Homeownership after foreclosure: How boomerang buyers are bouncing back

As we return to a balanced market, a new segment of homeowner is emerging: the boomerang buyer. A boomerang buyer is someone reentering the market after a foreclosure or short sale.

According to this report, more than seven million buyers matching this description will purchase a home again in the next eight years—and 100,000 of them will come from our local market area. Here’s what you should know if you’re a boomerang buyer purchasing in Minnesota or western Wisconsin.

How long before I can stage a comeback?

Federal Housing Administration (FHA) requires a three-year waiting period for boomerang buyers who have had a foreclosure. This waiting period begins once the foreclosure is complete, not when a homeowner defaults or moves out of their property. A foreclosure remains on a credit report for seven years before it is removed.

Those who have foreclosed or sold via short sale can use the waiting period to clean up any credit issues and bank judgments, and pay off credit card debt. As with all loans applications, good credit and a history of paying bills on time (aside from your past housing default) will be an advantage as you reapply for a mortgage. If your foreclosure is seen as an isolated incident instead of part of a pattern of behavior, lenders may look on you more favorably.

What else should I know?

Lenders process each loan application individually, and one of the factors they’ll consider in your application is your ability to repay the mortgage. The debt-to-income ratio measures how much of your gross household income will be required to pay your property’s principal, interest, taxes and insurance.

Generally, lenders hope for this ratio to be between 28-33 percent of your gross income.

According to RealtyTrac, local boomerang buyers would need to spend just 24 percent of their gross income on a monthly house payment of a median-priced home in our area.

Our market’s high affordability and our booming local economy bodes well for boomerang buyers who hope to once again purchase a home they can call their own.

What steps should I take first?

If you’re hoping to buy a home after foreclosure or a short sale, the first step is to get preapproved for a loan. Not only will this help you stand out among other buyers, it will give you an idea of your buying power so you can begin searching for homes in your budget.

As you can see, many buyers are rebounding after foreclosure or short sale. Every case varies, so it’s important that you get an individual evaluation. Reach out to get started on your way back to homeownership.