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Real Estate - Residential

Boomerang Buyers Go House Hunting Again

By Ken Little, posted Jul 17, 2015
Austin and Jen Adams had all but given up hope of ever buying another house.

The Wilmington couple, both 37, and their two small boys moved into an apartment after losing the house they purchased before the real estate downturn slammed millions of homeowners across the county.

That was in 2012.

With the help of a Realtor who guided them through the process of becoming homeowners once again, the Adamses moved into their Pine Valley split-level ranch in March 2014.

“We had a really rough go of it the first time. We got into a really bad mortgage, and we weren’t able to refinance,” Austin Adams said.

Unlike the topsy-turvy mortgage on their first home that tripled when the bubble burst in the late 2000s, this time the Adamses were able to secure a fixed-rate, 30-year mortgage through Jen Adams’ state employee credit union.

“We wanted security,” Austin Adams said.
 

Buyers reenter market

The couple is a good example of a new brand of homebuyer coveted by real estate and mortgage brokers: boomerang buyers who lost a home to foreclosure or a short sale but have taken the necessary steps to get back into the market.

According to several real estate publications, nearly one in every five homes purchased later this year and 2016 in some markets will be from that group. Some within the group, like the Adams family, have already made purchases.

An estimated 700,000 of the so-called boomerang buyers in the U.S. – those who were “60+ days past due on a mortgage loan, lost their mortgage through foreclosure, short sale or other non-satisfactory closure or had a mortgage loan modification between the Bubble and Burst” – might rejoin the housing market this year because they can once again meet underwriting requirements, according to a June report from TransUnion.

The report stated that 2.2 million in that segment might buy a house in the next five years.

While some boomerang buyers who are back in the housing market could find they have to make down payments of at least 20 percent to qualify for a loan, others are finding opportunities to put down as little as 3.5 percent or 5 percent down.

“We’re definitely seeing boomerang buyers coming back into the market,” said Tim Milam, president of Coldwell Banker Sea Coast Advantage.

Many lenders are taking into consideration homeowners who lost their properties in the most turbulent years of the economic downturn, which had a tsunami-like effect on the real estate market in coastal areas like Wilmington.

“Lenders are looking at it and realize it was  historic time,” including Fannie Mae and Freddie Mac, Milam said. “In many cases, boomerang buyers really cleaned up their credit and improved their credit score and those people came back in.”

Homeownership figures of 64 percent are the lowest since 1993, Milam said.

“I think when boomerang buyers get back into the market [homeownership figures] will go up two or three points,” he estimated.
 

Second time around

Credit counselors in Wilmington are able to help individuals with credit problems that developed as a result of the economic downturn.

“They advise them how to improve their credit rating and get back on their feet,” Milam said.
It can be a difficult process, Austin Adams said.

“A short sell changed our lives,” he said. “We never thought we would be able to buy a house again. We didn’t want to be renters. We wanted our own home.”

Short sells and foreclosures are still on the market “and we were able to take advantage of that,” he said.

“We were able to get a home we could afford in a nice neighborhood,” he added.

It’s a far cry from the ordeal Austin and Jen Adams went through with their first home.
They found out in 2006 that their mortgage had been split into separate mortgages.

“When it came time to refinance we found one of our mortgages was cut up into little pieces by investors,” making refinancing impossible, Austin Adams said. The other mortgage, making up 80 percent of the home value, was held by a bank.

“They said there was no way to refinance because [the mortgage] was sold three different times,” Austin Adams said. “We didn’t see a way out.”

He took a second job, and the couple moved into an apartment.

“The day my first child was born I had $5 to my name,” he said. “Everything was getting eaten up by the mortgage, the bills, food.

“We went from a $1,100 mortgage to a $2,700 mortgage.”
 

Rebuilding good credit

Recovering from a negative credit event like a foreclosure can take years. Foreclosures can remain on consumers’ credit reports with the three main credit-reporting firms for up to seven years and are factored into their FICO credit scores for all of that period.

The seven-year time frame also applies to short sales or settlements with credit-card companies or other lenders. Bankruptcies can stay on a credit score for 10 years.

With help from professionals, boomerang buyers have found ways to dig themselves out of financial holes created six or seven years ago.

“I think that it’s going to increase over the next five years. I do believe it’s trending up, and I think it will for the next three or four years,” Milam said. “In most cities it’s cheaper than it is to own than rent.”

Boomerang buyers are helping to fuel a robust home-buying market in the region, Milam said.

Milam believes that home sales could rise 4 to 5 percent through the end of this year and continue to rise.

Interest rates “are still historically low, and [home] prices are on the rise,” he said.

“When we have someone come in who has had foreclosures or short sales, we ask them to sit down with a loan officer,” he said. “We can help them navigate to get approved.”

Clients with a particular budget are often counseled to “be a bit more conservative the second time around,” Milam said.

The real estate market in 2005 “was too out of control,” he said. “Stable growth, I think, is a good thing.”

Austin Adams said those in a similar position after losing a house can become homeowners again. He said he decided to tell the family’s story to give hope to others who aspire to be the next boomerang buyers.

“We wanted to make sure people in the same spot know they can get past it,” he said.
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