Unpleasant jolts en route to tax credit

For thousands of homebuyers who scrambled to meet the April 30 federal tax credit deadline for completed contracts, there’s a whole new challenge looming: Can they nail down their mortgage financing and get to closing before the credit 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 tougher than expected. In fact, mortgage industry leaders say some buyers who plan to pocket $8,000 or $6,500 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’ve 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 — may be in for unpleasant jolts. And if a borrower’s needed turnaround time from application to settlement is 30 days or less, even the most resourceful lenders may not be able to deliver.

National mortgage lenders, banks and mortgage brokers are all gearing up for a wave of applicants seeking to meet the June 30 deadline.

Jay Delmont, vice president of Freedmont Mortgage in Hunt Valley, Md., said homebuyers who seriously want to close in time need to get the process moving with lenders immediately to avoid the late-June crush. The “main concern,” Delmont said, “is that a lot of contracts are being written for a June 28 to June 30 settlement and people need to schedule a slot” with title or escrow agencies as early as possible.

The type of lender can affect a buyer’s ability to get to closing on time.

Brokers and small lenders typically cannot provide written guarantees that they can close loans by specific dates. But some mortgage banks and large national lenders — Wells Fargo, for example — are offering such commitments to credit-approved applicants.

Greg Gwizdz, executive vice president for mortgage operations at Wells Fargo, said the bank will pay one month of principal and interest if it fails to meet a closing deadline promise.

Other large lenders, such as Bank of America, say they normally can get loans closed on time — even with all the latest regulatory challenges.

Henry Fulton, fulfillment executive at Bank of America Home Loans, said “we feel very confident with our promise to deliver,” as long as borrowers get documents in on time and get the ball moving early.

Ken Harney is a real estate columnist with the Washington Post.