Contact the Lender
Many people avoid calling their lenders when they have money troubles. Most of us are embarrassed to discuss our money problems with others or believe that if lenders know we are in trouble, they will rush to collection or foreclosure. Lenders want to help you keep your home. Foreclosure is expensive for lenders, mortgage insurers, and investors.
When a borrower misses a scheduled payment, the lender cannot know whether the borrower is delinquent (temporarily delaying payment) or in default (stopping repayment altogether). In this situation, the lender must decide whether to work with a delinquent borrower, possibly renegotiation the terms of the loan so that payments can be resumed, or pursue legal foreclosure proceedings to take possession of the property. Thus, the borrower’s actions determine if a loan is delinquent, but the lender decides whether to consider the loan in default and initiate foreclosure.
Lenders have workout options to help you keep your home. However, these options work best when your loan is only one or two payments behind. The farther behind you are on your payments, the fewer options are available. While there is no guarantee that any particular relief will be given, most lenders are willing to explore every possible action.
Options for Mortgages
Foreclosure options differ among the three main categories of mortgage loans:
- Federal Housing Authority (FHA) loans are insured by the government within specified loan-size limits. Lenders are, by and large, guaranteed against losses.
- Veterans Administration loans are insured by the Veterans Administration for qualified veterans and, like FHA loans, offer lenders protection from losses.
- Conventional loans, although not insured by government agency, may be covered by private mortgage insurance purchased by borrowers. Lenders typically require such insurance for loans when borrowers make a down payment of less than 20%.
The foreclosure rate on FHA loans has long been higher than that on conventional loans, and the gap between them has widened. The fact that FHA loans tend to be made to a population with a higher-risk profile helps to explain this difference.
Learn more about your options.