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Foreclosed homeowners shopping again

'Boomerang buyers' are re-emerging to qualify for mortgages. Ever wonder what it takes?

By MSN Money Partner Oct 18, 2012 3:18PM

This post comes from Marilyn Lewis of MSN Money.

 

Image: Real estate agent (© Stockbyte/SuperStock)Homeowners who went through foreclosure a few years ago are becoming a small but growing force in the homebuying market. The Wall Street Journal calls them "boomerang buyers."

 

The WSJ says that "real-estate agents, mortgage brokers and home builders all say a significant number of new buyers are families and individuals who went through foreclosure as recently as three years ago, the time period that buyers who defaulted on a mortgage must typically wait before becoming eligible for a mortgage backed by the Federal Housing Administration."

 

Rising in Phoenix

One is Ronda Martinez, 39, who, with her husband, Mark, lost a $430,000 home to foreclosure in 2007 when they had to move to Phoenix for a job and couldn't sell their home in Perris, Calif. Since then, the Journal says, "the family has repaired their finances" and Ronda Martinez, after losing one job, has found another:

"This month, the family is closing on a $150,000 home in Phoenix that has five bedrooms and a pool in the back.

"'Initially people are upset and think, "I'll never buy again,"' she said. But 'there's no reason to give up on owning.'"

The low cost of buying, compared with rising rental costs, is what's pushing many to re-enter the market, Reuters says: "'Most are not ashamed or bashful about what happened because so many people were forced into that reality in the last six years,' says Graham Epperson, vice president of sales in Arizona for the PulteGroup, a leading U.S. home builder."

 

Lennar, the homebuilding company, sees more of these buyers "coming out of the penalty box." Cornerstone Communities, a San Diego home builder, says about 20 of their 110 closings this year involved buyers with a history of foreclosure or short sale.

 

Moody's Analytics estimates that 729,000 households that were foreclosed on during the housing bust are now eligible to apply for an FHA loan, up from 285,000 in mid-2011. Moody's expects that to grow to 1.5 million by early 2014. It doesn't mean all those people will qualify for mortgages, of course, only that they're eligible to make an application.

 

How do they do it?

How did they recover so quickly from foreclosure to buy a home, and when so many other would-be buyers can't get a mortgage when they haven't been through foreclosure?

 

Buyers with a foreclosure history find FHA loans friendlier. They're easier to obtain and require down payments as small as 3.5%. But they're also more expensive over the long run, with slightly higher interest rates and the requirement that buyers purchase mortgage insurance (to protect the lender). The upfront insurance premium is 1.75% of the loan amount (it can be financed). Additional yearly premiums amount to 1.25% of your outstanding loan amount.

 

"'These are not mainstream programs geared for mainstream borrowers,' says Greg McBride, a senior financial analyst at Bankrate.com, who expects to see more of those with blemished credit re-enter the housing market," writes Reuters.

 

Lenders are "much more likely to lend to people who lost a job than to consumers who could have afforded their mortgage but chose to default," Reuters says.

The Journal adds:

"There is a web of rules for when and how people who have lost homes to foreclosure or short sales or have gone through a bankruptcy can become eligible for a new mortgage. It typically takes three years after a foreclosure or short sale for a buyer to qualify for an FHA-backed loan. In many cases, it takes just one year after a Chapter 13 bankruptcy discharge, according to the agency."

Fannie Mae and Freddie Mac require longer -- as long as seven years.

 

Rebuilding credit

Besides enduring a waiting period to apply, buyers also must rebuild credit. Foreclosures and short sales deal massive, but potentially temporary, blows to credit histories.

 

Experian, the credit reporting company, says:

"According to VantageScore Solutions LLC, a mortgage loan settled through a short sale typically results in a change of 120 to 130 points to the VantageScore credit score. A foreclosure generally causes a decline of 130 to 140 points."

The impact and recovery time vary, depending on your scores and on your personal credit history. FICO, the credit scoring company, offers three examples:

  • A 680 FICO score before foreclosure may fall to between 575 and 595 after and it could take just three years to restore the score.
  • A 720 score could drop to 570 to 590 and need up to seven years to recover.
  • A 780 score could fall to 620 to 640 and, likewise, take up to seven years to rebuild.

"In general, the higher your starting score, the longer it takes for your score to fully recover," FICO says.

 

It takes seven years for most delinquencies to disappear from your credit report. Chapter 7 bankruptcy can linger for 10 years. Unpaid tax liens hang around "indefinitely."

 

As tough as foreclosure is on your credit scores, bankruptcy is worse, shaving off more points and taking longer for credit to repair.

 

"Extenuating circumstances like a job loss, illness or divorce" could help you establish credit more quickly after foreclosure, says The New York Times.

 

The Times lists requirements for qualifying with Fannie Mae and Freddie Mac:

"With such (extenuating) circumstances, Fannie and Freddie specify a two-year wait after a short sale, deed in lieu, or discharge or dismissal of bankruptcy, and three years after foreclosure. Without extenuating circumstances, waits can extend to four years after bankruptcy and seven years after foreclosure."

Realty Times offers guidance on repairing credit after foreclosure.

 

More from MSN Money

4Comments
Oct 18, 2012 4:53PM
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I hope lenders require a minimum 20% down payment, and no waiver of PMI for the first 10 years of the loan.
Mar 19, 2014 7:27PM
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Less is more when it comes to waiting times after a Short Sale or a Foreclosure!

 

It is unfortunate, uncomfortable and a stressful situation to have lost a home to a Short Sale or Foreclosure. For those families impacted are now Renters or living with Family or Friends to have a roof over their head. It can be depressing to them in knowing that they have to wait for years to achieve a home of their own again.

 

I personally think it is unfair for consumers to have to wait years until they can purchase or refinance a home. I mean they have already been hit hard and now a long waiting period seems somewhat counterproductive. But the positive is that it does give them time to rebuild, budget and plan for the future, which is necessary for all Homeowners to do. 

 

If you (like me) do not have the patience to wait and you know that you can afford your new home, and then the question is........ Why Wait? 

Oh I forgot, I Have a Waiting Period that I must adhere to. 

 

We know for sure Home Sales prices are going up. I would guess that Interest rates have more of chance of going up rather than going down, as we are in historical lows right now.

 

If you have been told that you have to wait 2 to 7 years to purchase a home (depending on your unique situation) Then depending on who you spoke to, what event you had in the past, you most likely were given the correct information as it pertains specifically to Fannie Mae, Freddie Mac or FHA set Guidelines. Each lender has to Follow those guidelines and some lenders may have more stringent guidelines that they impose because of their investors develop overlays that superseded the standard Guidelines. 

If you are getting mixed information on your waiting periods, Let me know...

 

Ok that was a lot of words and I could have just said simply that "waiting to purchase can cost a lot of money".

What I mean by that is, if it is required that you have to Wait until years go by, then you might miss your buying power position in the home size or neighborhood you want or need as Home prices are on the rise and who knows, maybe interest rates will also rise? (I hope not)

 

Am I repeating myself? 

Yes I am, as Housing prices are on the Rise and Interest rates are still in historical lows - it is time to get prepared to plan out your future home purchase as it just might closer than you think.

 

Are you saying that there is a Solid Solution for us and we can avoid the Waiting period?

Yes, Now there is a 2nd chance solution for those impacted families to achieve again the pride of homeownership. Consumers DO NOT have to wait at all to purchase or refinance after having a Foreclosure or Short Sale. You can return to the Housing Market now!

This helps the community and the local economy to grow as these consumers are now back in to a home with a new life and positive outlook toward their future. 


It is simply amazing to see and feel the renewed energy and reaction when these families are handed the keys to their new home.

I believe knowledge is power and having the right information will assist you in making intelligent decisions for your families financial future.

If you would like accurate information that pertain to your unique situation and waiting period and more information on the 2nd Chance option, Please feel free to call me.


Michael Evans

510-455-4109

Nov 16, 2012 8:28PM
avatar
When I bought my first house,I had to put down 30%. My how times have changed. But back then I never heard of someone being foreclosed on.
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