About a month ago, I wrote that it was too early to panic if you were a first time home buyer and counting on the $8,000 first time home buyer tax credit. Home sales have been inching up each month, and a big part of the increase is due to first time home buyers. The $8,000 tax credit is a big incentive, and predictions call for a surge in first time home purchases as the November deadline approaches. But it takes more time than most people realize to find and finance a home, and too much of the process is outside of the buyers control. Too many things can happen to delay a closing, or worse, kill the deal. If you are one of those people who wait until the last minute to get things done (I know I’m guilty of that), this isn’t like pulling an all-nighter to get your term paper done the day before it’s due. There are a host of parties involved in any real estate transaction, and you are at their mercy when it comes to timing. So is it time to panic yet? The answer is still no, but the clock is ticking and that time is approaching faster than you might think.

Here are some things which may add extra time to your purchase:

Are you looking at short sales or foreclosures? Some of the best bargains on the market now are short sales and foreclosures. These distressed transactions now make up about 40% of the sales here in the Chicago area. These can be great bargains, but don’t expect the deal to come together quickly. With a short sale you need to not only get the seller to agree, but also the bank that holds the mortgage. Some of the banks are now responding quickly, but it’s not uncommon to put in an offer and wait for a month or longer (sometimes much longer) before the bank makes a decision. If short sales and foreclosures are on your list to look at, you don’t have a lot of time to waste.

Are you looking for the right home, or just any old home? When you have more time to look, you can afford to be picky. When a deadline fast approaching, too many buyers are going to settle on the first home that is acceptable and not the home that is right for them. Avoiding the last minute rush gives you more control.

Do you have problems you don’t know about? – One of the major factors in your loan approval is your FICO score. All loans, both conventional and FHA, now have established minimum scores for approval, and pricing is based on how high your scores are. One of the things I see on almost a daily basis is people who are surprised about what comes up on their credit report. This could be a matter of incorrect or outdated information, or it could be a real issue which you need to address. Either way, if we have time we have a better chance of fixing the problem then if you don’t find out about it until the last minute. This is one of the main reasons it makes sense to get pre-approved for a mortgage before you even start looking for a home.

Everything will take longer as we get closer to the deadline – Once you have your contract together, getting the mortgage done on time is the major hurdle. Right now we are processing loans and closing quickly, but a few months back when the system was overloaded with refinances, everything took a lot longer. As purchases pick up over the next few months, we expect a back log as we get closer to the date. And if rates drop again, and refinances pick up again, this will cause more of a back log. We, like many companies, have ramped up our staff and are ready for the higher volume, but I still hear about many mortgage companies who are taking 60 days or longer to get a loan to closing. When you are ready to close, make sure you ask your loan officer if they can get the loan done on time, and if they can guarantee that you will hit the dates in the contract.

What is the properties condition? It’s becoming more and more common to see homes that need repairs before they can close, especially with the foreclosures. Sometimes these are small things, and a lot of buyers are getting access before the close and making the repairs themselves (the banks usually won’t). But often the repairs are too extensive and cost too much. For these situations an FHA 203K loan is a great solution, but this will take more time to put together and close. I’ll write more about the 203K loan soon, but if you are looking at this as a possibility, you should get moving soon.

Are there any issues with the title? Another issue that you may not even know about until close to the closing is if there are any title issues. The title is usually pulled by the sellers attorney, and it gives a history of the property’s ownership, and shows if any liens are outstanding. If something shows up on the title, this will need to be cleared up before you are able to close. If you are near the deadline, this could be enough to push you over, losing out on the $8,000 tax credit.

There are some other new wrinkles to the mortgage process which will also add to the time required for the mortgage and the closing. The new HVCC appraisal requirements means that the appraisers aren’t as service oriented as they were before, and as volume picks up it will take longer to get an appraisal back. There are also new Truth in Lending rules which just went into effect, and if the APR on a loan changes by 1/8 of a point, either up or down, the Truth in Lending will need to be re-disclosed and there is a mandatory delay of the closing. There is a whole list of items which affect the APR including not only bank fees, but title charges and tax stamps, so until the industry gets this one down there is a potential for delay.

The bottom line is that it’s not time to panic yet, but you may have less time than you think. If you want to make sure you do everything in your control to close on time (and allow for those items out of your control) you should start soon.

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