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Boomerang Buyers Ready to Enter the Market Again

Everyone loves a comeback story.

A recent article in the Wall Street Journal reported on buyers that are making a comeback – “boomerang buyers.” These buyers aren’t new to the market but they are experiencing home buying differently the second time around – with a foreclosure in their past.

While it seems like just yesterday that the housing market plummeted – since we are still in the aftermath of its effects – the main blow began six years ago. This means that those who foreclosed or had short sales early in the financial crisis have had time to recover and have approached the light at the end of the tunnel and are thinking of buying homes again.

However, the WSJ article appropriately states: “There is a web of rules for when and how people who have lost homes to foreclosures or short sales or have gone through a bankruptcy can become eligible for a new mortgage.”

For example, Fannie Mae and Freddie Mac require up to a seven-year waiting period after a foreclosure or short sale before someone can become eligible for a conventional mortgage again. FHA loans only require a three-year waiting period after a foreclosure or short sale and have low down payments, but are often more expensive in the long run.

To qualify for any of these loans, one influential factor is an individuals’ credit score. If someone has experienced a foreclosure or short sale, his or her credit score has been undeniably damaged, but not irreparable. If the proper measures have been taken to repair a credit score, then buyers that have foreclosures in their past have a better chance of qualifying for a loan.

If buyers can make it through these factors and the web of other rules that must be met in order to qualify for a loan after a foreclosure or short sale, it is clear why they are now ready to buy.

Those that had a foreclosure were forced to rent until they could again qualify for a mortgage. In a previous post, we mentioned that rental rates are continuing to rise at a rate of 7 percent a year. Meanwhile, mortgage rates remain at record lows and housing prices are low as well.

So, those that foreclosed early in the financial crisis and have had enough time to recover and get back on their feet are also ready to get out of rising rental rates and be homeowners again while rates and prices are low.

These “boomerang buyers” aren’t appearing by the masses by any means, but with so many foreclosures in the past, there will eventually be more people that are making a recovery and ready to buy again and start over.

With an increasing number of buyer comeback stories, it’s only a matter of time before we are commenting on the comeback of the rest of the housing market as well.

— Cal Haupt, President and CEO of Southeast Mortgage


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