NEW YORK, Jan. 28, 2013 /PRNewswire-iReach/ -- How long has the housing market been down? Long enough for some of those displaced by it to be buying once again! Some homeowners who lost their properties due to foreclosure a few years ago are now shopping the market for a new home at RealtyPin.com. There's a term for them -- "Boomerang Buyers", and they make up a small but growing portion of the homebuyers today.
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Typically, anyone who has defaulted on a home loan must wait three years before they become eligible for a mortgage backed by the Federal Housing Administration (FHA). The U.S. has been in a recession for so long that the waiting period is now over for some. How many, you ask? Statistics estimate up to 729,000 previously-foreclosed homeowners are now eligible to become homeowners once again!
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Like other potential buyers, they are shopping the housing market on real estate portals like RealtyPin.com, hoping to take advantage of low buying costs, as opposed to rising rent prices. But unlike would-be buyers with a clean credit history, "Boomerang Buyers" often can't qualify for traditional mortgages. This is where an alternate type of mortgage through the FHA comes into play. Typically, loans through the FHA are easier to obtain and require much smaller down payments (sometimes as low as 3.5%). That makes them more attractive to previously foreclosed homeowners trying to re-enter the market.
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Of course, there is a downside! These loans are usually more expensive in the long run, have slightly higher interest rates than a traditional mortgage, and typically require buyers to purchase a mortgage insurance policy to protect the lender. So, while the down payment is often much lower, the "Boomerang Buyers" have to fork out up to 1.75% of the loan's value to cover the insurance policy's upfront premium. Of course, these loans aren't for everyone. As expected, lenders are only going to give a second chance to a previously foreclosed borrower who has taken steps to fix their credit score.
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What if you're interested in becoming a "Boomerang Buyer"? If you're one of the many who lost their home due to foreclosure, and are interested in re-entering the market, you need to take all the appropriate steps to repair your credit. In addition to having steady employment for the last two years, you need to pay all your bills on time. And even if you're now financially stable, your credit score may not be where it needs to be just yet. Experian, one of the three major credit bureaus, reports that a short sale typically affects your credit score between 120 and 130 points, and a foreclosure can result in a change of 130 to 140 points.
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So how long will it take to repair that damage? That actually depends on how high your score was before your foreclosure. FICO, the credit scoring company, says the higher your score was beforehand, the longer it will take for it to fully recover. That timeframe is typically between three and seven years, but that's better than a Chapter 7 bankruptcy, which takes an entire decade to disappear from your credit report. And, of course, lenders are more understanding if extenuating circumstances caused your foreclosure (like the loss of a job, a major illness, etc.) than if you had the money, but chose to default anyway. They are more likely to give a second chance to someone who they think will be able to afford the mortgage payment this time around, than someone who will once again be foreclosed upon -- which will only hurt the housing market's chances for recovery.