What Are Foreclosure Loans?

Foreclosure loans are loan refinancing arranged for homeowners that are facing foreclosure. A foreclosure loan helps the homeowner stay in the home by arranging new terms, conditions and interest rates for the existing loan. This opportunity only exists however for homeowners that meet certain conditions.

Qualifying for a Foreclosure Loan

Qualifying for a foreclosure loan depends on the criteria set by a lender willing to extend such a loan. One of the most important qualifications is that the homeowner must meet a minimum credit rating in order to be eligible, as well as their debt-to-income (DTI) ratio and ability to pay the loan. The eligible credit rating varies from lender to lender. Every lender determines their criteria on whether a borrower meets a lender's qualification. The most common eligibility criteria are:

  • Borrower setback due to extraneous circumstances (such as job loss, divorce or death)
  • Borrower demonstrates ability to pay loan
  • Borrower maintained acceptable payment history before financial hardship surfaced
  • Borrower is willing to share the equity of the home
  • Borrower can demonstrate financial hardship is behind them

Typically foreclosure loans have lower payments and lenders achieve lower payments in many ways. They can reduce the rate temporarily, reduce a portion of the loan amount, extend the repayment terms. Every lender works differently, so it is best to call your local lender for a list of their requirements.