Many housing experts are trumpeting changes that allow foreclosure sufferers to buy back into the American Dream sooner than they probably imagined, calling 2014 the year of The Boomerang Buyer. Revisions made last year to Federal Housing Administration guidelines and technical updates in November to Fannie Mae loan approval systems have opened the door for a flood of former homeowners to buy again just one year after foreclosure. “The old-fashioned way of doing it was a seven-year waiting period,” says Skip McDonough, president of Family Mortgage. “That’s changed, and people who don’t believe they can qualify are qualifying.”
Waves of Buyers
McDonough and Jon Maddux, co-founder of AfterForeclosure.com, say the boomerang buyers are necessary to maintain a growing economy as other drivers fade. Investors, who bolstered home sales during the real estate recovery, will reduce purchases as prices climb. Recent college graduates with student debt may not have the means to buy. And underwater homeowners are still stuck in a holding pattern — unable to sell so they can move up and buy anew. “People who are primed to buy are the ones who qualify on all levels but had a short sale or foreclosure on their record,” Maddux says. “The refinance boom is over and lenders are looking for a way to capture more business.”
Under the Federal Housing Administration’s “Back to Work” program, it will approve certain borrowers for a home loan just one year after a foreclosure, short sale, deed in lieu of foreclosure or bankruptcy. FHA’s previous timeline was three years for a short sale and foreclosure and two years for a bankruptcy.
Federal mortgage backer Fannie Mae has previously allowed homebuyers who completed a short sale to buy again after two years if they put 10% down, but an automatic underwriting system couldn’t differentiate a short sale from a foreclosure and would spit out a denial. The application could then be referred for a manual review.
Eligibility for a loan fast track hinges on whether borrowers suffered a specific financial event during the recession that, through no fault of their own, caused them to lose their home. Also, the foreclosure or short sale should be the only blemish on a credit report. For an FHA mortgage, the homebuyer must take a housing counseling class. People who walked away simply because their house was underwater likely won’t qualify. “They’ve been taught a lesson. They want their house payment to be affordable,” said Maddux. “The people I’ve dealt with are more excited than ever to own their own home and are sick of renting.”
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