How can borrowers typically keep their home after defaulting on a loan?

The ability for borrowers to retain their home after defaulting on a loan is most effectively achieved through a loan modification or a short sale agreement.

A loan modification involves changing the terms of the existing mortgage to make payments more manageable. This can include reducing the interest rate, extending the term of the loan, or even reducing the principal balance. When lenders agree to modify a loan, they work with the borrower to create a new payment plan that allows them to maintain ownership of the property and avoid the foreclosure process.

A short sale agreement, while different, allows borrowers to sell their home for less than the amount owed on the mortgage, with the lender's approval. This option can be beneficial when a borrower recognizes they cannot continue making payments. In this case, the lender may agree to accept the proceeds from the sale as full payment, thus relieving the borrower from further obligation and helping them avoid foreclosure.

Other options, such as negotiating lower interest rates directly or refinancing the existing mortgage, often are not viable solutions once a borrower has defaulted, as lenders are generally less inclined to make such adjustments when there is already a payment history issue. Even declaring bankruptcy can provide temporary relief but may not guarantee the ability to retain the home without further arrangements or modifications.