A partial claim is a special assistance loan offered by the Federal Housing Administration (FHA). If you have an FHA mortgage, are behind on your payments, and want to prevent foreclosure, you may be able to get a claim. With a claim, your late mortgage bills will be paid by the FHA. Once your mortgage is current, you continue to pay monthly mortgage payments. After your mortgage is paid off, your claim comes due.
The pandemic made life harder for everyone, and many people now find that their once-affordable mortgages are no longer so. Foreclosure is a fear that many people have, but it may be less of a risk than you think. If you worry about foreclosure, you might be able to get a partial claim on your mortgage.
But, what is a partial claim? It’s an interest-free loan from the HUD that allows you to get help paying your home mortgage payments. It doesn’t become repayable until you pay off the entirety of your mortgage. And it might be the right move for you.
What is a partial claim on a mortgage?
The Housing and Urban Development (HUD) department in your neighborhood isn’t always there to kick people out of their homes. Quite the opposite! They’re there to help ensure housing is always within reach, which is why they are responsible for offering a partial claim on a mortgage.
A partial claim option provides a loan to ensure you can afford your monthly payments during a time of duress. They can cover up to 30% of your home’s unpaid principal balance. These loans are no-interest and only come due once you’ve paid off the home.
It’s important to note that your partial claim is paid directly to the loan servicer. You don’t get the money in your bank account. This includes forwarding everything from the fees, principal, and interest portion of your primary loan.
Is a partial claim similar to a reverse mortgage?
There tends to be a lot of confusion when it comes to reverse mortgages and partial claim loans. Reverse mortgages are for borrowers over the age of retirement, who use equity in the home as a loan and use that money for living expenses in old age.
If you are up-to-date on all your payments, you can get a reverse mortgage. In some cases, you may be better qualified for a reverse mortgage or a refinancing agreement. Either way, it’s best to read up on these tips if you are past the age of 60 to find out if it’s right for you.
What are the eligibility requirements for partial claim loans?
A partial claim option sounds great, but it’s not an option for every mortgage holder. To qualify for a partial claim, you must meet certain requirements.
Partial claim loans are only available for people who can’t afford their mortgage payments. It almost acts like a temporary pause on a potential foreclosure.
- Generally speaking, you need to be 4 to 12 months behind on a mortgage payment. If you’re five days late, you might just experience late fees.
- Partial claim loans also are exclusive to FHA borrowers. If you don’t have an FHA-insured loan, you can’t get this extension. Occasionally, VA loans may also be privy to a partial claim loan as long as they have the right financial situation.
- You must continue making mortgage payments once the loan comes into effect. If you still can’t afford to repay your loan in monthly payment installation, you shouldn’t bother with a partial claim. This is why most people who get a partial claim also receive a loan modification.
- You also have to live in the home. An owner-occupied home is a must, and it must be a primary residence.
Note: All mortgage lenders who offer FHA mortgages have to be able to accommodate you with a potential claim if you qualify for one. So, if you have an FHA loan, it doesn’t matter where you got it. You can still get a claim.
What is an FHA loan?
You must show that you can afford to pay your mortgage down the line. To do this, you must provide your proof of income, debts, and taxes. You also may have to prove that your hardship is due to a job loss or COVID-19 recovery need.
For many applicants, this is the hardest part of the partial claim application. You have to prove your financial hardship and show missed payments. You can show this hardship through bank statements, pay stubs, and other similar documents that demonstrate the partial claim is good loss mitigation.
Borrowers who want to get a partial claim on their mortgage will usually have a small checklist offered to them by their loan servicer.
There are two ways that a partial claim can prevent foreclosure. The first is to pay off the late payments and tack them on at the end of the mortgage. This is the “game plan” if you’re ready to pay off your home in 30 years.
The second is to add a subordinate lien that gets paid off when you sell or refinance your mortgage. The additional lien gets paid when you sell or refinance.
What is a COVID-19 partial standalone claim?
It’s no secret that COVID-19 became a huge factor in the way the world works. With all the cancellations and closures, the pandemic shook this world. Fortunately, the FHA found a way to ensure that borrowers don’t end up homeless during the crisis.
If you couldn’t pay your existing monthly mortgage payments due to COVID, then you can get a standalone partial claim to cover the overdue payments. This does not involve any form of loan modification. It’s just part of the COVID-19 Recovery efforts the FHA has in place.
However, there’s one major difference. Instead of receiving the standard 30% coverage, homeowners affected by COVID only receive 25% of their principal and interest portions covered.
What should you do if you can’t cover your monthly mortgage payments due to COVID-19?
If you’re not qualified to get the COVID-19 standalone partial claim, then you might be able to get COVID-19 recovery relief. This relief package includes both a loan modification and a partial claim.
Homeowners affected by COVID-19 to the point that they can no longer make monthly payments towards their mortgage have a specialized FHA Home Affordable Modification Program (FHA-HAMP) option. This lets you get a different repayment plan that may expand the mortgage term beyond that of the original loan.
This extends the term of your loan to 360 months and will lower the interest portion of your payments. In some cases, your interest rate may also lower. Provided that you have enough income flowing in, you should be able to pay down the lower monthly payments through this form of loan modification.
Eligible borrowers will still have regular mortgage payments, but they won’t be at the same price as their original loan. This is done in conjunction with a partial claim on your loan. Ultimately, the relief package keeps your mortgage current and also helps you avoid foreclosure.
Can non-occupants get COVID-19 relief?
While partial claims may require owner-occupied homes to be serviced first, you can receive other FHA relief from the pandemic through a COVID-19 Recovery Non-Occupant Loan Modification. This works almost identically to owner-occupied homes.
What COVID-19 loan assistance options are available to me?
There’s a lot that goes into both the COVID-19 Recovery Modification and the Non-Occupant Loan Modification programs. You need FHA-insured mortgages or similarly qualified mortgage loans to qualify for both programs. From there, you need to walk through the following steps:
- You have to apply for relief related to the COVID-19 crisis. You can do this via the HUD website, or you can talk to your loan servicer. The application requires borrowers to show documents, income, and how COVID-19 impacted them.
- A loan servicer will take a look at your application to see if you qualify. They may want to offer a partial claim, or they may want a standalone mortgage modification. If you have partial claim funds available, then a partial claim will be mandatory as part of your FHA relief.
- If your mortgage servicers find that you qualify, you have to read and sign the documents. In most cases, your mortgage servicers will help guide you through any additional steps you may have.
Can you refinance with a partial claim mortgage?
Yes, you can refinance with a partial claim mortgage. However, there’s a catch. If you refinance as a borrower with a partial claim, you need to pay off that claim as part of the refinancing deal. It’s one of the ways to exit a partial claim.
Does a partial claim hurt credit?
A partial claim can hurt your credit if you are late on payments or if you still don’t make timely payments. Unlike other loans, a partial claim application probably won’t hurt your credit, and it’s still less detrimental to your credit than a foreclosure or series of delinquencies.
What is a partial claims signing?
A partial claims signing is the same as a partial claims mortgage loan. This is a way to get your loan current without actually going through a full loan modification.
Can you sell a house with a partial claim?
It’s possible to sell a house with a partial claim, but that doesn’t mean it’s going to be easy. Rather than make regular monthly mortgage payments on the loan, you’ll often have to pay off the remaining partial claim as part of the sale price.
Can you make payments on a partial claim?
Luckily, FHA loans are ensured by the HUD. In other words, it’s a government-backed mortgage. If you want to, you can make early payments on your partial claim without any penalty.
- Borrowers who have a hard time making their monthly mortgage payments may be able to get a partial claim loan to prevent foreclosure.
- A partial claim will give you an interest-free loan that covers the unpaid principal balance of your mortgage.
- When your mortgage is finally done, your claim will become due.
- Borrowers who want to get a claim must have an FHA loan and may only be able to cover between 4 to 12 months of back payment via the claim.
Find the Right Mortgage for You
More often than not, many financial hardships may be eliminated by choosing the right mortgage. Or better yet, if you feel you may have a hard time in the future, now is a good time to look into the best refinancing package for you.
- Reverse Mortgages: Reviews & Comparisons — SuperMoney
- What is Reverse Mortgage? Should you get it instead of a personal loan? Find out — SuperMoney
- Mortgage Reviews & Categories — SuperMoney
- Best Mortgage Refinance Lenders | February 2022 — SuperMoney
- Reverse Mortgages: When Do They Make Sense? — SuperMoney
- Help for Homeowners With FHA Loans — NOLO.com
- Partial Claim Loans for Overdue Mortgage Payments — Upsolve.org
- Federal Housing Administration Announces Additional COVID-19 Recovery Options for Homeowners — U.S. Department of Housing and Urban Development