If you fall behind on your FHA-insured mortgage loan, you might be able to get help from something called a partial claim payment, which is a loan from HUD paid to your lender to avoid foreclosure.
To be eligible for a HUD partial claim you must have missed at least four payments, but no more than 12. And you have to show that you'll be able to pay your mortgage after the claim is paid, and that you will use the property as your primary residence.
How It Works
The Federal Housing Administration (FHA) is an agency of the Department of Housing and Urban Development (HUD). Part of HUD's mission is to make affordable housing available for everyone.
The primary way HUD makes financing a home possible for people who wouldn't otherwise qualify for a mortgage is through the FHA's insurance programs. The FHA's mortgage insurance programs allow approved lenders to give loans to people who would not qualify for a regular mortgage by protecting the lender from losses if a homeowner defaults on their loan.
When a homeowner with an FHA-insured loan defaults on their mortgage, HUD's partial claim program comes into effect and pays the lender in lieu of the borrower to keep foreclosure from happening.
The money for a partial claim payment comes from the yearly premium borrowers pay on their FHA-insured loans, which is based on a percentage of the loan. Those premiums are placed into an insurance fund, which HUD draws from to pay a partial claim.
Getting A Partial Claim
If you want a partial claim on your FHA-insured mortgage, you should contact your lender and tell them about the hardships that caused you to have problems paying your mortgage. You'll need to apply to see if you qualify for participation. If you do, your lender can send a partial claim request to HUD.
If HUD approves you for a partial claim and pays your lender to prevent foreclosure, you will sign an interest-free promissory note for the claim amount. The loan is like a balloon payment that doesn't have to be paid back for a number of years, or when the home is sold or refinanced. It's basically a second mortgage.
Paying The Partial Claim Back
If you want to pay off your partial claim before you sell your home or pay off your first mortgage, make sure to contact your bank and let them know. Just sending in extra money and assuming it will be applied the way you want it to be won't do. Banks have been known to misapply payments.
There are other options borrowers with FHA-insured mortgages, such as an unemployment forbearance, which reduces or suspends mortgage payments for a period of time.
There are also loan modifications, which involve making a permanent change to one or more of the terms of your mortgage. It's possible to get a loan modification when you're current on your mortgage or years behind. Often the monthly mortgage payment will be made more affordable by extending the term of the loan, reducing the interest rate, and/or reducing the principal.
Falling behind on your mortgage can have very serious consequences for your life and finances. You may not be aware of all of the possible solutions and how to go about achieving them. That's why it's so important to speak with a knowledgeable and trustworthy expert, such as a foreclosure defense attorney to understand what your options are.
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