Philadelphia Weekly

Share this Story:

Unfinished construction delays lender closing

Ilyce Glink
Inman News

Q: I signed a contract to build a townhouse, with an estimated completion date of December 2009. I am a first-time homebuyer and would like to take advantage of the first-time buyer's tax credit for a new home purchased prior to Dec. 1, 2009. Is it possible to close on the loan prior to 100 percent completion of the home and qualify for the tax credit? If so, what do I need to do?

A: The short answer to your query is, unfortunately, no. You cannot close on the loan separately from the property. The house is the collateral for the loan, so your lender wouldn't close without having something to back up against the loan in case you default.

Typically, the lender won't close until you get a certificate of occupancy for the property -- that means the house is virtually finished, except perhaps for a select list of items such as landscaping.

This puts you in a Catch-22 situation: If your builder is close to completion, but not close enough for the lender to agree to your closing date, you could easily blow the Dec. 1, 2009, deadline for receiving the $8,000 tax credit.

Finally, according to the IRS and several enrolled agents I consulted, you must close, be the owner of and have title to the new home by Dec. 1, 2009.

Q: I heard you mention something about a loan modification and wanted to find out more.

We're not behind in our mortgage payments yet, but my husband's company suspended all overtime and we're now struggling to make the payments.

I was wondering if a loan modification would allow us to lower our interest rate (we are currently at 6.625 percent on a 30-year fixed). We would be open to increasing the term of the loan to 40 years to get a lower monthly payment until the economy picks up. I would appreciate any advice you can give.

A: Since January, new government policies on loan modifications and loan refinances have gone into place. ...CONTINUED

[pagebreak]

There is a significant difference between a loan modification and a loan refinance. A loan modification is now for those who are severely delinquent on their mortgage payments. If you're more than 60 or 90 days late on your mortgage, you're considered to be severely delinquent.(According to the housing industry, most homeowners who are only 30 days late on their mortgage "self-correct," meaning they find a way to make up the missing payments and get back on track.)

If you're delinquent, you'll want to contact your lender immediately and ask for the loan mitigation department. Or, call the federally sponsored Hope Now hotline: (888) 995-HOPE. A housing counselor will talk to you about your options and schedule a three-way call with your lender.

The goal of a loan modification is to get your payments more in line with your actual income. So if your income has dropped, a loan modification may be able to lower your interest rate for a few years or extend the term of your loan in order to get your debt-to-income ratio to 31 percent (of your gross income).

Since you haven't been paying late, refinancing your home might an option. If your mortgage is no more than 105 percent of your home's current value and your loan is held by or serviced by Fannie Mae or Freddie Mac, you may qualify for a refinance at today's low interest rates. Contact your lender to see if you qualify.

You can also check out MakingHomeAffordable.gov, which explains the difference between the government's refinance and modification programs, and allows you to look up your loan to see if it qualifies.

If you have an FHA loan, you may be able to do a Streamline FHA refinance, in which your lender may simply adjust the interest rate of the loan down to something lower than where it is currently. What's nice about an FHA loan modification is that it likely won't require another appraisal of the property.