Do FHA Loan Foreclosures Differ from Conventional Loan Foreclosures?
Because the Federal Housing Authority has funds at stake if you default on your mortgage, the organization will help you avoid FHA loan foreclosure. This assistance makes the FHA foreclosure process much less burdensome on most borrowers. However, if you do eventually default on your FHA loan, the consequences of the default can be worse than with a private loan.
Foreclosure Prevention Assistance
FHA lenders may consider restructuring your loan to allow for lower monthly payments you can afford. Typically, FHA lenders are more willing to refinance than other private lenders. To capitalize on this option, you will usually have to show an immediate emergency that is affecting your ability to pay.
For example, if you lost your job, you may be eligible for a monthly payment adjustment. It is valuable to note that FHA loans are not the only type that may offer this adjustment. In times of recession, lenders want to do all they can to assure you pay off your loan on time. If not, they end up losing money. Most lenders will offer a new payment structure if you can prove there is an external factor that is preventing you from fulfilling the terms of your contract.
FHA Insurance Pool Payment
Your lender may be able to work on your behalf to obtain a one-time payment from the FHA insurance pool. If the lender is successful with this, your mortgage will be brought up to date without you making the payments. You may qualify if you are delinquent on at least 4 months of payments but less than a year of payments. You have to show you will be able to pick up the payments in the future if the FHA can cover these missed payments in between. Your lender will do most of the paperwork for you, filing a claim with the FHA. You will only need to sign a promissory note to the FHA for the payment amount. You will have to repay this insurance payment, but you can do so without interest. You will also have until the mortgage matures or you sell the home to pay off this additional loan.
Foreclosure on an FHA Loan
If you cannot avoid foreclosure by one of the methods above, then you will have to go through the foreclosure process, which is not altogether different from a private loan foreclosure. You will receive several notices when your mortgage becomes delinquent, and you will receive more notices when it moves into the default stage. At that point, you will receive a notice of default with a stipulation on the time you have to vacate the property. Once you have defaulted on an FHA loan, you will not have the opportunity to use the organization's financial assistance in the future. The key to surviving in these situations is to avoid the foreclosure at all costs. If you have to sell the home in the pre-foreclosure stages, you will still come out in better shape then if you are removed by court order.