NEW YORK (AP) -- Homebuyers worried about closing their house purchases before the tax credit cutoff can relax after the government extended the deadline.
Congress sent President Barack Obama a plan to give homebuyers an extra three months to finish qualifying for federal tax incentives that boosted home sales this spring. The House approved the measure on Tuesday and the Senate approved it Wednesday night. Obama is expected to sign it shortly.
The legislation gives buyers until Sept. 30 to complete their purchases and qualify for tax credits of up to $8,000 for first-time buyers and $6,500 for existing owners who move. Under the original terms, buyers had until April 30 to get a signed sales contract and until June 30 to complete the sale.
The bill only allows people who already have signed contracts to finish at the later date. Nearly 3 million taxpayers claimed the tax credits through May 22 at a cost of more than $21 billion, according to the Treasury Department.
Congress also approved the National Flood Insurance Program, which buyers need to qualify for a mortgage for a home located in a flood zone.
"We're elated," said Ron Phipps of Phipps Realty in Warwick, R.I.
About 180,000 buyers needed the tax credit extension, the National Association of Realtors estimated.
A lot of the holdups came from the mortgage approval process. Lenders were inundated with buyers rushing to close their sale and qualify for the tax credit.
"It wasn't issues with qualifications or bad appraisals," Phipps said. "The overwhelming demand simply bogged down the system." Phipps also noted that without the extension, some buyers would have walked away from their sales. Some buyers put clauses in their contracts that let them out of the deal if they couldn't close before the June 30 deadline.
Matthew Morneault, 24, could have been one of them. A member of the Maine Air Force National Guard, Morneault is counting on the tax credit money to make roof and patio repairs on the four-bedroom house he's buying in a short sale, where the bank agrees to let a home sell for less than what is owed on it.
He has been ready to close on the $154,000 home in Bangor, Maine, for two months and was ready to write off the deal if he didn't close in time for the tax credit. He is waiting for the seller's bank to provide documents to the title company to show the property is free of liens.
"The extension is making me stick it out a little longer," he said.
National Association of Realtors Report on Pending Sales
WASHINGTON (July 1, 2010) – Following a surge driven by the home buyer tax credit, pending home sales fell with the expiration of the deadline for qualified buyers to sign a purchase contract, according to National Association of Realtors®.
The Pending Home Sales Index,* a forward-looking indicator, dropped 30.0 percent to 77.6 based on contracts signed in May from a reading of 110.9 in April, and is 15.9 percent below May 2009 when it was 92.3. The falloff comes on the heels of three strong monthly gains as home buyers rushed to take advantage of the tax credit.
The data reflects contracts and not closings, which normally occur with a lag time of one or two months. However, many closings have been delayed recently from a rush of buyers into the system and slow processing of short sales, in addition to the heavy volume and a more thorough loan underwriting process. As many as 180,000 buyers who signed contracts by April 30 may have missed the June 30 closing deadline for the tax credit. However, Congress passed legislation yesterday to extend the deadline for delayed contracts and President Obama is expected to sign.
NAR chief economist Lawrence Yun said, “Consumers are rational and they rushed to meet the tax credit eligibility deadline in April. The sharp decline in contract signings in May is a natural result with similar low levels of sales activity anticipated in June,” he said. “Surprisingly, though, some local markets such as Portland, Maine, and Jacksonville, Fla., actually experienced an increase in contract signings from a year ago without the tax credit.
Grandpa: I have nothing else to offer as it "is a natural result".
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