If a foreclosure is an isolated event on an otherwise good credit record, consumers may be able to rehabilitate their record and garner better loans and card rates in 24 months, says Ulzheimer.
But since a foreclosure is rarely the former owner's only credit slip-up, and foreclosures are often combined with the fallout of punishing rates, some former homeowners will never climb back up to a good credit score, Ulzheimer says.
Buying another home of one's own
Fannie Mae has just upped the length of time it takes from the completion of a foreclosure sale until the borrower can get a new mortgage from four years to five years.
The extra year is designed to deter what Fannie Mae believes are borrowers who have made reckless debt decisions. But foreclosed owners who can explain that extenuating circumstances -- typically situations beyond someone's control, like a job loss -- are the impetus for the foreclosure must wait only three years.
Perhaps the best option for obtaining a mortgage after foreclosure is with a federally insured FHA loan, says Jerry DuPaw Jr., a McHenry, Ill., mortgage loan officer.
The minimum time between the completion of foreclosure until when you can be approved for an FHA loan is three years -- whether or not there are extenuating circumstances. Still, FHA borrowers will have to show that they've been practicing good bill-paying habits since the foreclosure.
Owing a potential employer an explanation
Should you lose your job as well as your home, your new job hunt shouldn't be hindered by the subject of your foreclosure coming up in job interviews -- unless you're applying for a job in which you handle money.
"We recommend that employers do credit checks when they are concerned about how financially responsible someone is -- which may be for any money-related position from a cashier to an accountant," says Robin Throckmorton, a Loveland, Ohio, human resources consultant.
The federal Fair Credit Reporting Act has rules employers must follow, such as notifying the applicant of the credit check, and most companies limit checks so as not to run afoul of the law.
If a foreclosed owner is applying for a financial job, he or she should have an explanation ready, perhaps describing how the foreclosure has changed some of his or her personal money-management skills today, suggests Throckmorton.
Getting hit with a tax bill
It seems like the ultimate injustice: You lose your home and then weeks or months later you open the mail and find a bill for taxes on the amount of mortgage that the lender was never able to recover from the sale of the property.
Anytime debt is forgiven, it's a potentially taxable event. You are not paying back money that you borrowed, so that money is considered income by the IRS.