Waiting on the Boomerang

Return or boomerang buyers have grown in numbers in recent years. Forecasts indicate that these former homeowners who experienced a foreclosure or short sale will return to the market in greater volume in the years ahead. However, lack of knowledge about special financing programs or lender overlays are hampering this group’s return.

Several factors could hinder a boomerang buyer’s ability to purchase another home including an impared credit score, a weak job situation, or a family matter. Mandatory waiting periods for financing through the FHA, VA, or the GSEs also impact return buyers. As depicted below, the FHA, VA, and GSEs restrict acces to credit following a foreclosure for a minimum of 3, 2 or 7 years (bottom left), respectively, though the GSEs are more lenient for a short sale.

However, if the consumer can prove that they lost their home due to a decline of income, loss of employment or some family situations they may be eligible for the extenuating circumstances criteria. Consumers eligible for this program may be be able to attain financing in as little as a year through the FHA or VA programs (above right).

The chart above depicts the distribution of years in which the foreclosures or short sales took place for return buyers who purchased their subsequent home in 2014.[1] The data is also displayed by the type of financing used. Because each financing program has a standard and extenuating circumstances option, one would expect to find two concentrations of buyers in each distribution: one around[2] the standard time frame and another near the extenuating circumstances opportunity. This two-hump or bicameral pattern is evident in the conventional (green), but not for the VA (red) and FHA (blue). The difference in timing for the VA program is minimal and may result in the single hump. However, there is only one peak in the FHA’s distribution as well and it is higher or more concentrated than the other two distributions. Furthermore this point is four years prior to 2014, suggesting that the bulk of return buyers who use the FHA’s program are waiting three years and not taking advantage of the shorter extenuating circumstances option. Likewise, the VA distribution is most concentrated three years prior to re-purchase, aligning with the two year wait under the VA’s standard foreclosure definition.

There are four potential reasons for borrowers not taking advantage of the shorter waiting period of the extenuating circumstances program at the VA and FHA:

• Consumers are not aware of the program,
• FHA and VA customers do not qualify for the extenuating circumstances,
• Lenders are not aware or do not offer the program, or
• Overlays are having an impact on this group’s ability to credit qualify for the program

Unfortunately, we cannot measure consumers’ awareness of the FHA’s program from this survey nor can we measure these consumers’ credit scores. Survey work by the FHA indicates that the majority of former homeowners who were financed by the FHA and experienced a foreclosure or short sale would have qualified for extenuating circumstances[3], but this does not necessarily imply that they would choose FHA financing again as pricing was higher for the FHA than conventional in 2014. However, these consumers’ initial choice of FHA suggests that they are either credit, capital or capacity constrained and would likely choose this program again. Finally, a review of several lenders’ product offerings suggests that many lenders do not offer the shorter option[4] for FHA and VA products. Furthermore, because this group’s credit scores are impacted by distress sales which can take years to recover[5], well documented credit overlays[6] on FHA production could be having a disproportionate impact. While not definitive, the latter two issues may be constraining this group.

From 2006 to 2014 nearly 9.3 million homes were foreclosure on or short sold. Homebuyers who experienced a short sale or foreclosure are returning to the market in growing numbers and will continue to do so over the next decade. While financing channels have expanded to provide opportunities for these potential return buyers, limitations persist.

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[1] Special thanks to Brandi Snowden for preparing these cut of the 2014 Profile of Home Buyers and Sellers

[2] Ability to recover credit score and build down payment as well as the blend of foreclosures and short sellers may spread re-entry around these points.

[3] This may be different for owners who used VA or conventional financing on their initial purchase

[4] See Scotsman Guide’s FHA/VA/Government matrix for September or October of 2015

[5] For additional details on time to recover credit scores see http://economistsoutlook.blogs.realtor.org/2015/04/17/return-buyers-many-already-here-many-more-to-come/

[6] http://www.urban.org/research/publication/opening-credit-box/view/full_report

Article By Ken Fears on Realtor.org

Courtesy of First Choice Title Services & Escrow, Inc.

First Choice Title Services & Escrow, Inc

3 SW 129th Avenue, Suite 202

Pembroke Pines, FL 33027

Phone (954) 433-7680

Fax (954) 433-7355

maria@firstchoicetitleservices.com

What Everybody Ought to Know About a Home Appraisal

You’ve found the home that meets your needs and are ready to make an offer. Before you can actually get through the door, however, you have to go through the home appraisal. A home appraisal will determine how much the home in question is really worth. The worth or value of the property will in turn determine how much your lender is willing to give you to buy the home.

The What and The Why

In short, a home appraisal is the part of the mortgage process when a state-licensed and certified real estate appraiser determines the value of a property. This professional is an independent third party who can have no financial stake in the outcome of the appraisal. Lenders generally require a home appraisal if you are using the home as collateral for the loan. It ensures that the property is worth as much as the bank will be investing, and keeps buyers from overpaying for a home.

The How

A home appraisal is paid for by the buyer as a part of the home loan process at closing and costs around $300, depending on the price of the home. An appraisal notes and includes details including an estimate of how long it will take to sell the home, where the home is located, how the type of area it’s in will affect the value, how the property compares to three other similar properties in the area (comps), and any draw backs to the property (foundation, access, condition, etc). The appraiser will also look at lot size, square footage, the materials making up the interior of the home, fixtures, improvements made to the home, the foundation, exterior condition of the home, systems (air conditioning, sound system, security system), and outdoor features (pool, deck, etc). Check out this uniform residential appraisal report from Freddie Mac for a better idea.

The appraisal is normally carried out in three steps, including a physical visit to the home (a few hours), a comparison of the home to comparable properties in the area that have recently sold, and the creation of the report (all together taking about seven days).

If You’re the Seller

If you’re the home seller and want to make sure your home gets appraised for at least the amount it’s listed for, there are things you can do to positively impact the appraisal.

First off, clean your home or hire someone to do it for you. A clean, well-kept house tends to net a higher appraisal. Tend to the home’s exterior and up its curb appeal by pulling weeds, mowing the lawn, and touching up peeling paint. Make small improvements like fixing holes in the drywall or getting rid of unsightly stains in the carpet. If you can, provide the appraiser with a list of comparable homes that have recently sold. Although they will do this regardless, it’ll be nice for them to know you did your research before settling on a listing price. Lastly, provide the appraiser with a list of improvements and updates you’ve made to the home as well as a list of the positive aspects of your neighborhood (including new grocery stores, parks, schools, etc).

 

In Closing

Although there is no fixed expiration date on an appraisal, many lenders consider them outdated after six months. You are allowed to accompany the appraiser during the home appraisal and have the right to view a copy of the appraisal.

If you’re unhappy with the appraisal, most lenders have appeal procedures called “Reconsiderations of Value.” If you’re aware of home improvements or recent, comparable sales that were unavailable or weren’t considered by the appraiser, provide this information to your lender. If there were legitimate problems with the first appraisal, you can always obtain a second appraisal. Furthermore, lenders are required to report legitimate complaints.

Overall, home appraisals are normally carried out in a professional manner and provide added security to the buyer. If the appraisal comes out at a markedly lower price than the listing price, you may have dodged a bullet.

By HouseHunt

First Choice Title Services & Escrow, Inc
3 SW 129th Avenue, Suite 202
Pembroke Pines, FL 33027
http://www.firstchoicetitleservices.com/
Phone (954) 433-7680
Fax (954) 433-7355
maria@firstchoicetitleservices.com