I received a call from the Chicago Tribune the other day asking an excellent question – Is there still a lot of time left for the $8,000 first time home buyer tax  credit? Or to put it another way, is it time to panic yet? The answer is no, it’s not time to panic, and there is still plenty of time for Chicago area first time home buyers to find a home and close on it before the November 30th deadline comes around. But just as summer disappears before we realize it, you can bet that the deadline for the tax credit will be here sooner than you think. This means that some procrastinators will be caught in a squeeze, and there will be a rush to get the last minute closings in under the wire. Real estate deals can take time to come together and close in the best of times, and there are always little things (and sometimes bigger things) which come up and add to the transaction time. A little longer closing time in August is an inconvenience. If the same thing happens in November it could cost you $8,000.

The biggest part of the housing market in the Chicago area this year has been made up of first time home buyers. Low home prices and low mortgage rates have been big incentives, but the icing on the cake has been the first time home buyers tax credit. Most first time home buyers are now buying with FHA financing, which means a minimum payment of just 3.5% of the purchase price. So if you were to buy a $300,000 home, after the close you could amend your tax return and get more back from the tax credit than what was invested in the down payment. Not a bad deal at all. Up until now there hasn’t been a sense of urgency to buy. We are in a buyers market, and with so many good properties available, if one doesn’t work out another will. But if you are a first time home buyer, and if that tax credit is part of your motivation, there are some real reasons why you need to step things up.

Here are some reasons that the whole process might take longer than you expect:

1. It takes time to find the right house. Buying a home is an emotional decision. This is more than just a place to live, it is an extension of who you are. I hear it all the time and it was the same when we bought our houses, you know the house is right for you when you first see it. Waiting until the ‘last minute’ means you are more likely to settle for what is acceptable, rather than what you really want.

2. Foreclosure and short sale properties take longer. In the Chicago area, over 40% of the sales have been short sale or bank owned properties. With these homes the bank is making the final decision as to whether to take your offer, or not. You can get some great deals with these homes, but don’t expect to close fast. Banks have become quicker and more responsive over the last year, but it can still take 30 days or longer before you even get an answer back on a purchase offer.

3. Condos can take longer to approve. Condos are the home of choice for many first time home buyers because they fit the lifestyle best. But condo financing has tightened up considerably over the last few years, and now it is a matter of not only approving you for a loan, but making sure that the condo building conforms to all the new rules and regulations. Gathering the information takes time, and the home owners association or management company needs to provide the information, and they are more likely to do this on their time schedule than yours. The bottom line is that if you are looking at buying a condo, try and do the research to make sure it fits the guidelines up front (your Realtor and lender can help with this), and allow a little extra time.

4. Appraisals can take more time. The new HVCC appraisal guidelines make the appraisal process more complicated for all mortgage lenders, but for many, including mortgage brokers and some of the big banks, this has meant that appraisals now take longer too. I’ve heard from a lot of buyers who were still waiting for the appraisal 30 days into the process and were concerned that they wouldn’t close in time. Make sure you talk with your lender early in the process and ask how long the appraisal will take so you aren’t surprised as you get near the dead line.

5. Financing can take extra time. It wasn’t that long ago that we were in the midst of a refinance boom and mortgage turn times were out of control. A lot of lenders are still out of control. A lot of companies have staffed up so this isn’t a problem now, but if rates come down again and the first time buyer boom hits a peak at the same time, approval and closing times could stretch out again.

6. Unexpected problems can occur. So much of the real estate transaction is out of your control, and there can be problems and delays that no one foresees. This can be a matter of a title issue which needs to be cleared, a seller who won’t let the appraiser in to see the property, or one hundred other possibilities. In a case I ran into last week, the buyers got to the closing ready to close, but the sellers needed to bring cash to the closing and they didn’t have it. This one did close, but it wasn’t quick and it wasn’t pretty. Most of these problems can be worked out, but if you are on a deadline, they might not be worked out in time to help you.

You can’t control the entire home buying process and it always makes sense to be proactive rather than waiting until the last minute. But there are some things you can do to put yourself in the best position so you can buy your home with more control and make sure you get what is best for you:

• Get pre-approved for a mortgage – Mortgage pre-approval is not only easy and relatively pain free, but it is the first step toward buying a home, and most Realtors won’t even work with you unless they know you will be able to buy. Getting your pre-approval upfront means you know what you can afford, and more importantly, if there are any problems you have time to deal with them. You can start the whole process with a short phone call and if you are serious about buying there is no excuse for putting it off. If you want to go over your situation quickly and with no obligation, give me a call.
• Get your down payment together – Finding the down payment is the biggest obstacle for most first time home buyers. FHA allows a 3.5% down payment and this can all be from a gift. There was talk about finding a way to use the tax credit up-front as part of the down payment, but the way it set you will need to come up with your down payment first and you can get the tax credit after the closing (by filing an amended 2008 tax return). Here is a list of ways to come up with your down payment.
• Find a good Realtor – I’m always amazed at how many people try and find a home by themselves without using a Realtor. The seller pays the commission, but you will get the benefit of the Realtor’s experience. There are hundreds of sites you can go to and search the MLS for properties. But there is a big difference between what you see on the Internet and how the home will work for you in real life. You want someone who is an expert in the neighborhoods you are looking at and has the experience to help make the transaction go smoothly.
• Start looking – You will need to look at a lot of homes to find the one that’s right for you. Get off the computer and get into the car. It’s the only way you will find your home.

Lastly, don’t wait till the last minute. If you do your homework and get going now you will be able relax and enjoy your new home as the calendar flips into December, and with $8,000 extra cash in your pocket you will feel a whole lot better.

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