Boomerang Buyer Research Paper

In the aftermath of the last real estate bubble and financial crisis, millions of homeowners across the country lost their homes in a short sale or foreclosure. These homeowners have spent the last seven years renting homes, rebuilding their credit and their financial reserves. These buyers that have history of a short sale, foreclosure or bankruptcy are referred to as Boomerang Buyers and a ready to re-enter the housing market. Boomerang Buyers are driven for the same reason that they bought a home in the past. They want their own place and see it as a good investment. The boomerang buyer has already been through difficult times in the past seven years and is willing to do what it takes to buy another home. However, depending on their credit, …show more content…
For a buyer, it gives them the ability to buy a home while they rebuild their credit. It also allows the buyer to lock in the purchase price in the event that home prices rise over the next few years. The buyer and seller are agreeing on the terms and price the home will sell for now. In many cases, the buyer will pay higher than market value on the rent with a portion of the rent going towards the down payment needed to buy the home at a later date. The buyer can also pay an option premium which gives the buyer the right or option to buy the home at a later date. The premium is then applied towards purchase price should the buyer decide to exercise their option to buy. The buyer is not obligated to complete the transaction and understands that the premium paid is non-refundable.
Although different, there are also many benefits to a seller. With a diminishing number of buyers since the real estate bubble, “Rent to Own” gives sellers access to more potential buyers that cannot qualify for a loan because of bad credit. It also allows them to have an income producing property, cover their carrying costs of the home and potentially selling at a higher price than they would in today’s market. A “Rent to Own” buyer is more likely to care for the seller’s property because he or she has a vested interest in the …show more content…
Another good alternative for the Boomerang Buyer is to find a seller that is willing to do seller financing. It looks similar to “Rent to Own” in the sense that the buyer/renter will continue to make payments to the former seller until they can obtain a loan. During this time, the buyer should be working on rebuilding their credit. The biggest difference between seller financing and “Rent to Own” is the ownership of the property is changed to the buyer/renter with seller financing. The buyer then pays the former owner payments towards the loan for a purchase that has actually taken place rather than rent payments being applied towards a purchase that may or may not ever happen. With seller financing, the interest rate on the loan is typically much higher than what banks are offering home buyers. Since the terms of the loan are not federally regulated, the parties involved in the transaction can negotiate the terms. However, since the buyer does not have good enough credit to obtain a loan through a bank, they are at a disadvantage when negotiating an interest rate. The seller feels they can charge a higher interest rate because they are offering buyers an opportunity to finance a home when a bank could