Boomerang buyers head back into the market

NEW YORK – Aug. 26, 2014 – People who lost a home through a foreclosure or short sale between 2007 and 2013 are projected to make about 10 percent of all U.S. home purchases this year, according to John Burns Real Estate Consulting. That percentage is expected to rise in 2015 and 2016 as more of these so-called "boomerang buyers" become eligible for new loans, the firm estimates.

Some former homeowners find they can buy again in as little as a year following a foreclosure or bankruptcy. For example, the FHA's Back to Work loan program, introduced in 2013, helps individuals who lost their home in a foreclosure or bankruptcy to apply for a new loan in as little as 12 months. Eligible borrowers must prove their foreclosure or bankruptcy was due to a hardship by showing an income drop of 20 percent or more due to a job loss or reduction in salary. They must also meet other requirements and agree to take housing counseling.

"The borrowers need to be able to document the reason for the foreclosure or short sale, and show that they've been responsible with their credit before and after they lost their home," says George Beylouny, branch manager of Silverton Mortgage Vinings in Atlanta. "A drop in credit score is okay as long as they can show they had good credit before the crisis."

Former homeowners will have to explore qualification options with a mortgage broker, but with rising rents across the country, the incentive to do so is increasing.

"FHA loans are easier to get after a short sale," says Steve Cohen, a senior mortgage banker with Talmer Bank and Trust in Rockville, Md. "In fact, some borrowers don't have to wait at all if they never had any late payments on their mortgage. Borrowers who were in default on their loan have to wait three years to qualify for an FHA loan."

Borrowers who underwent a foreclosure who are trying to qualify for a VA loan – which requires no downpayment – may only have a two-year waiting period to qualify for a new mortgage, says Hope Morgan, branch manager of Mortgage Network in Salisbury, Md.

Conventional loans often require a two-year wait for short sellers who can make a 20 percent downpayment, a four-year wait with a 10 percent downpayment, or a seven-year wait with 5 percent down, lenders say. Borrowers who lost a home in foreclosure and defaulted on their mortgage often have the longest waits – up to seven years – before they can qualify for a new conventional loan.

"All of these waiting periods can be shortened with extenuating circumstances, such as a job loss, a divorce, a serious illness or the death of the person who was the primary wage earner," Cohen says.

Source: "After Losing Their Homes in the Foreclosure Crisis, Boomerang Buyers Are Back," The Washington Post (Aug. 21, 2014)