Obtaining a Loan to Stop Foreclosure

If you are facing foreclosure, you may may be able to refinance your mortgage with better terms to save your home. Here are some tips.

If you are facing foreclosure, you might be able to refinance your loan or take out a reverse mortgage to stop the foreclosure, depending on your circumstances.  

Refinancing Your Loan to Stop a Foreclosure

Refinancing your loan allows you to take out a new loan to pay off the existing loan, including the delinquent amount. Depending on the interest rate of your new loan, your monthly payments might even be reduced. Getting approved for a refinance can be difficult, however, if you're facing foreclosure because you fell behind in your payments.  

Using a Reverse Mortgage to Stop a Foreclosure

Another option to stop foreclosure is to take out a reverse mortgage to pay off the existing mortgage. The most widely available reverse mortgage is the FHA's Home Equity Conversion Mortgage (HECM).

Understanding reverse mortgages. A reverse mortgage differs from a traditional mortgage in that you do not have to make monthly payments to the lender to repay the loan. Instead, loan proceeds are paid out to you in a lump sum (subject to some limits in most cases), as a monthly payment, or as a line of credit. (You can also get a combination of monthly installments and a line of credit.) This eliminates the monthly mortgage payments and allows you to stay in the home.

The amount of the loan is based on the equity of the house. If the reverse mortgage does not provide enough to pay the full amount owed, the lender may be willing to accept a reduced lump sum in full satisfaction of the mortgage.

When a reverse mortgage becomes due and payable. The reverse mortgage loan becomes due and payable when the borrower:

  • sells the property
  • permanently moves out (for example, to a nursing home)
  • defaults on the obligations of the mortgage (such as paying taxes and insurance), or
  • dies.


There are some lenders who will loan you money, regardless of your credit or your past mortgage loan history. For example, reverse mortgages do not require income or credit qualification. This means that even if you are behind in your payments, you may still qualify for a reverse mortgage loan so long as you have enough equity in the property.

You can explore refinancing or taking out a reverse mortgage with your existing lender if the lender deals in such loans or you can approach a new lender. Obtaining the loan from your existing lender has an advantage since the lender already has your informaton on file and the paperwork involved will likely be less involved.

What Lenders Look For

When you apply for a refinance loan or reverse mortgage to stop foreclosure, you must provide the following details:

  • the property condition
  • the estimated value of the home, and
  • the current mortgage balance.

With a refinance, the three main factors the lender will look at are:

  • your credit score
  • your income, and
  • the property's loan to value ratio.

Most lenders have basic minimum guidelines to qualify for a refinance loan. You will need to have a stable income and equity in the home to be considered. Your interest rate will depend on your credit score. Also, be prepared to show statements of accounts on outstanding debt, proof of income, and a copy of your income tax returns.

What You Should Consider

Before you decide on a lender, make sure that you scout around for the best deal. Review the lenders and the options offered. Shortlist a few lenders and request a quote from each of them. Choose the one that offers you the best deal. In addition, be sure that you consider all other options to avoid a foreclosure (such as a loan modification) before you apply for a loan to stop a foreclosure.

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