mortgage

Last-minute homebuyer tax credit tips

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Highlights
  • The binding contract and closing deadlines are April 30, and June 30, 2010.
  • Buyers should be allowed extra time for a variety of lender-related delays.
  • Buyers who want to claim the credit should be wary of short sales.

The clock is ticking on the federal homebuyer tax credit.

Homebuyers still have time to buy a home and meet the deadlines, but they will need to act soon and be proactive throughout the transaction.

The homebuyer tax credit is worth 10 percent of the home's sale price, up to $8,000 for buyers who haven't owned a home in the previous three years and $6,500 for buyers who have owned and occupied a principal residence for at least five consecutive years during the eight-year period that ends on the day the new home is purchased.

Here are some tips for last-minute buyers:

Tip: The buyer must enter into a binding contract to purchase the home on or before April 30, 2010. The term "binding contract" isn't defined in the homebuyer tax credit law and may be subject to interpretation. Generally, the term refers to an agreement that's signed by both parties and has a deposit in escrow, according to Randi Bennett, an escrow officer at First Centennial Title Co. of Nevada in Reno.

Tip: The purchase must close within 60 days after the binding contract deadline. In this context, that means June 30, 2010, not June 29, 2010, according to the Internal Revenue Service. The discrepancy between 60 calendar days and two months occurs due to a financial fiction that every month equals 30 days.

Tip: Certain U.S. military, foreign service and intelligence service personnel have an extra year to claim the homebuyer tax credit. These buyers must enter into a binding contact on or before April 30, 2011, and close on or before June 30, 2011.

Tip: Buyers should be "upfront with their Realtor about their must-haves and their wish list," says Allyson Bernard, owner of Real Estate Professionals of Connecticut. Buyers who aren't realistic could find themselves up against the deadline with fewer houses from which to choose.

Tip: Harsh weather may be "a help or a hindrance," Bernard says. Buyers who are willing to trudge through snow to find a house may have an advantage over buyers who wait until the weather improves.

Tip: Contract contingencies allow buyers some "breathing room" to take care of big items like financing, inspections and the sale of their current home, Bernard says. But contingencies shouldn't be an excuse to delay once the deal is pending.

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"If you run into a problem and you no longer want to buy that house, it's great that you had those contingencies to protect you, but you may not have time to find another property," she says.

Tip: Anecdotal reports suggest that some buyers have included a tax-credit contingency in the purchase contract. Whether that's a necessary protection to make sure the deal closes on time depends on the situation and local practices. Either way, buyers should read the contract to make sure the closing will occur before the deadline.

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