boo·mer·ang noun /ˈbü-mə-ˌraŋ/
- : curved, flat, wooden tool that can be thrown in such a way that it returns to the thrower
- : former homeowners re-entering the housing market after foreclosure, short sale or bankruptcy
From 2007 to 2013, more than 5.3 million households lost their homes to foreclosure or short sale. Many of those families are now eligible to re-enter the housing market. They have waited out their sentence on the sideline in dutiful fashion. They are called the “boomerang” buyers. CoreLogic estimates that at least 3.4 million U.S. households have completed their mandatory waiting period to qualify for an FHA loan. It remains to be seen how many of those will jump back into homeownership. Some estimates predict as many as 50%; others offer more conservative numbers. Regardless, if you are part of the 3.4 million, it’s time to talk. The housing market needs you, and you need it. Remember those tax deductions you got? Remember not having to answer to a property owner or leasing consultant? The good old days.
If you want to reclaim the benefits of homeownership, there are a few things you need to do first. Becoming eligible for a new mortgage doesn’t mean that you will necessarily qualify for one. But if you follow these tips, you will be well on your way. If you are still in your waiting period, then this advice is perfect for you, too. Getting an early start is incredibly beneficial.
1. Check Your Own Credit
Use a service like CreditKarma.com or AnnualCreditReport.com; pull your credit report and review it carefully. You are allowed to check your own credit without harming your score. If you’ve had a bankruptcy, you need to look for any errors – items that should have been removed during the bankruptcy. If you had a foreclosure or short sale, chances are also high that credit is misreporting somewhere. If you discover a mistake, gather your supporting documentation, contact the credit bureaus (ALL 3: Experian, Equifax and TransUnion), and request its removal. The credit-reporting companies are obligated to comply with all legitimate requests.
2. Contact Your Local Mortgage Expert
Not all loan officers are created equal. You need to do your due diligence and find someone who is knowledgeable and professional. This choice is key to your re-entry into homeownership. It’s the most important choice you will make, so choose wisely. The right loan officer is a valuable ally in the process. They will help you rebuild credit and navigate the underwriting process.
3. Get Pre-Approved
If you choose your loan officer wisely, they will suggest you get fully pre-approved. That means gathering your credit documents, including income, assets, identification, credit report and documentation on the derogatory credit to be reviewed by an underwriter. Expect a good bit of documentation, too. That is the nature of the mortgage market in 2014.
4. Save for a Down Payment
A larger down payment reduces risk for your mortgage lender, who is giving you the 2nd chance now that you learned from your previous mistake. Underwriters love both of those things, and that makes your purchase stand out from the crowd.
5. Check CAIVRS
This is the government-run database of delinquent federal debt. If you previously had an FHA or VA mortgage loan, then you may be red-flagged in the database. In order to obtain another government-backed loan, like FHA or VA, you may have some additional work to do; you may have to satisfy that debt. Ask your lender to check the database early on in the process.
6. Buy Conservatively
Underwriting guidelines for boomerang buyers are generally more conservative. Allowable debt-to-income ratios are a little lower, and underwriting needs to see your re-entry into ownership as safe. Don’t try to buy at the top end of your allowable range. Find a comfortable payment, and stick to it on your home search. There are likely a lot of beautiful homes that you would like to have, but if they are not within your pre-set affordability zone for payments, then there’s no reason to look at them.
7. Be Patient
Getting back in the game is going to require some effort and plenty of documentation. Be prepared for it, and know that your loan officer is not trying to punish you. That’s just the way it is. If you choose your loan officer wisely, they will do everything they can to reduce the documentation burden and make everything run smoothly.
Homes.com hopes to see as many boomerang buyers back in the market as possible. Everyone deserves a second chance. If you follow the tips laid out above and listen to your loan officer’s sage advice, you’ll have a great chance at succeeding. If you are a boomerang buyer and would like to see where you stand, or if you can qualify for a mortgage, post your question in the comments below and visit the Homes.com Idea Gallery for more mortgage tips.
Amazon.com Best-selling author, Shashank Shekhar (NMLS 8176) is a mortgage lender with Arcus Lending, offering loans for home purchase and refinance. Shashank has been featured as a mortgage expert on Yahoo! News, ABC, CBS, NBC and FOX. He has been named "Top 40 under 40" most influential mortgage professionals in the country.
