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Hope for Boomerang Buyers

Hope for Boomerang Buyers

The financial crisis that started in 2008 caused many homeowners to lose their properties to foreclosure, deed-in-lieu or short sale. This pertains to the mortgage industry as an “adverse event,” and will affect one’s ability to get a mortgage after the crisis has passed.

Many people feel that the stigma of foreclosure will haunt them for the rest of their lives, forever keeping them from becoming homeowners again. While an adverse event presents some challenges to someone coming back to the market, hence the term, “boomerang” it is by no means a permanent barrier.

First, let’s clarify what these events are, and explain how to recover from them. Be aware there are different guidelines for conventional, FHA and VA loans.

 

Conventional loans

Foreclosure is when a lender makes a loan to buy or refinance real estate, the property is its security for that loan. If the homeowner does not make the payments as agreed, the lender can force the sale of the property to get its money.

“Deed-in-lieu of foreclosure,” or simply, “Deed-in-lieu” is when a homeowner chooses to avoid the ordeal of foreclosure by simply deeding the property back to the lender.

Many homeowners, knowing that they owed more on their homes than they were worth, sold their homes as “short sales.” This meant that the lender agreed to accept less than the outstanding balance when the property was sold. Lenders refer to this as a “pre-foreclosure sale.”

A buyer will have to wait seven years from a foreclosure to qualify for a new conventional mortgage. If they did a short sale or deed-in-lieu, that time drops to four years.

 

A possible loophole

A borrower may be able to claim that “extenuating circumstances” were responsible for their financial woes. These are specifically defined as, “non-recurring events that are beyond the borrower’s control that results in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations.” They must document these events thoroughly; a simple letter of explanation won’t be sufficient. The lender requires divorce decrees, medical reports or job severance notices to confirm acceptable extenuating circumstances.

 

FHA and VA loans

These guidelines are more forgiving. FHA loans require three years from a foreclosure or deed-in-lieu or just two years after a short sale. VA allows just two years to have passed.

Extenuating circumstances can shorten these time frames as they do for conventional loans. For FHA loans, the criteria are a bit more exacting; a homeowner who received a job transfer and couldn’t sell his property would not be able to claim extenuating circumstances, for example. A decrease in income is not by itself an extenuating circumstance for an FHA loan, but it may be acceptable if there is other supporting documentation.

VA loans are more lenient. They require just two years from a foreclosure, deed-in-lieu or short sale. A buyer may be able to claim extenuating circumstances, but they are largely up to the underwriter’s discretion.

 

What to make of this

The events following the 2008 crisis and the ensuing recession were traumatic for many. Job losses or changes, transfers, and plummeting real estate values all caused people to lose hope of ever getting the life they hoped to have. But there is always hope. No one should assume they are forever locked out of the housing market because of earlier financial tribulations. They should look at their situation with fresh eyes, with some knowledge, and the realization that the dream of homeownership is still attainable.

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PHONE: (303) 649-1245

FAX: (888) 752-8254

ADDRESS: 10700 E Geddes Ave, Suite 155 Englewood, CO 80112

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Terms and Conditions Apply. HOUZ MORTGAGE RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet Houz Mortgage’s and/or investor underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Rates and Terms are subject to change at any time without notice and are subject to state restrictions. Licensed by the Colorado Division of Real Estate. Houz Mortgage loans are originated by Colorado Homesmartz, LLC DBA Houz Mortgage, NMLS # 1578407. (www.nmlsconsumeraccess.org)

Lowest rates are reserved for most creditworthy applicants; not all who apply will qualify for the top tiers. Rates and APRs are subject to change and may not be available at the time of lock or loan commitment. Interest rates are subject to potential increases over the life of the loan, once the initial fixed-rate period expires. APR for adjustable rate mortgages are subject to increase after fixed rate period and does not include 3rd party costs or prepaid interest. Please contact one of our Licensed Mortgage Loan Originators at (303) 649-1245 for a customized rate and payment quote.


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COVID-19 Update

March 12: Today, we closed Houz's Englewood office and asked everyone based there to work from home as a precaution due to COVID-19. Houz was prepared for this and is fully functioning during this time. Please do not bring any paperwork to the office and make alternative arrangements by calling (303) 649-1245 or by contacting your personal loan team until further notice.