The share of homes purchased by return buyers or “boomerang” buyers, those who formerly short sold a home or were foreclosed on, increased significantly in recent years. NAR Research estimates that 8% or nearly 350,000 home sales were to return buyers in 2014. It’s important to note though, that the majority of these borrowers according to NAR Research were likely of prime quality before entering foreclosure and that they prefer safe, affordable financing for their return purchase.
According to NAR’s 2014 Profile of Home Buyers and Sellers, 41% of return buyers financed their home with FHA backing, while 30% used conventional financing like Fannie Mae or Freddie Mac and another 25% used VA. The VA and FHA allow for shorter time-out periods when a buyer is not eligible for financing and for smaller down payments which likely accounts for their large share of return buyers. That left just 2% for “other” forms of financing that may include riskier products with high interest rates and fees like non-QM and subprime loans…roughly the same share of non-QM loans as for the full market. However, respondents indicated in the 6th Survey of Mortgage Originators that both lenders and investors remain pensive about non-QM loans, favoring higher quality and holding them in portfolio limiting the risk to the market.
Return buyers also favor stable products for their return purchase. A 92% majority of return buyers used a fixed rate mortgage product in 2014, while 5% used a mortgage with a fixed period followed by an adjustable rate. Only 1% of return buyers used a fully adjustable product.
Nearly 9.3 million former homeowners went through a foreclosure or short sold between 2006 and 2014. Many have returned, but many more will come over the next few years. Luckily, there is safe, sound financing waiting for these credit-worthy borrowers.