Although reports show that the economy is slowly climbing its way back up, there is still no shortage of homeowners facing foreclosure and short sale. This is a very troubling time, especially if you bought your home thinking that you would be able to refinance it, if you ever found yourself in a financial emergency. But with the crash of the housing market and the drop in home prices, many found themselves with no equity to be able to do so. In this event, it seems that renting is the only option. But is it?
Your ability to purchase a home after a foreclosure or short sale really depends on your credit score. When your house goes in to foreclosure, your credit score is greatly impacted. In order to get approval from a lender for mortgage, the lender generally likes to see a score of at least 620. But even then, down payments are going to extremely high and your interest rate may make the purchase not even worth it.
And aside from your credit score, lenders will see the foreclosure in your credit history (missed mortgage payments, ect). This typically will lead a lender into refusing to give you a mortgage. If you were lucky enough to not have the foreclosure reflected on your credit score yet, foreclosures are still viewable by public record and many lenders will pull this record before making their decision.
If you were able to do a short sale rather than foreclose on your home—this is often a better option—your chances of purchasing a house after a short sale are much higher than after a foreclosure. Studies show that there may be little to no waiting period after a short sale unlike a foreclosure that may take up to three years.