The Nation's Housing
New rules making tax-credit closing deadlines tough to meet
For thousands of home buyers who scrambled to meet the April 30 federal tax-credit deadline for completed contracts, a new challenge is looming: Can they nail down their mortgage financing and get to closing before the program terminates?
As a result of toughened underwriting standards, confusing new federal disclosure rules, appraisal regulations and a long list of other potential obstacles, meeting that deadline could be harder than expected. In fact, mortgage industry leaders say some buyers who are seeking the tax credits won't get a cent because the clock will run out on them.
Under the extended first-time purchaser and repeat buyer credits -- the former carries an $8,000 maximum amount, the latter $6,500 -- all deals must close by June 30. This shouldn't be a problem for buyers who have already submitted their applications or who apply and are approved in the coming week or two, lenders say.
But credit-seekers who assume that closings can be done in less than 45 days -- as was often the case in recent years -- might be in for an unpleasant jolt. And if a borrower's needed turnaround time from application to settlement is 30 days or less, even the most resourceful lenders might not be able to deliver.
Based on discussions with national mortgage lenders, banks and mortgage brokers, all gearing up for a wave of applicants seeking to meet the June 30 deadline, here is a quick guide to what you need to know:
-- Tops on the list: Full documentation is now the rule, and assembling the paperwork you need can eat up a lot of time. Lenders who are shellshocked from the mortgage bust want proof of everything -- income, assets, tax returns, reserves, source of down-payment cash, you name it. If part of your down payment is coming from family members or friends, a copy of a gift letter alone might no longer be enough. Underwriters might want to see hard proof that the gift-givers actually have the spare money in the first place and that they aren't expecting it to be repaid as a short-term loan. Any omissions or seeming irregularities on income or assets will trigger underwriting red flags -- and potentially add days to the process.
-- Property type matters. If you're buying a condominium unit, make sure the building or project makes the grade under toughened Fannie Mae and Freddie Mac rules. If not, the lender might need to begin the time-consuming task of obtaining and reviewing the project's underlying legal documents, finances, unpaid homeowner association dues, investor percentage and a long list of other potential issues.
-- Appraisals can be disasters, scuttling financings and even sales transactions, especially if they come in low because the appraiser used distressed home sales and foreclosures as comparables to arrive at a market value. You might end up needing more than one appraisal.
-- Anticipate massive traffic jams and regulation-driven snares at title, escrow and settlement firms in the weeks and days preceding the deadline. Peter Birnbaum, president and chief executive of Attorneys' Title Guaranty Fund in Chicago, said that new federal loan-disclosure rules could delay closings nationwide. For example, if the final HUD-1 settlement sheet contains discrepancies from the good-faith estimates issued by the lender upfront, expect delays, he said.
Jay Delmont, vice president of Freedmont Mortgage in Hunt Valley, Md., said home buyers who want to close in time need to get the process moving with lenders immediately to avoid the late-June crush. The "main concern," he said, "is that a lot of contracts are being written for a June 28 to June 30 settlement, and people need to schedule a slot" with title or escrow agencies as early as possible.
Bear in mind, too, that the type of lender you choose could affect your ability to get to closing on time. Local brokers and small lenders typically cannot provide written guarantees that they can close loans by specific dates. But some mortgage banks and large national lenders, such as Wells Fargo, are offering such commitments to credit-approved applicants. Greg Gwizdz, Wells Fargo executive vice president for mortgage operations, said the bank will pay one month of principal and interest if it fails to meet a closing-deadline promise.
Other large lenders, such as Bank of America say that they normally can get loans closed on time, even with all the latest regulatory challenges. Henry Fulton, a home loans fulfillment executive at Bank of America, said, "We feel very confident with our promise to deliver," as long as borrowers get documents in on time and get the ball moving early.