What is a boomerang buyer, you ask?
It is one that had a bankruptcy, foreclosure or short sale on their home, homeowner association, condo or co-op and who are coming back into the market to purchase another home, homeowner association, condo, or co-op.
According to lendingtree.com, many people who have filed for bankruptcy, have been able to re-establish their credit after two to three years and have successfully been able to apply for a mortgage and receive a written commitment.
Many think or believe that one would have to wait seven to 10 years to be able to re-apply for a mortgage, personal or auto loan. That is not necessarily the case today.
Being able to rid some of the derogatory marks on one’s credit report can be accomplished, but it does take a little bit of time, say, 2-6 months or more; it’s all dependent upon what is on your credit report.
Some judgments or liens (any type of tax liens) could stay on for a longer period; but there are many variables that will contribute to the length of time, eg.
How long it might take for you to pay off debts to the I.R.S. and the S.A.T. (satisfaction of lien), would not be taken off until all payments have be successfully completed.
Lending Tree did a study with over 1 million loan applications for mortgages, personal and auto loans and compared borrowers who had gone through a bankruptcy that was on their credit report vs. those who did not, to find out the “Cost of Bankruptcy.”
The study found that 43.2 percent of Americans who filed for bankruptcy were able to restore their credit back to a 640 F.I.C.O. (Fair Isaac Corporation) (850 is perfect vs. 450, is the worst!) in as little as one year.
The percentage of those who were able to increase their credit score to 640, increased to 75 percent, after five years!
More important, was that Americans who were able to raise their credit scores to a range of 720-739 within three years of filing were able to obtain the same financing options as those who had never filed for bankruptcy!
The Federal Housing Administration, or FHA, imposes a three-year wait to obtain a new FHA loan, and most lenders follow that guideline, says Bert Carpenter, a loan officer at Nova Home Loans in Chandler, Ariz.
Waiting periods can be shorter for portfolio loans that lenders keep on their own books or longer for so-called conforming or conventional loans that lenders sell to Fannie Mae and Freddie Mac, the government-controlled secondary mortgage market entities, Carpenter adds.
Those buy-now loans typically involve what Carpenter calls “ugly” financing terms. The interest rate will be higher than market rates and might be adjustable or fixed only for an initial term of three, five or seven years.
Waiting periods don’t start until the foreclosure is completed, according to Jim Sahnger, a mortgage originator at FBC Mortgage in Jupiter, Fla.
Moving out of the house or mailing the keys to the lender doesn’t start the clock. Some rebound buyers’ only credit impairment was their foreclosure. These buyers can repair their credit faster than would-be buyers whose credit history contains other issues, Carpenter explains.
Either way, buyers must “get their credit house in order,” paying off or settling old accounts and bank judgments, he says.
“Your first objective is that since you’re going to have to wait, make sure the rest of your credit is clean. That way, when you move into the phase when you’re almost out of your penalty period, you’ll know it’s just a matter of waiting,” he says.
A foreclosure remains on a credit report for seven years, though the negative impact will fade as time passes, according to myFICO.com, a website operated by the FICO credit-scoring company.
An established history of paying other bills on time can help. The website explains that a foreclosure is “a single negative item,” which does less damage in isolation than in conjunction with other late or missed payments.
High current debt relative to income also can be a problem because lenders won’t approve a loan if the borrower’s debt-to-income ratio exceeds their guidelines. Rebound buyers whose foreclosed loans were backed by the FHA or U.S. Department of Veterans Affairs should be aware of CAIVRS (Credit Alert Interactive Voice Response System), 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.
“If a claim has been paid by the federal government on a previous mortgage, you’re ineligible until you repay the government the claim amount that was paid,” Carpenter explains. CAIVRS isn’t publicly accessible, so borrowers must consult an authorized lender to find out whether their foreclosed loan is listed.
The bottom line is that all is not lost when you declare bankruptcy or go into a foreclosure or a short sale situation; since life and credit scores can and will be re-established in a reasonable time frame if you work at it or hire a credit repair company.
We think we have one of the best ones around and if you need assistance or help with any of your credit issues and you want to re-establish your credit in the future with the hope of buying a home, don’t hesitate to call me to see how we can help you further your goal.
Phil Raices is the owner/broker of Turn Key Real Estate at 7 Bond St. in Great Neck. He has earned the designations as a graduate of the Realtor Institute and is a certified international property specialist. He can be reached by email:[email protected] or by cell (516) 647-4289 to answer any of your questions or article suggestions or provide you a free comparative market analysis on your property.