June 30 Deadline Looms for Tax Credit Closings

By:
Kirk Haverkamp - MortgageLoan.com

The biggest date on the mortgage calendar right now is June 30. That’s the deadline for closing a home sale to qualify for the federal homebuyer tax credits. Miss it, and homebuyers are out up to $8,000 they could have taken right off the top of their 2010 tax bill. 

But how likely is that? After all, they’ve had two whole months to close – homebuyers had to have a purchase agreement signed by April 30 to qualify for either the $8,000 first-time homebuyer credit or $6,500 repeat buyer credit.
 
“I would say the bulk of these things are not going to have issues,” said Glen Bell, a real estate broker with Keller-Williams Realty in Berkeley, Calif. At the same time, he and other experts say home sales and mortgages are taking longer to close these days – and there are a few things about the current home buying and lending environment that could draw things out even more.
 

45 days for escrow?

 
First, is the overall process of completing the sale itself. Bell said he used to be comfortable allowing 30 days for escrow, now he figures on about 45, particularly for FHA loans.
 
Of course, 45 days takes you pretty close to 60 – so it doesn’t take a whole lot to push you even further.
 
Part of the problem is that the banks themselves are subjecting loans to greater scrutiny. In addition, the homebuyer tax credits generated a surge in mortgage applications, meaning lenders suddenly have a lot more loans to process.
 
“We’re seeing with the (major) banks they’re taking two to three weeks to get through underwriting,” Bell said. “It’s one of those things where they’re understaffed and it takes a while to go through the system.”
 
Some staffing issues and potential delays can be linked to the economy. For example, Bell said the city offices in Oakland, near Berkeley, have cut back on staff and are closed on Fridays these days. As a result, problems like resolving a minor lien issue, which normally would take a day or two, might take five or six days now.
 

Holiday weekend could be a factor

 
For homebuyers who are planning on closing late in the month, the deadline itself can create some issues.
 
“June 30 is an interesting date,” said Dan Green, author of the popular The Mortgage Reports blog and a Chicago-based loan officer with Waterstone Mortgage. “It’s not only the end of the month, it leads right into the holiday weekend….There’s a high probability somebody’s going to be on vacation.”
 
Green said that with the rush to close by the deadline, any last-minute problems that crop up are going to be more difficult than usual to resolve in time. Also, problems with somebody else’s loan can create a ripple effect that can create delays for loans scheduled to close after it.
 
“It’s like flying into Chicago on Thanksgiving Eve,” Green said. “If anything before you is delayed, your plane is delayed.”
 
He said his company has been recommending that people schedule their closings for several days before the deadline, if possible.
 
“Four o’clock on the 30th is not when you want to be closing,” he said.
 

Financial incentives to close the deal

 
Even so, Mark Rogers, senior economist with Econoday and formerly with the Federal Reserve in Atlanta, says he doesn’t expect to see large numbers of loans miss the deadline. He suggested that most sales contracts under the credit likely have provisions that they must close by June 30 or the deal is off.
 
“There are going to be plenty of financial incentives,” he said. “Everybody involved is going to want to make it happen.”
 
He said borrowers with lower credit scores are the ones most likely to run into bottlenecks in the process, possibly running out of time because they can’t get approved for the loan.
 
 “The people who really need to stay on top of it are the mortgage brokers and lenders and real estate agents,” said Bell. “They’re the ones who deal with this all the time and have to stay on top of it.”

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