A Second Chance for Foreclosed Homeowners and Another Boost for the Economy
Fast Fact: More than 5 million households lost their homes to foreclosures and short sales. Today, almost 80% say they’re wiser and ready to own again. And now they can.
It’s interesting when you think about it.
The housing victims of the Great Recession – those 5 million people who lost their homes to foreclosure or short sale— may be the very same people who, simply by buying homes again, yank our economy out of its lingering doldrums.
Dubbed “Boomerang Buyers,” these displaced homeowners may be the key to our full economic recovery.
While recent economic news seems to indicate a steady recovery of the housing market, there are some troubling trends:
- The current housing recovery has largely been driven by investors buying homes as rentals, which means the rate of American homeownership hasn’t really been rising. In fact it remains at an 18-year low of 64.9 percent.
- Some of those investors have been pulling out of the market as prices and interest rates rise, causing the housing market to lose steam.
- Stringent mortgage rules that went into effect in January are strong-arming many former potential buyers out of the market.
- Historically, we’ve never been able to completely recover from a recession without a recovery of the housing market first.
HOW DO BOOMERANG BUYERS HELP?
These Boomerang Buyers have tasted homeownership, experienced its benefits, and now they want back in — just in time to pick up the gap caused by tougher mortgage rules, higher interest rates, and diminishing investor interest.
More than 80 percent of those who lost a home to foreclosure or short sale want to buy a home again.
BUT WILL THEY QUALIFY TO BUY?
The good news is that the clock is already ticking on mandatory waiting periods for those who lost their homes to short sales and foreclosures.
Until recently, Boomerang Buyers had to wait as long as 7 years after a foreclosure or short sale, but recent changes are loosening those requirements.
Some recent events:
Fannie Mae recently corrected its loan approval system. It had been forcing homeowners to wait as much as 7 years, the maximum waiting period after a foreclosure, if they lost their home to a short sale. Loss of a home to a short sale should have a shorter waiting period, as little as 2 years, for qualified candidates. Fannie Mae has rectified the problem, which is allowing many homeowners to enter the market this year.
FHA launched a new initiative, the “Back to Work” program, which can shorten the waiting period to as little as one year if they meet some criteria:
- Pay their bills on time for a year
- Show that the hardship that caused them to lose their home was a result of job loss or reduced income that resulted in at least a 20% loss of income for 6 months.
- Have a credit score of at least 620.
HOW DOES A BOOMERANG BUYER GET STARTED?
The first step is an hour-long credit counseling session with a HUD approved counselor. You can find one on HUD.gov.
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