A servicer offers you three things with similar-sounding names and asks which you want. They do genuinely different things, they suit genuinely different situations, and choosing the wrong one costs you either money or the house.
This article sets out what each actually does, which situation each suits, the questions to ask before agreeing to any of them, and the trap that catches people at the end of a forbearance.
We buy houses from people facing foreclosure, so read the last section knowing that. Everything before it comes first. We are not attorneys or housing counsellors and federal servicing rules are detailed and change. A HUD approved housing counsellor does this free and should be your first call.
Start with one question about yourself
Before comparing anything, answer this: is your hardship temporary or permanent?
Somebody who lost a job and has found another has a temporary hardship. Their income is fine going forward and there is a gap behind them. Somebody whose income has permanently reduced, through disability, retirement or a career change, has a different problem entirely.
Temporary hardship needs a way to catch up. Permanent hardship needs a smaller payment. Applying the wrong solution to the wrong problem fails twice.
That single answer eliminates most of the options and it is also what the servicer's hardship statement is asking, covered in our article on loss mitigation.
Reinstatement
What it is: paying the arrears in full, in one payment, bringing the loan current. The loan continues exactly as before.
Who it suits: anybody who can find the money. Family help, a tax refund, a bonus, liquidating something. It is the cleanest outcome available because nothing about your loan changes.
What to ask: for the figure in writing, to a specific date. It includes arrears, late fees, legal costs and interest to that date, and it moves as time passes. A figure quoted for the fifteenth is not correct for the thirtieth.
The trap: emptying a retirement account to reinstate a loan you still cannot afford going forward. If the underlying problem is permanent, reinstatement buys months and costs your savings. Speak to a counsellor before doing that.
A repayment plan
What it is: spreading the arrears across future payments. You pay your normal amount plus a portion of the catch-up for a defined number of months, then return to normal.
Who it suits: temporary hardship that has resolved, where you can now afford somewhat more than the normal payment. The classic case is somebody who was out of work for three months and is now earning again.
What to ask: exactly how much the increased payment is, for how many months, and what happens if you miss one. A plan that requires more than you can genuinely sustain fails, and a failed plan leaves you worse off than not having agreed one.
The trap: agreeing to a payment you cannot actually make because you want the problem solved today. Be realistic about the budget rather than optimistic.
Forbearance
What it is: a temporary pause or reduction in payments. It does not forgive anything. The missed amount still exists.
Who it suits: a hardship that is current and expected to end. Somebody between jobs, recovering from an illness, or waiting on an insurance settlement.
What to ask, and this is the important part: what happens at the end.
The four ways a forbearance can end
- A lump sum due immediately at the end. The version that catches people out badly, because somebody who could not pay monthly usually cannot pay several months at once
- A repayment plan, spreading the missed amount over following months
- Capitalisation, adding the arrears to the loan balance, generally with a modification
- A deferral, on some loan types, moving the missed amount to the end of the loan to be repaid at payoff or sale
Ask which one applies to you, in writing, before you agree. Homeowners routinely accept forbearance without knowing, and find out three months later.
The trap: treating forbearance as a solution rather than a pause. It buys time to arrange a real answer. If nothing changes during the forbearance, you arrive at the end with the same problem and a larger number.
Loan modification
What it is: a permanent change to the loan terms. The most common changes are extending the term, changing the rate, capitalising arrears into the balance, or on some programmes deferring a portion of principal.
Who it suits: permanent hardship, where the issue is that the current payment is no longer affordable rather than that you fell behind temporarily. It is the option that most often lets somebody actually keep a house.
What to ask: what the new payment is, what the new term is, what the new rate is, and what the total cost over the life of the loan becomes. Extending a term reduces the payment and increases what you pay overall, and that trade is worth understanding rather than discovering.
What to expect: paperwork and time. Frequently a trial period where you make the proposed payment for several months before it is made permanent. Make every trial payment exactly on time, because missing one during a trial can end the whole arrangement.
The trap: starting too late. Modification is the slowest option and the most document intensive. Somebody who applies at month three is in a completely different position to somebody who applies after a foreclosure petition has been filed, covered in our article on what happens month by month.
Putting them side by side
- Do you have the money now? Reinstatement
- Can you afford somewhat more than normal for a while? Repayment plan
- Is the hardship happening right now and expected to end? Forbearance, with the end arrangement agreed in writing
- Is the payment permanently unaffordable? Modification
- Is the house permanently unaffordable at any payment? Then none of these, and the exit options in our article on short sale or deed in lieu are the conversation
They are frequently combined
Worth knowing because homeowners assume they are choosing one.
A common sequence is a forbearance while a modification is underwritten, ending in capitalisation of the arrears and a modified payment. Another is a short forbearance followed by a repayment plan once income has resumed.
Ask what the whole path looks like rather than only what happens next month. A servicer describing a single step may be describing the first part of a longer arrangement.
The questions to ask about any offer
- What is my new payment, exactly, and for how long?
- What happens to the arrears? Paid, spread, added to the balance, or deferred
- What happens at the end of this arrangement?
- Is there a trial period, and what happens if I miss a trial payment?
- Does this change my rate, term or total cost?
- How is this reported in relation to my credit
- Does agreeing to this affect my eligibility for anything else later
- Can I have all of this in writing before I agree?
That last one is not optional. Verbal arrangements with large organisations where staff change are worth very little, and a written agreement is what you rely on if something goes wrong.
Your loan type limits the menu
Conventional, FHA, VA and USDA loans have different programmes with different requirements. What is available to somebody else may not be available to you, and most homeowners do not know which type they have.
This is the single strongest argument for a HUD approved housing counsellor. They establish your loan type, know which programmes attach to it, help assemble a complete application, and speak to the servicer on your behalf. It is free, covered in our article on free foreclosure help.
If none of them work
Our interest, stated plainly, and it comes last deliberately.
Where the house is affordable at some payment, one of these four is a better outcome than selling and we would rather you reached it. Where it is not affordable at any payment, or where the arrears are too large and time has run out, selling voluntarily before a sheriff's sale protects equity that an auction destroys.
The constraint is time. A conventional listing needs sixty days on market plus thirty to close. A cash sale can close in as little as seven days where title is clean, which is why it works inside a window a listing cannot, and our page on stopping foreclosure in Tulsa covers that.
Before that, exhaust the four options above. They cost nothing to ask about.
The short version
Six things worth knowing
- Answer one question first: is the hardship temporary or permanent
- Reinstatement is cleanest where the money exists, and do not empty retirement savings for it
- A repayment plan you cannot sustain is worse than no plan
- Forbearance does not forgive anything. Ask what happens at the end, in writing
- Modification is the slowest and the one that most often saves a house. Start early
- Get every arrangement in writing before agreeing to it
Frequently asked questions
What is the difference between these options?
Reinstatement pays the arrears in full. A repayment plan spreads them over future payments. Forbearance pauses or reduces payments temporarily without forgiving anything. A modification permanently changes the loan terms.
How do I know which one I need?
Answer one question first: is your hardship temporary or permanent. Temporary hardship needs a way to catch up. Permanent hardship needs a smaller payment. Applying the wrong solution to the wrong problem fails twice.
What is reinstatement?
Paying the arrears in full in one payment, bringing the loan current with nothing about the loan changing. It is the cleanest outcome available where the money can be found, whether from family, a refund or liquidating something.
How do I get a reinstatement figure?
Ask the servicer in writing, to a specific date. It includes arrears, late fees, legal costs and interest to that date and it moves as time passes. A figure quoted for the fifteenth is not correct for the thirtieth.
Should I use retirement savings to reinstate?
Speak to a housing counsellor first. If the underlying problem is permanent, reinstatement buys months and costs your savings, and there may be tax consequences on top. It is one of the more damaging things people do at this stage.
What is a repayment plan?
Paying your normal amount plus a portion of the arrears for a defined number of months, then returning to normal. It suits a temporary hardship that has resolved and where you can now afford somewhat more than the standard payment.
What should I ask about a repayment plan?
Exactly how much the increased payment is, for how many months, and what happens if you miss one. A plan requiring more than you can genuinely sustain fails, and a failed plan leaves you worse off than not having agreed one.
Does forbearance forgive the missed payments?
No. It pauses or reduces payments temporarily and the missed amount still exists. Treating it as forgiveness rather than a pause is one of the more consequential misunderstandings in this whole area.
What happens at the end of a forbearance?
One of four things: a lump sum due immediately, a repayment plan, capitalisation adding the arrears to the balance usually with a modification, or on some loan types a deferral moving the amount to the end of the loan.
Which of those is the dangerous one?
The lump sum. Somebody who could not pay monthly usually cannot pay several months at once, and homeowners routinely accept forbearance without asking which applies and find out three months later.
So what should I ask before agreeing to forbearance?
What happens at the end, in writing, before you agree. That single question is the whole protection, and it takes one sentence to ask.
What is a loan modification?
A permanent change to the loan terms: extending the term, changing the rate, capitalising arrears into the balance, or on some programmes deferring principal. It is the option that most often lets somebody actually keep a house.
What should I ask about a modification?
The new payment, the new term, the new rate, and the total cost over the life of the loan. Extending a term reduces the payment and increases what you pay overall, and that trade is worth understanding rather than discovering.
What is a trial period?
Making the proposed modified payment for several months before the change is made permanent. Make every trial payment exactly on time, because missing one during a trial can end the whole arrangement.
Why should I start a modification early?
Because it is the slowest and most document intensive option. Somebody applying at month three is in a completely different position to somebody applying after a foreclosure petition has been filed.
Can these be combined?
Frequently. A common sequence is forbearance while a modification is underwritten, ending in capitalisation and a modified payment. Ask what the whole path looks like rather than only what happens next month.
What should I ask about any offer?
The new payment and duration, what happens to the arrears, what happens at the end, whether there is a trial period, whether the rate term or total cost changes, how it is reported, whether it affects future eligibility, and for it all in writing.
Why does it have to be in writing?
Because verbal arrangements with large organisations where staff change are worth very little, and a written agreement is what you rely on if something goes wrong later. This is not an unreasonable thing to ask for.
Does my loan type limit what I can get?
Yes. Conventional, FHA, VA and USDA loans have different programmes with different requirements, and most homeowners do not know which they have. That single fact determines the menu available to you.
Who can help me work this out for free?
A HUD approved housing counsellor. They establish your loan type, know which programmes attach to it, help assemble a complete application and speak to the servicer on your behalf. It costs nothing.
What if none of these work?
Then the conversation moves to the exit options: a short sale, a deed in lieu, or a voluntary sale where there is equity. All three are better outcomes than a completed foreclosure and all take time.
When does selling make sense?
Where the house is not affordable at any payment, or the arrears are too large and time has run out. A voluntary sale before a sheriff's sale protects equity an auction destroys. Exhaust the four options first, because asking costs nothing.
We buy houses from people facing foreclosure, so read the last section knowing that. Everything before it comes first. We are not attorneys or housing counsellors and federal servicing rules are detailed and change. A HUD approved housing counsellor does this free.