Will You Be A “Boomerang Buyer”?

April 08, 2015

Since 2008, over 14 million homes have been lost to foreclosure. It may have been caused by a job loss, illness, or other heavy financial burden, but whatever the cause, losing a home can feel like a financial defeat….NOT SO! In 2014, roughly 10% of home purchases will be made by homeowners who lost their home to foreclosure or short sale between 2007 and 2013. These new homeowners, affectionately called “boomerang buyers,” did not give up on their desire to own a home and you shouldn’t either. Here are some steps you can take following a home loss to get back in a home of your own:

Step 1: Create a plan

Now that you have a goal in mind (i.e., buy a home), it’s time to start building a plan. That plan should include specifics, like when do you want to buy this home, how much do you want to put down, and what credit score do you want to achieve. As part of that, you should have a spending plan in place that includes saving for a home. You can use this calculator to figure out how much to set aside each month for your down payment. (For general help with managing your cash flow, check out these 5 steps to successful money management.)

Step 2: Rebuild your credit

A foreclosure will stay on your credit report for seven years, but that doesn’t mean you can’t start rebuilding your credit right away. Staying out of debt, making payments on time, and maintaining different forms of credit are ways you can improve your credit. There are also online services that can help you monitor your credit, like Credit Karma or Credit Sesame, so that you can set a goal for your credit score and track your progress toward it.

Step 3: Save up for emergencies

No matter what your financial goal, you have to prepare for the unexpected. A lack of an emergency fund may have contributed to what happened before, so we want to make darn sure it isn’t a reason for it to happen again. Most financial professionals recommend setting aside 6-8 months of expenses in case of a loss of income or heavy financial need. If you don’t already have an emergency fund, you can these 5 ways to grow an emergency fund to get started.

Step 4: Save up for a down payment

Most lenders will not even consider lending money to you again until at least two years have passed since your foreclosure, so don’t let the proverbial grass grow under your feet. Instead, start aggressively saving up for your down payment. To have the best chance of qualifying for a mortgage again, make it a personal goal to save up enough to put down at least 20%.

If you’ve run into some hard times recently and have lost a home (or may lose your home) as a result, don’t fret. Lenders are willing to give you a second chance. Strive for a 20% down payment, a 680 or better credit score, and at least 6 months of expenses in your emergency fund. It’s not a guarantee, but taking these steps will increase your chances of becoming a future “boomerang buyer.”