If you wrote a contract on a home before April 30 and hope to claim a homebuyer tax credit, your work has just begun.
That’s because you only have a few weeks — until June 30 — to close on the home if you want to snatch a credit of up to $8,000 (for first-time buyers) or up to $6,500 (for “move-up” buyers).
“No one wants to wait too long to close on their home, but sometimes problems occur,” says Christina Holmes, a real estate broker in Chattanooga, Tenn. “It’s best to resolve the issues sooner rather than later, so the transaction can be completed.”
Here are four tips from real estate pros on how to anticipate problems, work to correct them and complete the sale quickly:
1. Schedule an early closing
Set the closing date a few weeks ahead of any deadlines you may have, Holmes says. Buyers trying to purchase a home by June 30 should set the closing date for mid-June or earlier, she says.
“When you pick a date that’s a few weeks earlier than necessary, you’re still OK if something happens and you have to extend the deadline,” she says. “Also, try to pick an odd day of the week, maybe the middle of the week, when everyone is not as rushed.”
If buyers and sellers wait until the last Friday at the end of the month to close, they may have to wait for title companies and lenders who are swamped with other homeowner paperwork, increasing the chance that a mistake will be made, she says.
2. Clear the title quickly
In order to close the transaction, the buyer’s (or seller’s) real estate attorney will likely order a title report and conduct a title analysis, says Neil Garfinkel, a real estate attorney and partner with Abrams Garfinkel Margolis Bergson LLP in New York.
Make sure the title is ordered promptly, he says.
If the attorney finds that there’s an outstanding lien on the property, it would have to be cleared before the transaction could close. (A lien or encumbrance is a claim on the property that gives a debtor the right to be paid whenever that property is sold.)
“Assure that you can clear a problem in the time frame needed by ordering the title report upfront, right after (signing) the contract. It gives everyone lots of time to avoid surprises,” Garfinkel says.
A buyer may also order a survey of the home’s property lines. If it’s determined that there is an encroachment — a neighbor’s barn was built over the owner’s property line, for example — the issue will need to be resolved, Garfinkel says.
3. Hire an experienced appraiser
After the buyer and seller enter into a contract — but before ownership changes hands — the buyer may order an appraisal for the property, especially if he or she needs a mortgage, Holmes says.
Strict valuation rules following the housing market collapse have caused many appraisers to calculate home values lower than the buyer and seller expected, she says. Appraised amounts less than the contracted price can create problems that delay or eventually terminate the transaction.
“Most people know that in order to get a mortgage, the borrower has to qualify, but we forget that the property has to ‘qualify,’ too,” Holmes says. “The appraisal is a way to know whether or not the home (along with the buyer’s down payment) is worth the asking amount.”
If the appraisal comes back lower than the agreed-upon price, the lender has to look at the appraisal and figure out why, she says. It could mean that the value of the home has dropped significantly.
However, all hope is not lost. A low appraisal also may occur if the appraiser is not familiar with the community, and as a result, does not make accurate value comparisons with similar homes in the area, Holmes says. To increase the odds of getting an accurate report, she advises hiring an experienced appraiser who is familiar with the neighborhood.
4. Wait before making big-ticket purchases
A few days before any scheduled closing, mortgage lenders are likely to recheck the information borrowers provided to qualify for the home loan. Borrowers who have made a recent expensive purchase could alter their financial picture to such a degree that it puts the loan in jeopardy, Holmes says.
“If you buy an automobile while you’re under contract to purchase a house, you might reduce your cash reserves too much. If the vehicle is financed, you could increase your debt ratio to the point where you no longer qualify for the mortgage,” she says.
This could cause a delay in the closing while the borrower tries to come up with extra funds or searches for another mortgage.
“If you need to buy a car, furniture or some other large purchase, wait until after the closing,” Holmes says.