If you’re struggling with missed payments on your home loan, you’re not alone. Many homeowners across the country are looking for ways to stay afloat after hardship, especially in the wake of COVID-19. Two of the most common options offered by lenders are forbearance and loan modification. But how do you know which one is the right fit for your situation?
In this article, we’ll walk through how each option works, how they affect your financial future, and what steps to take if you’re facing foreclosure. We’ll also explain the key differences between these tools and how a forbearance agreement compares to a permanent loan change.
When you miss mortgage payments, the lender may start the foreclosure process. This is the legal path lenders take to recover the property if you fall behind. In most cases, foreclosure doesn’t start right away, but the longer you wait to respond, the fewer options you’ll have to avoid foreclosure.
Depending on your state, the timeline and legal steps can vary. If you’re at risk of foreclosure or already in it, understanding your rights and relief options is critical. For a detailed look at how the process works, visit The Foreclosure Process and Your Options.
Let’s break down the basics of these two popular options:
This guide on forbearance and loan modifications from Montegra offers a helpful comparison. For another perspective, this breakdown from Fortra Law explores the legal implications and borrower responsibilities in each type of agreement.
The right choice depends on your situation. Are you facing a short-term income loss, or do you need a long-term solution to make your mortgage current again?
A forbearance agreement is a formal plan between you and your mortgage servicer. It temporarily suspends or reduces your monthly payments while you recover from hardship. These plans became especially common during COVID-19, when millions of homeowners used them as part of the CARES Act protections.
Here’s what to know:
For tips on what happens when forbearance ends, see CFPB’s official guidance.
Forbearance is designed for people experiencing a temporary hardship: such as job loss, illness, or loss of income due to COVID-19 or a natural disaster. If you’re still working but earning less, or if you’ve had a one-time emergency, your lender may offer this short-term solution.
To qualify, you typically need to:
For federally backed mortgages, forbearance is often more accessible. Programs vary by lender, so check with your provider or the FHFA’s official program guide.
A loan modification is a long-term solution for borrowers who cannot afford their current mortgage payment, even after a temporary break. Rather than pausing payments, the servicer permanently changes the loan terms to make the debt more manageable.
Common loan modification changes include:
You’ll need to complete an application that often requires a hardship statement, recent pay stubs, bank statements, and tax returns. These are referred to as your required documentation.
Some loan modification programs offer a trial period to test affordability before final approval. Learn more about the risks and benefits in our guide to modifying your loan.
Both options can affect your credit report, but not equally.
However, in both cases, working with your lender is better than simply defaulting. It’s important to remember that foreclosure has a much greater negative impact on your credit scores than either option.
If you’re unsure how your decision will affect your long-term borrowing ability, consider pulling your credit report and discussing it with a HUD-approved housing counselor.
When deciding between forbearance vs loan modification, think about your long-term capacity to resume making payments. Ask yourself:
If you’re unsure, you don’t have to make the decision alone. A certified housing counselor can walk through the pros and cons based on your situation. Explore how housing counseling can help.
Here’s how they differ:
Use your monthly mortgage statement to compare pre- and post-adjustment payments.
When the end of the forbearance approaches, you’ll be expected to work with your loan servicer to find a repayment solution. Options may include:
If you’ve had paused payments during forbearance, your lender will want to see a plan for how those amounts will be addressed. Some servicers allow gradual repayment, while others offer to move the balance to the end of the loan term.
To learn more about how servicers manage this process, see the Federal Reserve’s compliance outlook.
Start by contacting your mortgage lender or loan servicer through their online portal or customer service line. Be ready to submit your:
Need help preparing? Contact a nonprofit housing counseling agency approved by urban development. Many offer support with paperwork and direct communication with lenders.
When applying for either option, you’ll often be asked to submit a hardship statement; a written explanation of why you’re struggling to make your regular mortgage payments and how your finances have changed.
When writing your hardship statement, be clear about the type of financial hardship you’re facing. Whether it’s due to rising expenses, job loss, or medical bills, lenders need to understand the impact on your ability to make payments. This context helps determine what relief programs you qualify for.
Be honest and detailed. Include:
You’ll also need required documentation like recent pay stubs, tax returns, and a monthly mortgage statement to support your claim.
This documentation helps the loan servicer decide whether to offer a forbearance plan, loan modification, or a combination of both.
Many homeowners make the mistake of accepting a forbearance agreement without a plan for what happens next. Once the forbearance period ends, you may be expected to pay back the missed amount quickly: sometimes as a lump sum, unless your lender offers payment deferral or rolls the balance into a new loan.
If you’re still facing trouble paying, ask whether you can transition into a loan modification. That option may spread the cost over a longer repayment period, lower your monthly payments, or extend the end of your loan.
Don’t wait until the last minute. If you can’t resume making payments, act early to preserve your options.
If your home loan is backed by Freddie Mac, Fannie Mae, FHA, VA, or USDA, you may have access to special programs that make forbearance or loan modification more accessible.
During COVID-19, these agencies offered streamlined forbearance without documentation, and many continue to provide enhanced options today.
Check with your servicer or use the FHFA loan lookup tool to see if your mortgage is eligible. For program details, visit FHFA’s loss mitigation page.
Too many borrowers wait too long and fall behind without reaching out. That’s the worst thing you can do.
If you stop paying your mortgage and don’t contact your lender, you could:
Even if you feel overwhelmed, applying for help early improves your chances of avoiding foreclosure. It also gives you more flexibility in choosing the right path.
Here are 5 tips to avoid foreclosure scams.
A HUD-certified housing counselor can:
These services are usually free or low-cost, and they come without pressure or sales pitches.
Find a counselor through HUD’s housing counseling directory, or contact Credit.org for assistance.
Some homeowners may need forbearance first and then a loan modification afterward. This happens when:
Lenders often review your post-forbearance status and offer a loan mod as a follow-up.
Always check your options before agreeing to new terms.
Sometimes, even with help, keeping your home may no longer be possible. In those situations, it’s important to know your mortgage relief options beyond forbearance or loan modification.
Here are a few:
All of these can protect your long-term financial future, but they come with legal and financial consequences. Before making any decisions, consider consulting a housing counselor, or if needed, a reputable law firm that specializes in foreclosure alternatives.
If your situation is still unstable at the end of forbearance, you’re not out of options. Lenders may offer:
Be prepared to submit updated documentation and show why your hardship persists.
If you’re still having trouble making ends meet after your forbearance or loan modification, reach out again. Many lenders offer layered relief options, especially if your income hasn’t fully recovered.
And remember: even if your loan is backed by Freddie Mac loans, you are not automatically disqualified from new programs. Check with your servicer and request additional resources if your application is denied.
Both forbearance and loan modification can help you keep your home, but they serve different purposes.
Facing foreclosure or navigating relief programs can be overwhelming. If you’re unsure what to do next, a HUD-approved housing counselor can guide you through your first mortgage or refinanced loan options, help prepare paperwork, and communicate with your loan servicer on your behalf.
The goal isn’t just to stay in your house; it’s to build a financial future that’s sustainable.
Get personalized support through Credit.org’s foreclosure and mortgage relief counseling services.
