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As with other credit lines, going through a foreclosure will affect your credit score and your ability to get credit in the future. Just how much your credit if affected will depend on several different factors including how far you are behind on your mortgage, your ability to pay your other lines of credit, and how you choose to proceed through a foreclosure, whether you choose a short sale, deed in lieu of foreclosure or straight foreclosure.

Foreclosure and Deed in Lieu of Foreclosure – Experts cite that your credit score will fall 200-300 points once the foreclosure is recorded on your credit report. When deciding whether to hand over the deed or let the bank foreclose, your credit will likely be affected about the same, so staying in the home while not paying your mortgage until the foreclosure is processed may be advantageous to give you time to save money to move.

If you have a foreclosure on your credit report, buying a new home will be extremely difficult for 2-4 years as lenders will not be willing to offer loans with a reasonable interest rate.

Short Sale – A short sale, where you sell your home for less than you owe, will affect your credit by 100-300 points, but typically less than a foreclosure as creditors view the fact that you made an effort to get the debt paid off in a positive light compared to just letting the home go into foreclosure.

With a short sale on your credit report, you may be able to buy a new home within 2 years as Fannie Mae has adopted new guidelines. This is especially true if you were current on your mortgage payments, it’s the late payments that affect your credit score, not the short sale.

Whether you go through a straight foreclosure or a short sale, it’s important to begin rebuilding your credit immediately by making credit payments on time so you have the ability to buy another home when your income is stable again.