"Boomerang Buyers" take heart!
In mid-August, the FHA gave some hope to the many (I'd say a solid majority) of Americans who have been adversely affected by the debilitating economic downturn of the last six years. In recognition of the overwhelming forces outside any one household's control which the prolonged economic crisis has caused, a special provision was put in place to observe an "Economic Event" when considering mortgage applicants who otherwise would be disqualified due to a recent bankruptcy, short sale, deed-in-lieu or foreclosure. While I certainly believe even more flexible (though I'll be happy to never see negatively amortizing loans ever again) mortgage lending options should be accessible for today's buyers, the FHA is providing "boomerang buyers" a fighting chance.
How to tell if you are a "Boomerang Buyer"
Put simply, if you lost your home in the last six years, and want to get back into owning a home, you are what is commonly being referred to as a "boomerang buyer" implying your intention to "return" to home ownership. Having since stabilized your income and eventually your recent credit to go with it, you may have regained some financial strength after having lost your home in any number of ways when the financial crisis of 2008 found it's way to your door. Traditional mortgage lending (the only kind one can find today, apart from "private money"), meaning conventional (Fannie Mae, Freddie Mac) or government (FHA, VA) guidelines have until August required various and often extensive 'waiting periods' after a bankruptcy, short sale, deed-in-lieu or foreclosure which excluded many individuals and households who apart from the unavoidable effects of the economic decline, had solid credit history prior to and after the crisis hit. Now, FHA at least is providing a true alternative.
Did you have an "Economic Event"?
The FHA has long been the bastion of old-school, common-sense and often "manual" underwriting practices, born in 1934 out of that other huge economic downturn known as the Great Depression. The FHA, by way of the Department of Housing and Urban Development (HUD) now considers an "Economic Event" as an "extenuating circumstance" allowing borrowers to bypass waiting periods greater than twelve months otherwise required in the event of a bankruptcy, short sale, deed-in-lieu or foreclosure. An Economic Event is defined by HUD as "any occurrence beyond the borrower's control that results in Loss of Employment, Loss of Income, or a combination of both, which causes a reduction in the borrower's Household Income of 20 percent or more for a period of at least 6 months," which may sound like someone you know if not yourself.
You still need evidence of a minimum 12 months on-time payments
Common sense underwriting demands a clear documentation of events, showing not only steady credit history prior to the Economic Event, documentation showing the effects of the event itself and most importantly, twelve months of steady credit history after the Economic Event showing the recovery. I should note this also promising information for first time home buyers who have been hit with a recent bankruptcy due to an Economic Event as defined by HUD and documentable as I described. If anything I am describing in this blog entry pertains to you, and perhaps you felt like you would be forced to wait on the sidelines while mortgage rates ticked upward and your real estate purchasing power conversely ticked downward, I hope I have provided you some "real-time, real-life" encouragement concerning buying a home. Contact me if this applies to you, let's try to make the most out of this opportunity while can!
Sylvia Harsin
714-612-5373
Sylvia@sylviaharsin.com
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