When You Can Buy After a Foreclosure

NEW YORK (TheStreet) -- Various reports say that people who lost their homes to foreclosure are lining up to buy again, or getting ready to, having spent the prescribed time in renter purgatory. But it's not a given that anyone who can buy again should rush back in.

Although a foreclosure is a black mark, many of those who had their homes taken by lenders a few years ago can borrow again fairly soon. The Federal Housing Administration requires a three-year waiting period before it allows an applicant to qualify for a new loan; the Veterans Administration requires two.

For a new mortgage backed by Fannie Mae or Freddie Mac the wait can be as long as seven years. But it can be as short as two if the borrower avoided foreclosure with an alternative such as a short sale or deed in lieu of foreclosure. Making a large down payment can trim the wait too.

If you're ready to borrow again, it's worth shopping around, assuming your credit history has been pristine in the years since the foreclosure, short sale or deed-in-lieu.

Even if a lender will approve you, does it make sense to become a homeowner again?

The disasters millions of homeowners suffered in recent years provide a reality check on homeownership. It should be clear now that owning a home is not the guaranteed path to prosperity many had thought. Though a nationwide collapse in home prices was unprecedented, dips in local markets come fairly frequently. And that's all it takes to up-end your finances -- a price drop in your neighborhood.

Over the long run, owning is generally better financially than renting, because with a fixed-rate loan your monthly principal and interest payment never rises. Renters are likely to face rent increases almost every year, and renters' payments never end, as owners' do if they stick with it until the mortgage is paid off. The owner builds equity that can be used to fund retirement years or be passed to heirs; renters don't.