Loans for People in Foreclosure

Loans for people in foreclosure are often a last attempt at keeping a home after the mortgage payments have been delinquent for some time. Borrowers must use caution to make sure they do not wind up with a loan product that is designed to swindle desperate homeowners.

Assistance programs exist for some people facing foreclosure.

In the past, loans for people in foreclosure were relatively difficult to find. Many people wound up unintentionally signing over the title of their homes to so-called lenders who preyed on desperate homeowners on the precipice of foreclosure. After the real estate market bubble burst and the economy started to sour, many legitimate lenders and assistance programs began offering loans designed to assist borrowers in keeping their homes and avoiding foreclosure.

The increase in legitimate loan products for people in foreclosure does not mean that there aren't still many unscrupulous lenders looking to swindle home titles from unsuspecting borrowers. The need to exercise caution when seeking out a loan while in foreclosure still exists and is still very real.

Loans for people in foreclosure generally come in two different forms:

• Loan Modification: This is a restructuring of the mortgage loan. It allows the borrower to start fresh without obtaining a full refinance. Modifications are not offered by all lenders.
• Loan Refinance: This pays off the existing loan and creates a new loan with new terms and conditions. Refinancing a delinquent mortgage loan is not easy and may result in a higher interest rate unless the homeowner is able to qualify for an assistance program.

Where should a homeowner start looking for a loan when facing – or already involved in – foreclosure? There are different options, and not everyone qualifies for all these options.

In the vast majority of instances, lenders would much rather assist homeowners in keeping their homes instead of forging ahead with a foreclosure. The process of foreclosing on a home is a costly one for everyone involved, so in some cases it's financially better for the lender to work with the borrower and offer a modification or full refinance.

Contact your lender to ask about the possibility of restructuring the loan or refinancing into more favorable (and affordable) terms. Keep in mind that borrowers who have always paid their mortgage loans on time may receive a more favorable reaction than borrowers who have always sent in mortgage payment sporadically and have been delinquent in the past. Also keep in mind that despite the hefty costs associated with foreclosing on a home, some lenders simply aren't willing to work with borrowers.

Some homeowners are able to obtain mortgage refinances through other lenders. There are not many lenders who are willing to refinance a mortgage loan that is in foreclosure, but these lenders certainly do exist. In most instances, borrowers should be prepared to pay interest rates and fees comparable to other subprime mortgage loans. In other words, the interest rates can be quite high and the fees can be substantial. A mortgage refinance, however, allows the borrower to keep the home.

Governmental assistance programs are available to some borrowers through state or federal programs. The main focus for these loans are homeowners who originally obtained adjustable rate mortgages (ARMs) and want to refinance into fixed rate mortgages because the monthly payments have escalated far beyond their financial capability. Some assistance programs allow homeowners at risk for foreclosure to refinance their loans regardless of the terms of the original home loan.

Borrowers can expect the process of obtaining government assistance for a foreclosure loan to involve mandatory credit counseling programs and may also obligate the borrowers to someday pay back a portion of income gained if the home is eventually sold.

Contact your state's housing office or The Federal Housing Administration for more information regarding assistance programs designed to give loans for people in foreclosure.

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