Tax-Credit Closing Deadlines Tough to Meet

For thousands of home buyers who scrambled to meet the April 30th 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.

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.

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 is that a lot of contracts were written for a June 28 to June 30 settlement, and people need to schedule a slot with a title or escrow agency as early as possible.