The one year stretch between October 2007 and October 2008 was disastrous for homeowners in the United States. The housing bubble had burst earlier in the year, as a high number of foreclosures led to the collapse of the subprime mortgage industry, which only fed into more and more foreclosures. More than one million owners foreclosed in that 12-month span, making up a significant chunk of the five million who have faced a similar fate in the years since.
Now, more than seven years later, that foreclosure is no longer on the homeowner’s credit report. These individuals—known as “boomerang buyers”—are ready to reenter the market, and may create a huge wave of buyers for the housing market.
It won’t necessarily be easy. Although the foreclosure may be off of a potential buyer’s credit report, there’s always a chance that the financial issues that affected the buyer in 2007 could be lingering, and the market has changed dramatically since the last time they bought a home.
If you’re a realtor helping out so-called “boomerang buyers”—or someone shopping for a new home post-foreclosure—use these tips to make sure that the next purchase goes smoothly, and that you’ll have all your bases covered when it comes time to make an offer. Good luck!
Technically speaking, any homebuyer would be wise to get preapproved for a mortgage before they start looking for properties. But less than 10 percent do. Why?
Most eager shoppers ignore the preapproval process for one of two reasons: impatience or nervousness. Impatient buyers don’t want to mess around with the bureaucracy and paperwork; they just want to look at houses. Nervous people might not want to find out what they would be preapproved for, fearing that it’s lower than they expected. But even if you don’t work out your limits in advance, you’re going to find them out eventually when you apply.
Don’t become someone who finds out what they can afford by being told that you can’t afford a property. A $300,000 home might seem feasible, until the bank refuses to lend you the necessary amount (check out our video on initial costs you must know!).
If you’re serious about buying a home after your foreclosure waiting period, you’re going to have to accept that there are limits. Maybe you still need to clean up your credit from other debts and bills. You can still buy a home now, but it may not be the home you dreamt of. Remember that it’s always an option to wait it out, improve your credit and then spring for a home a few years down the line.
The low down payments of the early 2000s seemed like a great thing at the time. Now, following the housing crisis, both the government and banks are less likely to toss money around for mortgages. That means that buyers need to be ready to put down a significantly higher down payment than what they did seven-plus years ago.
That doesn’t mean you need to back off from the market. Speak with a lender or realtor to determine what amount you can responsibly put down on a property, to give you a better idea for what’s within your price range. Lenders can educate you on options such as Fannie Mae-sponsored loans, which allow for unlimited cash gifts from qualified relatives to be used toward a down payment.
Again, don’t make the jump if it seems like a questionable decision. It’s better to wait than to fall into another foreclosure.
Many homeowners go for FHA-insured mortgages and it’s tough to blame them. These options often offer down payments and interest rates that are considerably lower than other loans. The downside to FHA-insured mortgages—as well as other government-backed choices such as Department of Veterans Affairs mortgages—is that they’re less easily forgiven after a foreclosure.
CAIVRS is a database of all loan delinquencies tied to the government. In short, if you haven’t paid off the debt insured by the FHA on your last mortgage, you won’t be able to take on more government-insured debt. This system is only accessible for authorized lenders so make sure to set up a consultation if you think you may not qualify.
Again, this doesn’t mean that you won’t be able to obtain a mortgage. Far from it. But as we said, FHA-insured mortgages often come with much lower down payments. If you don’t qualify, be prepared to put down a higher amount at the onset.
There’s nothing that legally forces someone to wait seven years before reentering the housing market. That’s just how long it takes for the foreclosure to come off of a credit report. There are options for people who are interested in buying a home as soon as three years after foreclosure.
That doesn’t mean you should bite.
The ability to get a mortgage with a foreclosure on your record comes with downsides. The interest rates will typically be higher than the market standard, and the ability to fix or adjust these rates might only be available for initial terms of three or five years.
These options could work for you. Just remember to do due diligence before you jump for something that seems too good to be true.
Homeowners and banks both learned lessons from the mortgage crisis that was going on around 2007-’08. The former are ready to try again and, unfortunately, the latter are being more stringent in their lending. Buying another home might seem tougher this time around but it’s a worthwhile investment. Use these tips to take a better, more strategic approach to getting a new mortgage and spending wisely.
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