How to Bring Your Loan Current Again

A 2004 Freddie Mac study exposed a major problem among homeowners who were behind on their mortgages. 61% of these homeowners were unaware that their lender offered programs to help them keep their homes. Here's a brief description of those 5 programs.

1. Reinstatement - You bring the loan current by paying back everything you owe in one large installment.

2. Repayment Plan - You catch the mortgage up over a period of a few months with payments that are larger than your usual mortgage. Many lenders will initially offer you repayment plans of 3-6 months. Some will go as long as 12 or 18 months if you can show them that you need more time.

3. Forbearance - This program is really helpful when your financial problems are short-term. A forbearance gives you a smaller mortgage payment for a specific number of months. Some lenders may even let you go without making any payment for a short time. When the forbearance is over, you are generally expected to bring the loan current with a reinstatement or repayment plan.

4. Modification - For many, this is the program of choice. A modification occurs when your lender changes one or more of your loan terms to bring your mortgage current again. It can get you a lower payment if you've had a permanent reduction in income. You can also use a modification to move all the money you presently owe to the end of the loan. With this kind of modification, you just make your regular mortgage payment again.

5. Partial Claim - Unfortunately this program is for FHA loans only. With a partial claim, the government cuts your lender a check to bring your mortgage current. That allows you to start making your regular mortgage payment like nothing ever happened. The government, or more specifically HUD, puts an interest-free second mortgage on your property for the amount that they paid. The best part is that you don't have to make a monthly payment on the HUD loan, just your first mortgage.

Many lenders utilize a special loss mitigation department to work with borrowers who are behind on their mortgage. Their job is to get you into the program that is most appropriate for your situation.

Refinancing and Bankruptcy

When you lender won't approve you for one of the techniques listed above, you might want to consider refinancing your loan or declaring bankruptcy.

6. Refinancing - A new loan can give you a fresh start, but there are many restrictions. As a borrower, you become a greater risk as you fall further and further behind on your mortgage. As a result, any new lender is only going to loan you a certain percentage of your home's value. You may end up with a higher monthly payment than the one you had before. One way around the issue of a higher payment is to pay off some other debts with the new loan.

7. Bankruptcy - Because of its long-term credit implications, a bankruptcy should only be considered as a last resort. A Chapter 7 will only stall the foreclosure process for 30-90 days. It's not an effective long-term solution. A Chapter 13 bankruptcy can force your lender to accept payments on the past-due amount. But, you would also have to make your regular mortgage payment as well. Be sure to seek qualified legal council if this is an alternative you are considering.

What You Can Do Next

Once you have selected a way to stop foreclosure, it's important to take action as soon as possible. The amount of time a lender has to wait to foreclose varies from state to state. So pay attention to any notices that you receive from your lender or from your county court.

No matter what anyone tells you, you won't be evicted from your home until after the home is auctioned off or awarded to your lender in court.