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How to Get a Mortgage Loan out of Default

by Amber Keefer

You are in default of your mortgage loan once you get more than 30 days behind in making a payment. Although your mortgage lender can begin the foreclosure process if you miss just one payment, most wait several months before taking the first step toward foreclosure, according to Nolo.com. While it’s better to get help before defaulting on your loan, there are options available to get out of default and avoid the bank foreclosing on your home.

Negotiate with your lender an affordable repayment plan that will allow you to catch up on missed payments and bring your loan current. Explain why you were having problems and what kind of help will improve your financial position. Suggest spreading repayment of the past due amount over several months by adding the extra onto your regular monthly payments.

Contact a housing counselor for information on how to save your home from foreclosure. A foreclosure avoidance counselor at a housing agency that participates in HUD’s Housing Counseling Program will offer the advice free. Ask about government programs available for avoiding foreclosure or for help in writing a hardship letter for your lender.

Ask your lender if you qualify for the partial claim option. If you fall behind in your FHA mortgage loan, the lender may advance funds from your mortgage insurance policy to bring your loan current. Request no more than what you would pay in principal, interest, taxes and insurance, or PITI, for 12 months. HSH.com points out that your mortgage payments must be at least four months overdue to be eligible.

Request mortgage forbearance if your financial problems are only temporary. Your lender may be willing to reduce or suspend your monthly mortgage payments for up to 90 days, according to Bank of America. Since terms of mortgage forbearance vary by lender, discuss the length of the forbearance and the repayment terms. Expect to repay any past due amount once your finances improve.

Apply for a mortgage loan modification to get a lower interest rate and longer repayment period. Explain in your hardship letter to the lender how reduced loan payments will help get you back on stable financial footing. Depending on the reason for your financial troubles, mortgage modification may even forgive some of the loan principal.

Ask your lender to consider a short-sale agreement. If you don’t qualify for loan modification, your lender may be willing to accept a payoff amount for less than what you owe on your mortgage loan and forgive the remaining balance. Find out at the onset how much of the outstanding mortgage principal the lender is willing to forgive. Knowing what offer the bank will accept can make it easier to find a buyer.

Tips

  • The chances are your lender doesn’t want to foreclose on your mortgage and may be willing to work out a repayment plan with you.
  • Besides talking to a housing counselor, you can call 888-995-HOPE any time during the day or night for free foreclosure assistance.
  • To qualify for the HUD partial claim option, you must resolve the financial issues responsible for you defaulting on your mortgage loan before applying.
  • A short sale saves the lender the cost of foreclosure and you won’t owe the outstanding mortgage debt. It can also do less damage to your credit score than having a foreclosure on your credit report.

Warnings

  • Qualifying for forbearance doesn’t forgive any portion of the mortgage debt you owe but it gives you time to catch up on late payments.
  • Mortgage modification is a complex process that can take months.
  • Even though you are repaying your mortgage loan, mortgage modification can hurt your credit score.

About the Author

While business skills are essential in any career field today, my MBA degree in combination with more than 25 years of employment experience in the fields of human services, higher education, health care, continuing care services for senior adults, and freelance writing have aided me in developing a number of strategic strengths including: · Commitment to providing the highest quality of written work · Effective communication and writing skills · Reliability and high standards for writing · Initiative and ability to thoroughly research a topic {{}}

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