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Rebound and Boomerang Buyers

Homeowner-2

Rebound Buyers also known as Boomerang Buyers are now becoming a very popular target market for mortgage lenders and mortgage brokers.  Rebound and Boomerang buyers are people who lost a home to foreclosure or sold an underwater property in a short sale, but who now may be ready to buy again.

Part of the attractiveness of this pool of prospective borrowers to lenders is that they have been through a foreclosure, having experienced the highs and lows of homeownership.  Rebound buyers know what homeownership entails and they understand the process of borrowing and buying a home. They’ve also suffered the negative consequences of homeownership.  In other words, brokers and lenders feel that because rebound buyers have endured the worst of the homeownership experience, if they do want to buy a home again, they are willing to do whatever it takes to make it work this time around.

Here is a look at what rebound buyers need to know before beginning the process of buying a home after foreclosure or short sale.

Waiting periods are a common penalty for rebound buyers. But, it’s not always clear how long the wait will be because guidelines vary among lenders. The Federal Housing Administration, or FHA, imposes a three-year wait to obtain a new FHA loan and most lenders follow that guideline.

Waiting periods can be shorter for portfolio loans that lenders keep on their own books or longer for so-called conforming or conventional loans that lenders sell to Fannie Mae and Freddie Mac, the government-controlled secondary mortgage market entities.

For some rebound buyers, their only negative credit mark was the foreclosure itself. These buyers can repair their credit faster than potential buyers whose credit history contains other derogatory accounts. Either way, buyers must get their credit cleaned up before applying for a new mortgage by paying off or settling old accounts and/or money judgments that may have arisen during the economic crisis.

A foreclosure remains on a credit report for seven years, although the negative impact will fade as time passes, according to myFICO.com, a website operated by the FICO credit-scoring company.  An established history of paying other bills on time can help.  A foreclosure is “a single negative item,” which does less damage in isolation than in conjunction with other late or missed payments.

High current debt relative to income also can be a problem because lenders will not approve a loan if the borrower’s debt-to-income ratio exceeds their guidelines.  Also, rebound buyers whose foreclosed loans were backed by the FHA or U.S. Department of Veterans Affairs should be aware that they are unlikely to qualify for a new government backed loan.

Rebound buyers who purchased their prior home with little or no cash payable at closing are often surprised to learn that a substantial down payment is required to buy a home in the current marketplace.  FHA requires a down payment of at least 3.5 percent of the purchase price. The minimum down payment for a conforming loan without mortgage insurance is 20 percent.

Here at the Law Offices of Anthony Rumore, PA, we may be able to help if you are considering purchasing a new home for your family or even purchasing an investment property. If you have been foreclosed upon or sold an underwater property as a short sale at anytime during the economic crisis we may be able to guide you through the process of qualifying for a new mortgage, identifying the right mortgage lender or broker to work with as well as handling all aspects of the title process and closing.

If you are considering a new purchase at this time or, if we can answer any questions you may have regarding waiting periods, credit requirements, mortgage lender guidelines and the like, please do not hesitate to give us a call.

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