Home closing delay could cost $8,000
About 180,000 would-be buyers won't meet the June 30 deadline for a tax credit. But some may end up with a better deal.
If you've ever bought a house, you know how nerve-racking it can be to try to close the deal by the contract deadline.
Sometimes you do. Often you don't. There are problems with the inspection, or with the appraisal, or with the insurance, or the lender wants more documents. Or there are delays that don’t seem to have any explanation.
Usually all it costs you is a few sleepless nights and some extra paperwork. But for first-time homebuyers who expected to get a federal tax credit, failing to close on time will cost them up to $8,000. Those who don't close by June 30 don't get the credit.
Attempts by the Senate to extend the deadline apparently are dead.
Buyers who rushed to sign a contract by the April 30 deadline and get all their documentation together are frustrated that they're losing out on the credit because lenders couldn't process their loans on time.
As a reader named "Frustrated" told the Real Estate Wonk blog at the Baltimore Sun:
We got a super low rate, locked in on a gorgeous house that appraised for more than we paid for it. We raced paperwork to the bank 24/7 for weeks and did everything right. The tax credit was funded from the get-go and the bank told us we'd get closed by the deadline without a doubt. Here we are, and we're still waiting for a closing date, and it looks like we'll miss the 30th. The banks took on WAY too many loans to process in a normal amount of time.
Tim Sanfratello's comment to Real Estate Wonk demonstrated one of many logjams prospective buyers faced in closing their loans in 60 days:
The underwriter is waiting on a comparable home sale in our town (which is only 1 square mile) in this terrible market where no homes are selling. And what if other close-to-closing homes are also waiting for comparable sales. . . . Then NO SALES will ever happen.
The National Association of Realtors estimates 180,000 homebuyers nationwide will fail to close in time to get the tax break. In a news release, the group called on Congress to approve another extension for those who signed contracts by April 30. As NAR president Vicki Cox Golder put it:
These are not buyers who just entered into the market. These are buyers who previously met all the qualifications for the tax credit, but find themselves at the mercy of a workflow jam with lenders or other delays such as lapses in the National Flood Insurance Program, Rural Housing Service, and new-home construction, and might not be able to complete the purchase of their homes by the current deadline. It would be a tragedy for them not to be able to complete the purchase in time to claim the credit.
No one knows how many of the deals will fall through. Some buyers plan to close after June 30 and say goodbye to the credit. Others plan to try to negotiate a lower price from the seller in a slow market. Whether the would-be buyers can walk away from their deals without penalty depends on the specific contract language.
Some buyers who don't get the tax credit may end up with a better deal. Interest rates have dropped to the lowest point since the 1950s. With fewer buyers in the market, builders are offering incentives on new homes and sellers of existing homes are dropping prices, the Columbus Dispatch reported.
Karen Kosnikowski of Columbus, Ohio, was initially frustrated that she missed the deadline for the tax credit -- until she saw prices fall. The price of one home she liked dropped from $185,000 to $167,900 in May, and the price of a downtown condo she toured has fallen from $189,900 to $169,500.
A commenter at Real Estate Wonk named Mike signed a contract on a house last November and couldn't close in time to make two contract extensions. But he's not upset. He wrote:
If you've been clamoring for the tax credit, you may have paid too much for a house just to get it. I know in my case I'll now get the property for $60,000 or more less than my original offer and that's WAY BETTER than some lame $8,000 credit.
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