What is a boomerang buyer? A person, or a couple, who lost their home when the real estate bubble popped back in 2006 and is now ready to re-enter the housing market.
A recent study by TransUnion found that approximately 700,000 such former homeowners could become home purchasers within the next year, and more than 2 million more will again become homeowners by 2020.
Whether you can become a boomerang buyer in 2016 depends upon several factors, beginning of course with your current credit rating.
But there is more that will be taken into consideration:
- When did you lose your home?
- Why did that happen?
- What kind of loan can you get?
For a conventional loan the waiting periods are four years after a short sale and seven years after a foreclosure. However, if you qualify for a FHA or VA loan, you may be able to become a homeowner sooner.
You may also be able to get a conventional loan sooner if you lost your last home due to circumstances beyond your control. For instance, the death of a breadwinner, a major health problem that prevented your employment, or loss of a job due to downsizing or a company going out of business. As long as you are now in good shape financially, many lenders will make an exception to the four and seven year rules.
Your credit rating is a major factor, and the higher it is the better your chances not only to get a loan, but to pay the least interest on that loan. Rates naturally fluctuate, but in general, over the course of a 30-year loan on a $200,000 balance, there’s a difference of more than $16,000 in interest that will be paid by a borrower with a 700 score and one with a 760 score.
You’ll also need to show a few years of steady income and a low debt-to-income ratio. So if you’re still waiting for eligibility, stay steady at your job, pay down your debt, and work on raising your credit scores.
Before you go shopping, you’ll need to become pre-approved for a loan. This is far different from the old “pre-qualification” that many lenders did prior to the bubble bursting. Pre-qualification called for a phone conversation and no documentation.
Pre-approval calls for the same documentation required to approve the loan after you’ve found your new house, and it is stringent. You’ll have to present verification of your income, your assets, and your debts. You may also have to present proof that you’ve paid your rent on time.
If you got your last loan during the time when standards were loose, you may feel overwhelmed by the paperwork and documentation required, but it is necessary and it does, in fact, provide you with some protection from getting in over your head.
Pre-approval is important for two reasons. First, it will tell you what you can or cannot spend on your next home. You won’t waste time looking at homes that are out of your reach. Second, most real estate agents today won’t show you homes without it – and very few home sellers will accept an offer from a buyer who has not been pre-approved.
Unless you qualify for a Veterans’ Administration loan, you’ll also need a down payment.
While “no money down” loans were common before the crash, many lenders today require 20% down for conventional loans. FHA loans can still be obtained for as little as 3.5% down. A study at RealtyTrac showed that in the first quarter of 2015, the average down payment for a home was 15%.
This does vary from lender to lender, and here at Clover Mortgage we’ve been placing a good number of mortgage loans with from 3% to 5% down.
The bottom line is that you will need some cash for a down payment. You’ll also need closing costs, unless you find a seller willing to pay them for you.
If all of this means that you may need to wait a bit before purchasing a home, know that it will be worth it in the long run. When you enter into your next transaction with a down payment and a good credit score you’ll save money. And… when you’ve been approved for a loan under the new rules of documentation, you’ll be far more secure.
Homewood Mortgage, the Mike Clover Group, offers the best rates and the lowest closing costs you’ll find anywhere – and we’ll be happy to get you pre-approved. So if you’re ready to become a boomerang, call us at 469.621.8484 or apply on line at www.mikeclover.com.
18170 Dallas Parkway
Dallas, TX 75287