When you’re looking for a way to expand your customer base, don’t neglect former homeowners who could be ready to bounce back into buying.
Known as “boomerang buyers,” John Burns Real Estate Consulting estimates that of the 5.3 million households who lost their home to a foreclosure or short sale from 2007 to 2013, 2.8 million will become homeowners again by 2021.
In some ways these boomerang buyers resemble first-time homebuyers in that they tend to be a little skittish and cautious, says Kim Wirtz, a Realtor with Century 21 Affiliated in Lockport, Ill.
In fact, since the federal government’s definition of a first-time buyer is someone who hasn’t owned a home in the previous three years, some boomerang buyers may qualify for first-time buyer programs in your area.
“I’ve stayed in touch with people I helped with a short sale and let them know when they could be eligible to buy again,” says Wirtz.
Educating Boomerang Buyers
Many boomerang buyers don’t even realize they could qualify to buy a home again, says Christina Griffin, a Realtor with Coldwell Banker Residential Brokerage in Tampa, Fla.
“I hold homebuyer workshops and do Facebook posts to educate people about how they can qualify to buy a home again,” says Griffin.
How soon a boomerang buyer becomes eligible for new financing depends on whether they lost their home to a short sale, a deed-in-lieu of foreclosure or a foreclosure. In addition, buyers can qualify sooner if they can prove hardship such as a job loss, divorce or illness caused the financial crisis that ended in the loss of their home.
“Normally it takes at least two years after a short sale to reestablish your credit and have 24 months of on-time rental payments,” says Griffin. “However, often a foreclosure also causes other programs such as car loan defaults or credit card debt, which could take three or four years or longer to recover from.”
For buyers who aren’t quite ready financially to buy again or who have had a recent foreclosure or short sale, Griffin recommends Home Partners for America, a lease-to-own program that provides an interim solution.
“People can rent a home through that program while they rebuild their credit and then go onto the open market to find a house to buy,” says Griffin. “Agents can check out this program in their area to make connections with future buyers.”
Financing for Boomerang Buyers
Realtors should establish relationships with several lender partners, particularly those with experience working with people with less-than-perfect credit.
“A lender can help people develop a plan to recover from their previous financial situation,” says Griffin. “The prospective buyers may even need help with credit repair from the National Credit Federation or another reputable organization, so agents should know which ones are good.”
Conventional loan requirements generally require a waiting period of seven years after a foreclosure or a bankruptcy and two to four years after a short sale depending on the credit score of the borrowers and the amount of cash they have for a down payment. FHA rules require a three-year waiting period for both short sales and foreclosures.
“Some small banks will approve a loan in less time for borrowers with decent income and good credit,” says Wirtz. “They may charge a half-percent higher interest rate because of the extra risk, but it’s often worth it for buyers so they don’t have to wait.”
Wirtz says buyers need to have a strong preapproval letter from a lender before they start house hunting. She also makes sure they are comfortable with the payment and understand that they may want to borrow less than the maximum amount their lender has approved.
“We offer a complete menu of programs with our guidelines because we do non-qualified mortgage (QM) loans,” says Raymond Eshaghian, president of GreenBox Loans in Los Angeles. “We’ll approve loans for people with credit scores as low as 500 one day after a foreclosure. But we do have tiered pricing, so they will pay a higher interest rate than someone with an older short sale and better credit.”
Eshaghian says borrowers must make a down payment and prove that they have the ability to repay the loan.
“If the borrowers have had a recent housing event such as a short sale and have a low credit score, we ask for 30 percent down,” says Eshaghian. “If it’s older or they have better credit, we’ll require 20 or 25 percent down.”
Cash and Boomerang Buyers
New construction can be a good fit for boomerang buyers because builders often offer closing cost assistance that reduces their need for cash, says Griffin. In addition, buyers can be confident they won’t need to spend a lot on repairs.
“Most boomerang buyers make a small down payment of 3.5 to 5 percent, especially if they haven’t had a lot of time to rebuild their savings,” says Griffin. “They often qualify for homeowner assistance programs that can help with down payment and closing costs.”
DownPaymentResource.com has information about homebuyer programs in different states. Realtors can access information on behalf of their clients or provide the link directly to buyers.
If you want to work with boomerang buyers, it’s smart to build your relationships with lenders and homebuilders. Sharing your knowledge with prospective buyers could provide a future pipeline of customers.