Homeowners

How to Prevent Foreclosure: Navigating Your Options

Facing the possibility of losing your home to foreclosure can be overwhelming and frightening. But even when the situation seems dire, there may be ways to avoid foreclosure and keep your home.

The first step is to face that uncomfortable issue head-on. Waiting to address missed mortgage payments could make the problem even worse. If you lost a job, had an unexpected expense, or are having trouble paying your mortgage, the sooner you talk to your lender, the more options you may have to work things out.

Many homeowners are surprised to find that lenders are often willing to help.

“Once a homeowner initiates the conversation that they are experiencing a financial hardship that impacts their ability to pay their mortgage, we discuss the totality of the financial situation,” said Chelsea Krahn, a home retention outreach supervisor at New American Funding. “Assistance options vary based on the responses.”

Homeowners may be offered an informal forbearance, which may allow them to temporarily pause or lower your payments, a loan modification, or a repayment plan. They may also request support through a Request for Mortgage Assistance (RMA) application.

How late mortgage payments can affect your credit

It’s important to keep in mind that late or missed mortgage payments can have a big impact on your credit score.

A single late payment can stay on your credit report for years, potentially making it harder to qualify for loans or secure lower interest rates in the future.

That’s why it’s important to take action before your mortgage payment is overdue, if possible. Staying on top of your payments—or working with your lender to create a plan—may help to protect your credit and prevent long-term financial damage.

Exploring your options to avoid foreclosure

If you’ve missed a payment, don’t panic. There may be several ways to avoid foreclosure, depending on your situation.

Mortgage forbearance

One option is mortgage forbearance, which allows you to pause or reduce your payments for a short period. This can be helpful during times of financial difficulty, like job loss or unexpected expenses.

However, once the forbearance period ends, you’ll have to repay the missed payments to keep your loan in good standing.

Mortgage repayment plan

For those facing short-term financial troubles, a mortgage repayment plan might be a better fit. This lets you spread out the missed payment over a set amount of time. This may make it easier to catch up without a large, lump sum.

Loan modification

Another option is a loan modification. This changes the terms of your loan to make the payments more affordable. Your lender might extend the length of your loan, lower your interest rate, or roll the delinquent amount into the new loan balance.

While this won’t reduce the total amount you owe, it can make your monthly payments more manageable and prevent foreclosure.

“We offered a loan modification [to a homeowner] that reduced their monthly payments and extended the term of the loan,” said Krahn. The homeowner was facing foreclosure due to unexpected medical bills and reduced work hours. “With the lower payment, the homeowner could manage their finances better and even found a part-time job to supplement their lost income.”

Common misconceptions about foreclosures

Many homeowners believe that missing just one payment means they’ll lose their home immediately—or that lenders want to foreclose as soon as possible.

"The foreclosure process doesn't begin until you are at least 120 days delinquent," said Krahn. 

You don’t lose your home immediately after that, either. The full foreclosure process took an average of more than two years for homes that were foreclosed on in the second quarter of 2024, according to real estate data firm ATTOM.

Considering last-resort options

If other options to prevent foreclosure don’t work out, there are other paths that homeowners may want to explore.

For example, short financing allows the lender to forgive part of your debt and refinance the remaining amount into a new loan. Although it’s not as widely available as it once was, it may be worth looking into if you need additional options.

Another possibility is refinancing with a hard money loan, which comes from private lenders.

These loans often have high interest rates. However, this could provide you with some more time to sell your home and avoid foreclosure. This should be considered a last resort, though, because of the high cost.

If foreclosure still seems unavoidable, you may want to consider bankruptcy.

It can negatively affect your credit and make it harder to qualify for future loans, but it temporarily halts foreclosure proceedings through something called an automatic stay.

This should only be considered after careful thought and talking to a legal professional. A bankruptcy can stay on your credit report for up to 10 years, depending on the type.

No matter which path you choose, taking action early is crucial.

"It is always easier to get back on track when you stay in communication regarding assistance options,” said Krahn.