Did you know that many folks who previously lost their home or suffered financial hardship have created a new type of homeowner?
“Boomerang” or “reemerging” buyers are the up-and-coming trend reviving the housing market. Lenders have realized that this market exists, and customers that have gone through the task of rebuilding themselves financially are redesigning face of home ownership.
Lenders are now creating loan products and services that reflect this unique customer profile. Keeping this in mind, here’s what the “Reemerging” homebuyer needs to know before returning to home ownership after financial hardship.
- Wait it out. Waiting periods are a common penalty for “Reemerging” buyers, but it’s not always clear how long the wait will be because guidelines vary among lenders. For example, The Federal Housing Administration (FHA) imposes a three-year wait to obtain a new FHA loan. Most lenders follow the same guideline, but it is worth checking with the lenders you are interested in using before applying for a mortgage product.
- Fix your credit sooner than later. “Reemerging” buyers tend to assume they’re ready, even when they still have issues that need to be addressed. Monitoring your credit on a regular basis is key to ensuring that your credit profile is accurately reported and that a lender will consider you mortgage-ready. In addition to regularly reviewing your credit report, look to address these lender “red flags”:
- Make sure you’ve re-established a history of paying bills on time.
- High amounts of debt compared to your income can be a problem, so work to pay down outstanding debts before you apply for a mortgage. You’ll have a better chance of meeting the lender’s debt-to-income ratio guidelines that way.
- Ask your prospective lender(s) to contact CAIVRS. “Reemerging” buyers whose foreclosed loans were backed by the FHA or U.S. Department of Veterans Affairs should be aware of CAIVRS, a government-run database of government-guaranteed loan delinquencies. Borrowers whose unpaid government-insured debts are tracked in CAIVRS typically can’t obtain new government-backed debt. CAIVRS isn’t publicly accessible, so borrowers must consult an authorized lender to find out whether their foreclosed loan is listed.
- Be prepared to make a down payment. “Reemerging” buyers who purchased their prior home with little or no cash are often surprised to learn that a down payment is required because products before the economic downturn were much more lenient in this regard. The FHA requires a down payment of at least 3.5% of the purchase price and most lenders have similar policies. What’s more, to avoid having to pay mortgage insurance, which can be a large expense added to your monthly payment, lenders ask for at least 20% of the purchase price as a down payment.
- Get pre-approved. Research local banks and credit unions to find those that specialize in “reemerging” home ownership. If you are not sure about approaching your local lender, contact one of NWBRV’s homeownership coaches who can help you through the process.
- Have a solid plan and stick to it. Create a realistic “Spending and Savings Plan” to ensure success in your new venture including a review your budget and additional ways to save or create more income. Note: If your budget needs a little tweaking from time to time that is okay! As you become more conscience of your spending this will and should happen.
- Educate yourself. Take a homebuyer education class and/or work with a personal financial empowerment coach to make sure you are prepared for your new venture and are aware of new regulations or policies that could effect the purchase process for you. Specifically look for coaches or educators that are H.U.D.-approved or trained to ensure you are receiving services that meet federal homebuyer and financial education standards and guidelines.
- Enjoy the experience. By asking questions and being a savvy, prepared home buyer, the process will be less stressful to you. Enjoy looking for a new home and celebrate the accomplishment when you finally have those keys in your hands.
Our HomeOwnership Center Team is here to help you through the process and have experience working with reemerging buyers to help them achieve their new home ownership dreams. Contact us to learn more about how we can help or to share your success!