What Happens if My House Gets Foreclosed With an FHA Loan?

If your FHA mortgage is in foreclosure, you still may be able to reclaim the property.

If your FHA mortgage is in foreclosure, you still may be able to reclaim the property.

A loan backed by the Federal Housing Administration, or FHA, is an attractive option for many first-time homebuyers. That’s because FHA loans require as little as three percent down and tends to include less rigid restrictions than other loans. But if you face foreclosure on an FHA loan, there may be some heavy consequences.

You’ll Lose Your Home

Unless you’re able to work with your lender to modify payments, refinance the loan or conduct a short sale of the home, your FHA foreclosure, like other foreclosures, will result in an order for you to vacate the property. The home then becomes the property of FHA. Typically, the timetable for FHA foreclosures is longer than for other types of loans. That’s because the FHA and FHA servicers, like your lender, want to help keep people in their homes. That said, if you continue to miss mortgage payments or ignore foreclosure proceedings, you eventually will be asked to leave your home.

Your Home Will Be Sold

The Department of Housing and Urban Development oversees the sale of FHA foreclosed homes. These foreclosed homes are called “HUD homes” and range from one- to four-unit properties. HUD sale listings are available on the HUD Home Store online, where anyone – including investors and even first-time homebuyers – can purchase a foreclosed home. That said, HUD gives priority to owner-occupied purchasers rather than those purchasing for investment.

Your Lender Gets Paid Back

If you have an FHA loan, you’re likely already familiar with mortgage insurance. Because of the low down payment required on the loan, the FHA requires you to pay this monthly mortgage insurance premium to protect their interest as well as those of your loan servicer. When your home is foreclosed, the FHA will draw funds from the government’s mortgage insurance fund to pay back your lender.

You May Reclaim Your Home

Even after the FHA begins foreclosure proceedings on your home, you may be able to save it. In some cases, the FHA allows a redemption period wherein you can reclaim a foreclosed home. That said, reclaiming your home will not be easy. The FHA requires you to pay the entire outstanding balance due on your loan plus any costs accrued in the foreclosure process. Your state determines whether you are allowed a redemption period and, if so, how long that period lasts.

 

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About the Author

Kristen Radford Price began writing in 2005 for her campus newspaper. She has served as a feature writer for the life-and-style section of the "Daily Herald," a contributor to "Utah Valley Weekly," an editor for a small publishing house and now as director of communications for an Internet company. Radford has a Bachelor of Arts in journalism from Brigham Young University.

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