Boomerang buyers are homeowners that were victims of financial hardships such as bankruptcy, short sale or foreclosure in the past few years that are now eligible for financing to become home owners once again.
The waiting period to buy again after a financial hardship will vary based on what your hardship was, when it occurred, and what type of loan you are trying to qualify for.
Default After Bankruptcy
One of the most common misunderstandings around including a mortgage in bankruptcy is that the your no longer owe the mortgage. This is not true at all.
This gets a little confusing because bankruptcy protection does protect you against any tax liability and default judgements brought on by the lender, but that doesn’t relieve you of your responsibility to make on-time payments if you wish to stay in the home.
If your intention is stop making payments on the mortgage, it will result in a default of the loan, which would allow the lender to then start the foreclosure process.
As the homeowner, you may also choose to short sell the home, which in some cases would allow you to buy again sooner than if you allow the lender to foreclose.
By including a mortgage in bankruptcy, in almost all cases the lender stops reporting the mortgage on the credit report. This is where the challenges stem from when an uninformed lender pre-qualifies buyers re-entering the real estate market.
Uninformed Lender Misleads Home Buyer
Identities are withheld, but this is an actual situation that one of our readers encountered recently:
Home discharged in bankruptcy 11/08. Sheriff sale 01/10. Trying to buy a new home, supposed to close tomorrow – they are saying no, hasn’t been 3 years since foreclosure… What? We are trying to get a credit upgrade, but bank of America says the loan was closed the same day as the sheriff sale – shouldn’t we only have to wait 2 years after bankruptcy if the loan was included in it? We left the home in 11/08
This poor family is the victim of an uninformed lender that never should have “pre-qualified” them in the first place. The bad news is that this family, expecting to be home owners by the time this article is published, had their hopes dashed and possibly lost money on home inspections and appraisals that they cannot get back.
The good news is that they will be eligible to buy in January 2013 using FHA financing. This is only 60 days away and would not have been such a big deal to wait if their lender would have only known the underwriting guidelines.
If you had a foreclosure, short sale or deed in lieu of foreclosure after a bankruptcy, you must use the longest waiting period of the most recent hardship as the starting point for when you can buy again.