.

If  you’re considering a bank-owned sale, you may already be too late. For most banks tend to negotiate verbally or with non-binding emails at first. Only after all terms have been ironed out do they usually sign the contract. I’ve seen it take 10 days to 2 weeks for the bank to sign a contract once everything had been negotiated verbally.

In other words, if you’re not already in a binding contract on an REO (bank-owned) purchase, there’s a much smaller chance that the bank will actually sign your offer by Apr. 30.

Short sales, on the other hand, are a different story. Since the purchase contract is only between the buyer and seller, as long as both parties sign the contract before April turns to May, eligible buyers stand to get the tax credit as long as they can close escrow by June 30.

Though, on a short sale, closing escrow in two months may be wishful thinking. It can happen, but only if the seller’s lender approves the short sale in that first month.

Of course, if you’re already in contract on a short sale, and it’s approved by the end of May, there’s a pretty good chance that you can close by the end of June and still get the credit.

In any event, this next week is bound to be a pretty hectic week for real estate negotiations, as buyer scamper to get into contract, especially where there’s a traditional equity seller.

Time is definitely ticking. But as Yogi Berra once said: “It’s not over ’til it’s over.”

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This entry was posted on Friday, April 23rd, 2010 at 12:43 am and is filed under Buying. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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