Builders see tight window on $8,000 tax incentive

Listen up, first-time homebuyers and those who have not owned a home for the past three years; the federal government is offering you the chance of a lifetime, but you have to get busy or risk missing your chance.

If you buy a new or existing house and close on it on or before Nov. 30, you can get a federal income tax credit of up to $8,000 that you never have to repay.

Nov. 30 is still six months away so you have some time to shop and think about it if you want to buy an existing home, or hope to find an immediate-occupancy home at a new-home community.

But be aware that if you want to have a special house built just for you, from the ground up with the colors and special touches you want, time is running out.

Most builders say it takes as many as six months to get permits issued and homes built. So if you don't sign a contract soon, you won't be able to meet the Nov. 30 closing date the government requires.

Having a signed contract for a new home by Nov. 30 is not enough, according to Brian Murphy, vice president of marketing for Town and Country Homes. You must have gone through the closing process by the deadline.

That is why first-time homebuyers are changing their plans and accelerating their purchase decisions.

Megan Kovar of Sleepy Hollow and Matt Brannon of Carpentersville signed a contract last fall to have Toll Brothers build a row house for them at a Morton Grove community, The Crossings. Kovar and Brannon planned to close on it in January, 2010.

But when Congress included the tax credit in their recent stimulus package and the couple discovered that they had to close by the end of November in order to be eligible, they consulted with Toll Brothers and moved up the date of their closing by two months.

Their case is not unusual, according to Brian Wulfestieg, senior project manager for Toll Brothers' Illinois division. In fact, all five of the units in the building Kovar and Brannon will occupy have been purchased by first-time buyers who want to close in time to get the tax credit.

"The intent of Congress was to motivate people to buy and it has done that," Wulfestieg said. "Especially in our Morton Grove project, we have seen lots of people coming from Chicago, ready to buy their first house."

"The tax credit has not been the sole reason that people have been buying, but it has been one more tool in the whole toolbox," he explained.

Kovar agreed. "They were offering lots of free upgrades at The Crossings, and that definitely helped us make the decision to buy."

Town and Country Homes has dropped its prices to attract more buyers and that, combined with the tax credit, has increased their traffic and sales by 40 percent since early spring, Murphy said.

"We have recently had about 40 sales to first-time buyers in our nine communities, thanks to the tax credit, our lower pricing and the incentives we are offering," he stated.

The combination of all these factors has certainly spurred first-time buyers who have been renting or living with their parents, according to Murphy. In fact, 80 percent of their traffic in recent weeks has been first-time buyers. Normally they would see such buyers making up only 35 to 40 percent of their traffic.

"But young buyers often don't think about how much time it takes to build a house," he continued. "In some of our communities it takes four to six weeks just to get the permits. So they need to get busy and sign a contract."

Chris Naatz, vice president of sales and marketing for Pulte Homes, is seeing similar enthusiasm among young buyers.

In the past few months half of the buyers in Pulte's 11 area communities have been buyers hoping to take advantage of the federal income tax credit, he said.

"$8,000 is a lot of money," he said. "That tax credit has definitely been a factor in people's decisions these days.

"Overall affordability for houses is fantastic right now - between low prices and low mortgage rates - so we are even seeing a significant trend in which many first-time buyers are skipping the townhouse stage and going straight into a single-family home because they can afford to do it," Naatz said.

And Pulte has even seen some tax credit-eligible buyers in their Sun City active-adult communities.

"We have had a couple of buyers recently who qualify because they have been renting for the past three years so they are in a position to take advantage of the credit, too," Naatz explained.

"The sooner people who want to take advantage of the tax credit sign a contract, the better," he continued. "You want to leave enough leeway in case the weather does not cooperate."

KLM Builders has also seen some increased traffic at its communities in Spring Grove, Richmond and Antioch, according to Kim Meier, president.

Out of six homes Meier currently has under construction, two are being built for buyers who will qualify for the tax credit. He is hoping that number will increase soon when his new models at Sunset Ridge in Spring Grove open.

"They have been designed with first-time buyers and empty-nesters in mind and we have razor sharp prices on them, starting at $189,900 with a basement," he explained.

"Materials prices hit bottom about a month ago with the lowest lumber and shingle prices we have seen in over a decade," Meier stated. "But they are starting to slowly rise, so I think that there will be more pressure on price in six months."

Those temporarily low raw materials prices, combined with the pending tax credit expiration, prompted Meier to encourage buyers to make a decision soon.

"Unlike other builders, we can usually build a small house in about four months. That is because of our long-term relationships with our municipalities up here. We can usually get a permit in about six days," he explained.

It is also important that potential homebuyers keep in mind two other details of the tax credit plan, according to the National Association of Home Builders.

The tax credit is actually equal to 10 percent of the home's purchase price, up to a maximum of $8,000. So you must spend at least $80,000 on your home to get the full credit.

Second, if you make too much money, you aren't eligible. Single taxpayers must have an income of $75,000 or less to qualify. Married couples must have a combined income of $150,000 or less to qualify.