Loan Modification

Buyer Tax Credit Extended, Good for FHA Borrowers

By Gina Pogol

The House approved a measure to extend the home buyer tax credit on Tuesday and the Senate approved it Wednesday night. Obama is expected to sign it.

The legislation gives qualifying buyers until Sept. 30 to close on their purchases and qualify for tax credits of up to $8,000. Without the extension, buyers had until April 30 to get a signed sales contract and until June 30 to close. Those who were under contract by April 30 but didn’t close on time now have another shot, and if they are applying for FHA loans, they’ll need all the time they can get.

A lot of the bottleneck came from the mortgage application and approval process. Lenders were slammed with buyers rushing to close their sale and qualify for the tax credit. Buyers who didn’t get pre-approved, or who switched lenders in mid-escrow found themselves out of luck.

FHA mortgages in particular need more time to close because there are more steps involved and lenders or real estate agents unfamiliar with the process can increase the time it takes to close a loan. Provisions like gift funds for down payments, non-traditional credit reports, or manual underwriting add time to the process. Throw in a condo project that need approval or a HUD home purchase and you get some major delays. Buyers and real estate agents aren’t the only ones panicking — some buyers put clauses in their contracts that let them out of the deal if they couldn’t close before the June 30 deadline, giving more than a few seller indigestion as well.

And if you’re trying to refinance at today’s rock-bottom rates? Get in line; lenders are still so crushed by buyers trying to finance purchases that your refinance will take longer too.

Full post as published by FHA Mortgage Guide on July 01, 2010 (boomark / email).