For many who lost their homes during the crash, 2017 is the magical seven-year mark that the foreclosure drops off their credit report. Millions of these "boomerang buyers" are ready to stream back into the housing market, proof that lenders are forgiving even when it comes to the ultimate mortgage mistake.
As MortgageLoan.com recently reported, it is far from impossible for consumers to qualify for a mortgage loan even after they’ve gone through a foreclosure. The key is usually patience: It takes seven years for a foreclosure to fall off your credit report.
Lenders, once they don’t see that black mark on your report, will be far more likely to approve you for a mortgage loan. At the same time, your three-digit credit score, if you’ve paid all your bills on time and worked to reduce your credit-card debt, should have improved once these same seven years have passed. This makes it more likely than not only will you qualify for a mortgage, you’ll do so at a lower interest rate.
The boomerang buyers are back
This is a key year for the boomerang buyers, according to a report from foreclosure tracking firm CoreLogic. Many homeowners lost their homes during the foreclosure crisis that reached its peak in 2010. That means that in 2017, that seven-year mark will have passed for millions of owners who went through foreclosures during this time.
CoreLogic reported that 1.9 million homeowners who went through foreclosures from the start of the housing crisis in 2007 through 2010 will have hit this seven-year period and can return to the housing market with far less credit baggage.
CoreLogic also says that by the end of 2020, another 1.2 million former owners who lost their residences to foreclosure from 2011 through 2013 will have hit that seven-year mark.
This should result in a boost in home sales. But CoreLogic has found that potential boomerang buyers are having a more muted impact.
Slower to return
The reason? These buyers aren’t re-entering the housing market as quickly as experts predicted. CoreLogic reported that less than half of the boomerang buyers have bought homes even 16 years after their foreclosures closed.
These buyers are returning to the market at a slower rate than usual. CoreLogic reported that of the 4.4 million owner-occupied foreclosures completed since 2000, only 1 million have returned to owning a home.
If you’re a potential boomerang buyer and do want to return to owning, you might not even have to wait that seven years, depending on what mortgage type you apply for.
Richard Staley, production officer at Angel Oak Home Loans in Atlanta, said that buyers can qualify for FHA mortgages, loans insured by the Federal Housing Administration, just three years after their foreclosures have closed. They can qualify for a VA loan, insured by the U.S. Department of Veterans Affairs, just two years after their foreclosures have closed.
“Foreclosures are viewed differently by the government agencies today,” Staley said.
That’s because the government recognizes that many homeowners lost their homes during the foreclosure crisis not because they were irresponsible financially, but because they lost the jobs that allowed them to afford their mortgage payments.
Now that many of these former homeowners are again employed, they can again be trusted with monthly mortgage payments.
Potential boomerang buyers who want to qualify for a mortgage guaranteed by either Freddie Mac or Fannie Mae, will have to wait the full seven years after their foreclosures close to apply.
But it is possible to find private mortgage financing directly from mortgage lenders themselves. These often come with far less strict requirements.
Staley said that Angel Oak offers a portfolio loan product that allows borrowers to obtain financing just one day after their foreclosure closes. But this loan does come with some stringent requirements.
Staley said that borrowers must come up with a down payment of at least 20 percent of their home's final purchase price. And they must show proof, in the form of paycheck stubs, bank statements and credit card bills, that they can pay all their monthly debts on time.
More regulations today
Angel Oak’s requirements aren’t unusual. Lenders have become stricter when passing out mortgages today than they were immediately before the housing crisis.
As anyone who’s applied for a mortgage since 2010 can attest, potential borrowers today have to offer plenty of documents proving that they can afford their new mortgage payments. They also have to account for any large or unusual deposits in their bank accounts and show proof that they are gainfully employed.
This might make applying for a mortgage more of a challenge. But it’s also a built-in safety net for boomerang buyers who might be worried that they’ll again fall into foreclosure. Lenders today are simply less likely to pass out mortgage dollars to buyers with the type of shaky finances that increase the odds of foreclosure.
Ryan Brandenburger, branch manager of Cross County Mortgage in the Boca Raton, Florida, office of Cross Country Mortgage, said that boomerang buyers worried about their financial readiness for homeownership should look at how they are handling their current monthly debt obligations.
Are they paying their auto loans, credit card bills and utility and cable bills on time every month? Do they have enough money left over after paying these bills to afford a mortgage payment? If so, these boomerang buyers might be ready to return to owning a home.
And those boomerang buyers who do find themselves struggling to make their payments after taking out another mortgage? They need to contact their lenders immediately, Brandenburger said.
"If you ever find yourself coming up on a payment where the funds won't be there, contact your lender and be open about your financial situation so an effective plan to keep you caught up can be set in motion," Brandenburger said.