| Path | What it is | Who it works for | Your credit and the loan | What you walk away with |
|---|---|---|---|---|
| Catching up or a repayment plan | Full reinstatement means paying everything you're behind, including fees and costs, in one lump sum. A repayment plan adds part of what you missed to your regular payment for a while. | Freddie Mac says a repayment plan must last more than one month but no more than 12 months. So it fits when your income has recovered enough to pay extra each month. | Reinstatement makes your loan current again. On a repayment plan, your lender may still treat the loan as late and report it until you're fully caught up. | You keep the house. |
| Loan modification | A change to the terms of your loan. It may stretch out the years, lower the rate, or put off or reduce part of the principal. | Owners whose income can carry a new payment over the long run. | FHA and VA modifications can add missed payments and related costs to your loan balance. If you get a modification and still can't make the payments, you may lose your home. | You keep the house, with new loan terms. |
| Forbearance | Your servicer pauses or lowers your payments for a while. You still owe the full amount and pay the difference back later. | Owners with a short-term setback who expect their income to come back. | It doesn't erase or shrink what you owe. Interest on paused payments could keep adding up until you repay them. | You keep the house. With one kind of forbearance, you pay the whole paused amount back at once when payments restart. |
| Selling on the market | You sell the house. The money pays off the mortgage and the selling costs, and you keep whatever is left. | Owners whose home is worth more than they owe. | It's typically better for your money and your credit than a foreclosure, a short sale or a deed in lieu. You don't need your servicer's approval to sell. | Whatever is left after the mortgage and selling costs. |
| Short sale | Selling your home for less than you owe on the mortgage. It needs your servicer's approval, and you have to find the buyer. | Owners who owe more than the house would sell for. | For a new Fannie Mae loan, the usual wait after a short sale is four years, or two with documented extenuating circumstances. For a new FHA loan, it's generally three years. In some states, the lender could sue you afterward for what's still owed. | No equity, and you have to move out. On a Fannie Mae loan on your main home, you're entitled to $7,500 for moving costs, unless an exception applies. |
| Deed in lieu of foreclosure | You voluntarily turn over ownership of your home to the lender to avoid foreclosure. | Owners who can't sell and can't keep the house, when the lender agrees. | For a new Fannie Mae loan, the usual wait is four years, or two with documented extenuating circumstances. For a new FHA loan, it's generally three years. Make sure it covers the entire amount you still owe. | Qualifying could mean you don't owe what's left on the mortgage after you move out. On a Fannie Mae loan on your main home, you're entitled to $7,500 for moving costs, unless an exception applies. |
| Letting it go to foreclosure | The lender takes action to collect the debt by selling your home after you stop making payments. | Nobody chooses it on purpose. It's what happens when nothing else gets done in time. | Foreclosure will hurt your credit, and it generally stays on your credit report for seven years. For a new Fannie Mae loan, the usual wait is seven years, or three with documented extenuating circumstances. | Usually nothing. Late in the process, you're also charged the lender's attorney fees as part of what you owe. Any surplus depends on your state's rules. |
| Selling to me, one of five ways | I buy the house by a cash offer, taking over your payments, seller financing, a lease option or a novation, whichever makes the deal work. | Owners who want to sell, especially if time is short, the house needs work, or there's too little equity for a cash offer. | It depends on the way. A cash offer or a novation pays the loan off when the house sells. Taking over payments or a lease option leaves the loan in your name for a while, with the risks on those pages. | What we agree on in writing. I never charge you a fee. |
Where selling to me fits, and where it doesn't
If you want to keep the house and your income has come back, start with your lender. Catching up, a repayment plan, forbearance or a modification can let you stay, and I can't offer you that.
If your home is worth more than you owe, selling it is typically better for your money and your credit than a foreclosure, a short sale or a deed in lieu. If you also have time, listing with an agent may get you more than my cash offer would. I'd rather you know that up front.
Where I fit is the in-between: you want or need to sell, and time is short, the house needs work, or there isn't enough equity for a cash buyer. That last case is where most "we buy houses" offers stop, and where taking over payments, a lease option or a novation can still work. See a worked example.
HUD-approved housing counseling agencies give foreclosure prevention counseling for free. Talking to one before you decide anything is a good idea, whatever you choose.
Sources
- Freddie Mac: Options to stay in your home (myhome.freddiemac.com)
- CFPB: What is a repayment plan on a mortgage? (consumerfinance.gov)
- CFPB: What is a mortgage loan modification? (consumerfinance.gov)
- HUD: FHA’s Loss Mitigation Program (hud.gov)
- VA Help To Avoid Foreclosure (va.gov)
- CFPB: What is mortgage forbearance? (consumerfinance.gov)
- CFPB: Avoid foreclosure (consumerfinance.gov)
- CFPB: What is a short sale? (consumerfinance.gov)
- Fannie Mae Selling Guide: Significant Derogatory Credit Events — Waiting Periods and Re-establishing Credit (selling-guide.fanniemae.com)
- HUD Handbook 4000.1, FHA Single Family Housing Policy Handbook (PDF) (hud.gov)
- Fannie Mae Servicing Guide: Fannie Mae Short Sale (servicing-guide.fanniemae.com)
- CFPB: What is a deed-in-lieu of foreclosure? (consumerfinance.gov)
- Fannie Mae Servicing Guide: Fannie Mae Mortgage Release (Deed-in-Lieu of Foreclosure) (servicing-guide.fanniemae.com)
- CFPB: How does foreclosure work? (consumerfinance.gov)
- CFPB: If I lose my home to foreclosure, can I ever buy a home again? What impact will a foreclosure have on my credit report? (consumerfinance.gov)
- HUD: Avoiding Foreclosure (hud.gov)
- CFPB: What is a HUD-approved housing counseling agency, and how can they help me? (consumerfinance.gov)