What a ‘boomerang homebuyer’ needs to get a home loan again

WASHINGTON — Many homeowners who lost their houses to foreclosure when the housing bubble burst are expected to begin buying homes once again.  As they sit down with lenders, many “boomerang buyers” may be in for a shock when they discover what is required to get a loan.

“The game has changed,” said Steve Cohen, mortgage banker with Talmer Bank and Trust in Rockville, Maryland.

It generally takes seven years for a foreclosure to disappear from a person’s credit report. Cohen says after the time has passed, a lender will document a previous foreclosure or short sale, but it won’t prevent someone from getting a loan.

During the time that a person was ineligible for a loan, they should have focused on raising their credit score.

Cohen says that if a homebuyer wants to take advantage of some of the lowest interest rates for mortgages, they should have a score of 680 or more. To get a loan, the lowest a person’s credit score should be is 640.

Cohen says the process for applying for a loan has also become stricter. Before the housing market crisis, a good credit score could qualify an individual for no-documentation loan.

“Today every ‘I’ needs to be dotted and every ‘T’ crossed,” Cohen said. Bank statements, W2s, pay stubs and other documents will be required.

Big changes have also happened to the debt-to-income ratio. Cohen says that before the bottom fell out of the housing market, some homeowners got loans with debt-to-income ratios up to 70 percent. Those days, he says, are gone.

Now, someone looking to receive a home loan must have a debt-to-income ratio of 43 percent or less. That means the car payments, credit card payments, and proposed mortgage payments of a person making $10,000 a month cannot collectively exceed $4,300.

The final shock for returning buyers may be the amount they need to bring to the table for a down payment. Some loans require three to five percent down, but others could be required to bring a 20 percent down payment to the table.

Cohen says the rules come with a goal of getting you the right mortgage: “Something that is going to allow you to enjoy your home and not stress you financially,” he said.

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