Have You Been Through A Foreclosure? How To Become A “Boomerang Buyer”
A foreclosure is a disappointing experience but doesn’t have to mean the end of your days as a homeowner. In fact, with some patience and drive, a person can become a “boomerang buyer” and recover from a foreclosure, putting themselves back into a home they can own, cherish and use to build equity.
Millions of people who probably never dreamed that they would lose their homes faced that dilemma from 2007-2008 when the Great Recession hit and home prices collapsed. Don’t fret if you were caught in a foreclosure during that time period–You are not alone in not seeing the collapse coming. (In fact, Hollywood made an entire movie, The Big Short, about the small handful of people who did see it coming). In fact, the five million people who went through foreclosures during that time know your pain.
The good news is that it has now been seven years since the housing debacle, which is the amount of time that Fannie Mae, Freddie Mac, and most conventional lenders require someone with a foreclosure in their past to wait before they apply again for a home loan.
Are you ready to apply for a loan? Here are the steps:
Get Your Financial House In Order
First things first – if you have a job, keep it.
Also, check your credit score. Perhaps there are errors that need to be rectified. With a foreclosure in your background, you certainly can’t afford to show any other negative marks in your credit history. Make sure you are paying your bills on time–while it’s smart to have a credit card or two (not too many), be sure your balance is low and your payments are consistent and on time, which will make a huge difference in helping your credit score rebound after a foreclosure.
Save, Save, and Save Some More
Savings will count strongly in your favor, as you will be able to put more money down. Also, be prepared to pay higher monthly mortgage payments. Perhaps you should adjust your dreams of owning a McMansion and settle for a smaller house with monthly payments you know you can afford, even in the event of an emergency, like you or your spouse losing their job. If you went through a foreclosure and waited all those years to purchase a home, you certainly don’t want to put yourself at risk for defaulting on your mortgage payments again, so save, save, and save.
Talk To A Lender
Now that you believe you are in good financial shape to apply for a loan, don’t start looking at home listings before you consult with a lender. Be sure to list any extenuating circumstances that caused your foreclosure, as a lender may take them into consideration even if seven years have not passed. If there were extenuating circumstances, such as job loss, then point out that under normal conditions, you would have been able to continue making your mortgage payments.
Check out Assistance Programs
Ask about assistance from the Federal Housing Administration (FHA). They only have a three-year moratorium for people who filed for foreclosure. However, FHA does require mortgage insurance for the life of the loan. That will increase the monthly payments. (Note: a borrower can continue to check to see if they qualify for a conventional loan and can then refinance to drop the mortgage insurance requirement). If you are a veteran – check with the Veterans Benefits Administration. They only have a two-year waiting period after a foreclosure. However, if you had a VA loan before, you might not qualify for another.
Before shopping for a home, a boomerang buyer absolutely must seek pre-approval for a mortgage. This way they have a realistic view of the size of the loan they qualify for and the home price they can buy with that loan.
While buying a home is a little more involved for “boomerang” buyers, the good news is that mortgage rates are at record lows. (See Homes.com current rate table). Even if a borrower is penalized for their previous foreclosure, in this incredibly attractive interest rate environment, paying a higher rate might not be that onerous. At the end of the day, people who went through a foreclosure should not think that all is lost. As we said, it’s not as though they were the only ones who experienced this crisis. The marketplace knows this. There are programs and lenders out there who can help.
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Happy house hunting!