From early 2008 to the end of 2012 the biggest topics in Real Estate were “Short Sales” and “Foreclosures.” Starting in August of 2013, we’ve seen a change in the short sale inventory with a significant reduction coming this past January. The lack of short sales is contributing to the overall lack of inventory at this time and there is nothing filling that void. That is problematic for the market, but the question I’d like to address in this article is more about the person who went through a short sale and might be wanting to now get back in the market. Is that possible? Well yes, in fact it is and there is a special name for that kind of buyer: “boomerang buyer.” This is a term that was coined by Forbes. It defines a Boomerang Buyer as a person who has owned a home, seen the benefits, has been pushed out of home ownership for one reason or another, and is now ready to get back into the market.”
What are the rules and guidelines that these buyers need to follow to get back in the market? The ideal situation for a buyer who has a short sale on their record is to make sure that their credit has been well taken care of since the short sale. All bills must be paid for the past 12 months and they must also have a good down payment. There are several programs to help these buyers get back in the market. See the chart below:
|Loan Type||Waiting Period||Requirement(s)|
|FHA||No waiting period||-borrower did not default on prior mortgage at the time of short sale
-all mortgage payments on previous loan & other payments were on time for 12 months before the short sale
-borrower did not take advantage of the mortgage market at the time
|3 year||-borrower did default at the time of short sale|
|Under 3 year||-borrower can prove extenuating circumstances|
|Fannie Mae/Freddie Mac||2 year||-borrower can put 20% down, or
-VA mortgage with 10% down
|4 year||-borrower can put between 10 and 19.9% down|
|7 year||-borrower can put less than 10% down|
It is also very important that the borrower make sure the short sale was correctly recorded on their record. Very often, short sales are recorded as “foreclosures” on credit reports. This is more detrimental to the credit score than a short sale. A foreclosure demonstrates that the previous lender had to use legal action to take ownership of the home after the borrower missed payments on their mortgage.
This could easily get a lender to deny the application.
One of the most interesting things about this information is the impact it can have on the market now and the near future. Forbes points out that because of the FHA minimizing the waiting period for these short sale buyers from 36 months to 12 months, there are nearly 2.5 million additional homeowners who could potentially enter the market as a boomerang buyer now. Some estimate that there are another 4.5 million potential buyers that went through foreclosures from Sept 2007-Aug 2010.
This raises an interesting question about the multi-billion dollar industry that is now renting single family homes to many former owners. Does this mean there is a paradigm shift to renting? Is it because these formers owners are being cautious about buying or are many of them unaware that they may be in the position to buy now or soon will be?
These are interesting questions to ponder. Regardless, there are still great opportunities for investors to position themselves as landlords now and sellers in the future. In addition, think about the investor who can be the bank for a tenant who went through a foreclosure and now wants back in the market but is uneasy about going to the bank. That’s where you make the best thing in the world “mail box money”.