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FHA Foreclosure: What to Do When You Can’t Make Your FHA Payment

The Federal Housing Administration (FHA) is a government program that offers loans to borrowers who are looking to buy a home. There are some perks of obtaining an FHA loan vs a conventional loan, like being able to come in with a much lower down payment or getting away with not having a perfect credit score. However, there is good reason lenders are able to comfortably offer these seemingly risky loans: the FHA backs them with insurance should you ever default and go into foreclosure. You, as the borrower, pay for this insurance—and it’s expensive. 

It’s good to know your lender is safe and secure should you end up in financial havoc, but what about you? What happens when one financial hiccup in life makes keeping up with your mortgage payments a challenge—and foreclosure becomes a very real possibility? What rights, protections and options are available to you during such a stressful time?

If you are a homeowner facing FHA foreclosure, our team at Osborne Homes is glad you found this article because we have answers to all those questions and more. So sit tight and let’s dig in.

What is an FHA loan?

An FHA loan is a mortgage that is insured by the Federal Housing Administration (FHA). These loans allow for lower down payments than conventional loans and you don’t need as high of a credit score as you would for a conventional mortgage. This gives low to mid income families a more likely chance at buying a home and is the perfect solution for first-time homebuyers who might not have a lot of cash on hand. In fact, new homebuyers made up more than 83% of all FHA loans that originated in 2020, according to the FHA’s annual report that year.

What happens during an FHA foreclosure?

When things get tough and you have done everything you can, but you are still falling behind on your FHA mortgage payments, you should know what to expect.

What is loss mitigation waterfall?

On the first missed FHA payment, you’ll want to get in touch with your lender immediately. They’ll likely inform you of loss mitigation, which is a series of options layed out in steps that give you, the borrower, the help you need at the lowest cost. If the first lowest-cost option is unachievable, you’d move on to the next option. This is referred to as a ‘loss mitigation waterfall.’ Some of the things they might try with you during loss mitigation are loan modification, a partial claim and forbearance.

Loan Modification

The first step in loss mitigation is usually loan modification. A mortgage loan modification, in effect, changes the original terms and reduces the amount of the monthly payments. This will typically lengthen the overall term of the loan, in order to compensate. 


Otherwise known as a loan deferment, forbearance means you get the opportunity to temporarily stop making payments, or greatly reduce the payments, for up to 12 months.

Partial Claim

A partial claim is a lien against the amount that is owed on the mortgage, at zero-interest. It is added to the principal loan balance of the first mortgage on your home, and extends the term for 30 year at a fixed interest rate.

When foreclosure becomes imminent 

If none of these loss mitigation waterfall steps are achievable, you are back in the hot seat, tailgated by FHA foreclosure. You only have two options left at this point: refinance or sell your home.

If you miss your mortgage payment two months in a row, your lender will begin to contact you. They’ll want to discuss what’s going on and give you an idea of what you face from here if you can’t come current on your payments.

As soon as you are three months in arrears, a demand letter will go out requesting that you cure the default. If you are unable to pay the past due amount in full at this point, your lender will get their mortgage attorney’s involved. Once the attorneys have stepped in, the only way to avoid foreclosure will now be to pay the past due amount plus the attorney fees.

Foreclosure proceedings begin shortly after the fourth missed FHA payment. The process of foreclosure takes several months, so you do still have a little more time to work something out. The only options left at this point would be if you can refinance the home or sell the home. If you are unable to make either of these happen, the foreclosure will go through and you will have to vacate the home.

What does a foreclosure do to your credit?

Nothing can ruin your credit as badly, nor for as long, as a home foreclosure can. It remains a significantly negative event in your credit history for seven years, lowers your credit score considerably and limits your ability to qualify for new loans for many years to follow.

Missed payments, in and of themselves, hurt your credit history. Each missed payment is recorded on your credit report and every payment that becomes 30 days past due remains on your report for seven years.

The foreclosure itself stays on your credit report for seven years, from the date the first FHA payment became 30 days overdue. Even after your credit score comes back up, just having had a foreclosure might cause some lenders to deny your application immediately, while other lenders might require that at least three years have passed since the foreclosure.

What are the alternatives to going through FHA foreclosure?

When you must decide whether or not to go through foreclosure, you need to know what the alternatives are, if any. While foreclosure may seem like the only option, there are still a few ways that homeowners might be able to avoid it.

1. Sell your home on the traditional real estate market

This one is possible but, while many homeowners facing foreclosure might want to turn to the traditional real estate market to sell their homes, doing so can often be a hassle and take far too long. There are many steps involved in putting your home up for sale and you may have to wait months before it’s actually sold. In addition, you’ll likely have to shell out some money for things like staging your home and making repairs. all this can add up quickly and usually isn’t possible when you’re this close to foreclosure action. Consider a much faster and easier sale and sell your home to Osborne Homes.

2. Refinance your home

These FHA loans have rules! For instance, when you refinance FHA loans you may have FHA required repairs to make. This is because homes that are financed with FHA loans must meet safety, security, and soundness standards, as protections for the buyer and lender, before a refinance will be possible. You’ll need to abide by minimum property standards around areas such as roofs, electrical, water heaters and property accesses, among others. You might not have the time nor the means to make these FHA required repairs happen, and so refinance becomes another option to cross out. 

3. Get All Cash for your home. FAST.

If the prospect of someone handing you all cash for your home and, in effect, completely avoiding FHA foreclosure, is music to your ears, then wait no longer! You can sell your home to us here at Osborne Homes. It’s what we do. We pay all cash and close fast—two things you’ll surely need in this situation. We buy houses all over California and have helped dozens of distressed homeowners just like you, to put smiles back on their faces. No fees, inspections, commissions or hassle. Call or visit us today about your home or property and find out more about Osborne Homes’ fast cash sales process.

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