Q: I signed a contract to build a townhouse, with an estimated completion date of December 2009. I am a first time home buyer and would like to take advantage of the first-time buyer’s tax credit for a new home purchased prior to December 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 anything to back up against the loan in case you default.

But you can purchase the home and close on the loan before the home is 100 percent completed. There is a catch, however. Most lenders won’t close on their loans until the home is virtually complete.

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 December 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 end-of-day on December 1, 2009.

April 9, 2009

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