The Boomerang Buyers Regain FHA Loans

boomerang ready to throw
A few years ago, foreclosures were epidemic. While they are still ongoing, property repossessions have certainly decreased. The very same former homeowners that were foreclosed upon are now back in force and ready to take out financing to purchase a new home. This just goes to show that despite the difficulties brought about by the housing bubble burst, there is always hope—provided a borrower can receive financing.

These are the so-called “boomerang buyers”—people who went through foreclosure, sometimes only a few years ago, but have now returned to purchase a home. This is due to the fact that borrowers must wait a period of time after defaulting on a mortgage before they are once again eligible for an FHA loan.

An FHA loan is financing guaranteed by the Federal Housing Administration. The FHA is tasked with assisting qualified borrowers in obtaining a mortgage that is backed by the federal government. Mortgages backed by the government carry lower risk for lenders and have several additional options attached to them. For this reason they are highly prized and sought after.

According to the Wall Street Journal, real-estate agents, mortgage brokers, and home builders have noticed that a rising number of their clients and customers are boomerang buyers.

Two of these boomerang buyers, Ronda and Mark Martinez, lost their home in 2007 to foreclosure. Since then, their family has managed to repair its finances and is preparing to purchase a home in Phoenix.

“Initially people are upset and think, ‘I’ll never buy again.’ But there’s no reason to give up on owning,” she said in an interview with the Wall Street Journal.

Ironically, the relatively low cost of buying, compared to the increasing cost of renting, is what is causing many former homeowners to return to the market as boomerang buyers.

“Most are not ashamed or bashful about what happened because so many people were forced into that reality in the last six years,” says Graham Epperson, vice president of sales in Arizona for the PulteGroup, told Reuters.

Moody’s Analytics estimates that there are 729,000 households that were foreclosed upon but are now eligible again for an FHA loan. This number is estimated to grow to 1.5 million by early 2014. While not all of these former homeowners will receive FHA loans, they will certainly be able to apply.

Buyers with a foreclosure in their past usually find FHA loans to be desirable. FHA loans require smaller down payments compared to conventional mortgages. However, they are slightly more costly over the long run since they have higher interest rates. FHA loan borrowers are also forced to purchase mortgage insurance, whereas conventional financing only requires insurance if one doesn’t put down 20 percent.

The success of these boomerang buyers hangs on the FHA’s willingness to work with previous foreclosure victims. Borrowers, boomerangs or not, should enjoy and take advantage of government financing if they qualify. Many Americans, should feel relieved that homeownership is once again within reach—even after something as personally devastating as a home foreclosure. Perhaps the dismal economic clouds over America are finally clearing.