In today's residential market, a "boomerang buyer" just wants to get back to where he or she started: at home in the American dream.
“Boomerang buyers are homeowners who lost a home through a short-sale, foreclosure or bankruptcy. They are ‘boomerang buyers’ because they are returning to the housing market and buying homes again,” said Melissa Donahue, senior mortgage consultant with On Q Financial’s Scottsdale office.
It's often a waiting game
But how long do you have to wait to re-enter the realm of homeownership?
“This depends on the loan product, down-payment and your credit score,” said Joe Edwards, branch manager with the Phoenix Biltmore office of Academy Mortgage.
In general, you must wait seven years after a foreclosure for a new conventional loan; four years after a short-sale for a conventional loan; two years after a Chapter 13 bankruptcy; and four years after a Chapter 7, he said. A conventional loan is not backed by a government agency.
“There are some instances where the foreclosure was included in a bankruptcy and the minimum wait would be four years for new conventional financing,” Donahue said. She added that the three credit agencies — Experian, Equifax and TransUnion — will include a short-sale and/or foreclosure on your credit report for seven years from the date the short-sale/foreclosure process began. A Chapter 7 stands on the record for 10 years from the filing date and a Chapter 13 seven years.
For a Federal Housing Administration (FHA) loan, you must wait for three years after a foreclosure (you lost the house through failure to pay the mortgage) or a short-sale (you sold it, with the lender’s approval, for less than market value), and two years with either type of bankruptcy, Edwards said.
For a Department of Veterans Affairs (VA) loan, for qualified veterans, you must wait two years after a short-sale or foreclosure, one year for a Chapter 13 and two years for a Chapter 7, he said.
Some private investors do offer loans to individuals shortly after a foreclosure, bankruptcy or short-sale, but the interest rates and minimum down-payment are usually higher than those for a conventional, VA or FHA loan. “We refer to them as ‘bridge loans,’ as it is an option to buy a home and then refinance when the borrower has met the minimum wait period and can qualify for a government or non-agency loan,” Donahue said.
Risk-based interest rates
"The lower the [FICO credit] score, the higher the rate,” Edwards said. “If your score is under 620, then you normally would be advised to utilize an FHA loan as opposed to a conventional loan.”
Edwards added that his company, for example, offers loan products requiring just one day out of foreclosure, bankruptcy and short-sale. Another loan program he offers considers the monthly deposits you make into a personal or business bank account. “The waiting periods for these programs are also shortened because the loan isn’t backed by conventional or FHA financing,” he said.
“Depending on what caused the event, the timeframe for purchase after a hardship may be lessened,” Edwards said, citing the death of a wage-earner or an injury that didn’t allow you to work. “These are looked at on a case-to-case basis.”
Watch your credit reports
A reputable credit-repair or restoration bureau may help, but it will charge from $300 to $750 plus a monthly fee of $50 to $150, depending on what company you use, Edwards said. He noted that a good one can facilitate the deletion of misreported information on credit reports and help raise credit scores by adding additional good trade lines.
“It’s best to first contact the lender you have chosen and he/she can refer someone with a great reputation and expedite the repair,” he said.
Typically, though, there is not an option for credit repair for a short-sale, foreclosure or bankruptcy unless you can show that the information the credit bureaus are reporting is incorrect. “At least once a year, carefully check all three of your reports with the credit bureaus to make sure everything is correct,” Donahue said, pointing out that it is your right to have these reports sent free to you once a year.