How to Nail Down $8,000 Tax Credit on New Home

Most house hunters spend months juggling numbers like mortgage rates, list prices and broker fees. Here’s another figure they should keep in mind: 68. That’s the number of days left to snag the $8,000 federal tax credit for first-time home buyers.

The credit expires on Nov. 30 – a deadline that’s putting pressure on would-be homeowners trying to take advantage of a real-estate market on the mend.

“Most first-time home buyers understand that time is running out. Now they need to understand how little time is left to get into action,” says Jay Papasan, the vice president of publishing for Keller Williams Realty and co-author of “Your First Home: The Proven Path to Ownership.”

In the current housing market it takes about 45 to 60 days to close on a home from the time you have an accepted offer, Papasan says. So buyers should have their offer accepted no later than mid-October if they’re trying to make the Nov. 30 deadline. (For information on who can qualify for the credit, check the IRS’s web site.)

Several bills have been introduced in Congress to extend the credit by six months to give the real-estate market another boost, though they are still up for debate. The National Association of Realtors estimates that the credit has generated 350,000 home sales this year. Moody’s Economy.com puts the number at 400,000.

The process of buying a home is neither quick nor easy. Compiling your financial paperwork, applying for a loan, negotiating an offer and signing contracts can take months. And that’s if everything goes smoothly. There are myriad ways home buyers – and especially novices – can get tripped up by the process.

Here are four strategies that can expedite a closing.

When it’s time to make a down payment, home buyers should make sure they have enough cash available. Their funds should not be tied up in a stock portfolio, 401(k) plan or other investment that could delay the money by days.

Using gift money for a down payment is another potential snag for home buyers. Say your parents gifted you the $60,000 you’d need for a down payment on a new house. The bank underwriting your mortgage needs a paper trail to track the money’s origin, says David Hanna, the president of the Chicago Association of Realtors. Money that suddenly shows up in your account can raise a red flag. Buyers should expect a thorough financial examination, a process that “won’t necessarily derail transaction,” Hanna says. “But it will slow it down.”

A short sale occurs when a homeowner is no longer able to make their mortgage payments and owes more on their home loan than what it can fetch in the current market.

They’re attractive from a price point, but they can take months to close. So if you’re after the tax credit, “you have no business looking at short sales,” says Steven Senter, a real estate broker and the owner of Keller Williams Fox Valley Realty in St. Charles, Ill. When making an offer on a short sale, not only does the seller have to accept the offer, but the bank must accept and approve it too – and that can take a while. “There’s no guarantee on when the bank is going to approve it – it may approve it in 30 days, maybe in 300 days,” Senter says.

Refrain from making big purchases on a credit card before closing on the home and completing the transaction, Papasan says.

Big buys can trigger concern because a buyer’s debt-to-income ratio is usually the most important factor lenders use to determine how much they can borrow. This ratio compares the amount you earn to the amount you owe (including credit-card debt, student loans and car loans). Once you enter into the loan application process, that ratio is set. If you’re in the middle of securing financing, buying a $5,000 living room set might throw that balance off. Any increase in credit-card debt can come under scrutiny from a lender, who may be looking at buyers’ credit reports until the day of the closing. It can also prompt an inquiry on your credit report, which then might have a negative impact – albeit a slight one – on your credit score.

Each state has its own closing requirements, and first-time buyers should know in advance what and how much they’re required to cover. For example, in Maryland, the buyer pays the closing costs. In most states, the buyer and seller share the costs. In many states, closing costs must be paid in cash at the closing.