Death in the family, illness, loss of a job, or divorce can take a great toll on our daily lives and finances. If tragedy strikes and you are unable to afford your monthly mortgage payments and find yourself falling behind, you may be able to modify your home loan to catch up and avoid foreclosure.
Boomerang Buyer? Do This Before You Purchase A Home
Many homeowners find themselves falling behind on their monthly mortgage payments and may find themselves foreclosing on their home. When it comes time to buy a home again, you will be considered what is known as a boomerang buyer.
Why Am I A Boomerang Buyer?
During the housing crisis of 2007, many homeowners lost their home to foreclosure after being lent subprime mortgages. Now, these former homeowners are at a point to be able to purchase a home again.
Simply put, you are considered a boomerang buyer when you foreclosed on your home and have recovered to buy a home again. Since you have been through the home buying process before, you should know what to expect. Regardless, before you start the process of purchasing a home again, remember these steps:
Complete The Waiting Period
It can take up to 7 years to recover from a foreclosure enough to apply for a home loan again, depending on your specific lender guidelines. Once you have completed this waiting period, you can begin to apply for home loans again. It is important to remember that the waiting period does not start until the foreclosure process has been completed.
Pay Down Your Debts
If you had a mortgage backed by the government, like the FHA program, you will not be eligible for a loan until you have fully paid off that debt. If you have other debts like a car or student loan, it’s a good idea to pay off as much as you can to reduce your debt-to-income ratio so a lender can better assess your loan eligibility.
Reestablish Your Credit
As a boomerang buyer, you will have to have reestablished your credit from the hit you took when you foreclosed on your home. By improving your credit you will have more loan options open up to you, as a good credit score implies to lenders that you are responsible in meeting your financial responsibilities.
There are several ways you can improve your credit after a mortgage including, but not limited to:
- Paying all debts on time, every time
- Not taking on more debt through large purchases like a car
- Getting a secured credit card and using it responsibly
- Getting credit for paid rent
Get Preapproved For A Loan
Getting preapproved for a loan will show that you have a lender supporting you and have been approved for a certain amount. Preapproval will also help you manage your expectations by avoid looking at homes that are out of your price range.
Set A Responsible Budget
To avoid becoming a boomerang buyer, it is essential that you budget correctly before you think about purchasing a home to make sure that you can keep up with the financial responsibility. A good, responsible budget will help you make your monthly payments as well as other obligations like being able to purchase groceries.
If you are a boomerang buyer, consult with your trusted financial advisor and lender to better understand what you need to again purchase a home.