The Federal Home Buyer Tax Credit, when used in conjunction with the California state tax credit, can deliver meaningful savings, but only for those who have a binding contract to purchase a home in place on April 30, 2010. With that deadline approaching, potential buyers who want to capture the tax credit need to get serious about home shopping.
It is certainly possible for The Bremner Group to find you a great home and get it under contract two weeks, but doing so requires intense focus on the part of the buyer.
Two versions of the Federal tax credit are still being offered: a maximum credit of $8,000 for first-time buyers (and those who last owned a home 3 or more years ago), as well as a $6,500 credit for current homeowners. Either way, the credit applies only to the purchase of a new principal residence costing $800,000 or less, and there are income restrictions and other limitations, including a requirement to close the sale before July 1.
To capture the California state tax credit, you must close escrow after May 1, and apply for the credit immediately. The state anticipates they will run out of funding for the current tax credit in less than 30 days, and they will grant the credit on a first come, first served basis.
How can buyers eager to capture the tax credits streamline their home shopping? Here are some suggestions:
1. Get to Know Your Market: First, select your neighborhoods. Drive around to check the locale and amenities. Then get to know the inventory. You can easily do that using Internet sites and software that permits you to see the homes currently on the market. A capable agent can expedite the home search process and save you a lot of time. At the Bremner Group, we use a program called Listingbook to assist you in making sense of all the listings out there. New listings are emailed to your in-box as they are posted, according to preferences you select. This permits you to stay on top of the market on a daily basis, seeing what properties are coming onto the market and which ones have sold.
2. Line Up Your Financing: Talk to a reputable lender right away and go through the pre-approval process. That will tell you quickly how much you can borrow. At today’s extremely low interest rates, that amount may be more than you imagined. But either way, the process will help you determine how much you are willing and able to spend on the home.
3. Start Narrowing Your Search: With a large inventory of homes to choose from in the current market, you won’t have time to look at everything in your price range. By establishing specific criteria of the home you want, yo can screen out homes that won’t fit your needs. When it comes to geography, factor in your daily commute. Few of us want to be more than 45 minutes from work. If you need access to public transit, then that also shapes your choice, and if you have children, schools are going to be a factor. Ideally, you can narrow you search to one or two communities rather quickly.
4.Separate Needs from Wants: Buyers can look at fewer homes if they knowt what features the home they buy must have and what features would be nice but aren’t required. When it comes to must haves, start with the basics. How many bedrooms are needed? Is a separate home office essential or just desirable? Will a two-car garage be sufficient, or do you need something larger? And don’t forget to consider the type of home. Are you interested only in a traditional single-family detached dwelling, or would a condominium work just as well? And what about a townhouse?”
5. Consider Condition: In today’s market, many of the best values are foreclosed homes that aren’t in perfect condition. Buyers should decide up front if they are willing to tackle a home that needs work, and if so, how much.
6. Keep Things in Perspective: As nice as it may be to get the tax credit, don’t let the desire to do so completely control your home search. If you like to mull over important decisions, take the time you need. The tax credit is a great incentive, but an $8,000 credit equals just 2.5% of the price of a $320,000 home. Buying the wrong home can end up costing you a lot more.
7. Leave Time to Handle Standard Contingencies: The typical purchase contract may have several contingency clauses, for such things as a home inspection, appraisal, title search, obtaining financing and even the sale of the buyer’s current residence. Fortunately, standard contingencies in a contract won’t prevent it from qualifying for the tax credit. However, the more contingencies you have in a contract, the greater the risk that it won’t close. For example, if an issue arises in the home inspection, and it can’t be resolved, the buyer may want to find another house, but doing that after April 30 will mean losing the tax credit. Allowing time to work through the contingencies before the deadline reduces that risk.
8. Be Careful of Short Sales: If the home you want to buy is offered as a short sale, qualifying for the tax credit may become more difficult. Short sales require that purchase offers be approved by both the seller and the sellers’ lender, and lenders often are slow about responding. Waiting for lender approval could leave you without a binding contract on April 30. Look only at “pre-approved” short sales; those whilch already have a price that has been pre-approved by the lender.