If you’re having trouble making your mortgage payments due to financial hardship, you might be wondering what you can do. One option available to you is to apply for mortgage forbearance, which involves putting a temporary stop to your payments.
Mortgage forbearance is an agreement between you and your lender that involves halting or reducing your payments for a predetermined amount of time. Your lender doesn’t forgive your loan, and interest still accrues, but the hold can be a great relief in uncertain times. Here, we’ll go over some of the most frequently asked questions about mortgage forbearance and what you can do if you decide that you need to sell your home quickly.
FAQs About Mortgage Forbearance
Do I Qualify for Forbearance?
Qualifying for mortgage forbearance generally requires that you show you’ve experienced a hardship such as an illness, job loss, or a reduction in your income. Under the CARES Act, COVID-19-related hardships may qualify you for a forbearance of up to one year.
How Do I Request a Mortgage Forbearance?
You have a couple of options when it comes to requesting a forbearance. The first is to make a phone call to your lender (or loan servicer) directly. You may also choose to write a letter of hardship, which creates a written record of your correspondence. You can mail, fax, or email your letter.
The most important thing to keep in mind here is that you must apply for a forbearance. You can’t just stop making your payments. Doing so could seriously harm your credit and put your home at risk.
Will I Need to Repay All of My Missed Payments at Once?
While you will need to pay back the payments (and interest) that you didn’t pay while your mortgage was in forbearance, you don’t need to pay everything back at once. You’ll likely have a few options, which we’ll go into later. To understand if forbearance affects credit, discuss all of your options with your lender to find the one that makes the most sense for you.
What Do I Do if My Forbearance Period Is Coming to an End?
When your forbearance period draws to a close, you should receive a notice from your lender. At this time, you’ll go over your option for repaying what you owe and create a plan for going forward.
Will Forbearance Hurt My Credit Score?
Under the CARES Act, your forbearance shouldn’t have any impact on your credit history. Your lender will continue to report you as current to the reporting agencies. Again, don’t stop making payments until you’ve made an agreement with your mortgage lender. If you suddenly stop paying, your missed payments will get reported as such, and they could have a serious impact on your credit history.
Can Mortgages on Second Homes or Rental Properties Be Put Into Forbearance?
In certain cases, yes, you may be able to get a forbearance on a mortgage for a second home or rental property. It depends on the type of mortgage you have. Property owned by Freddie Mac or Fannie Mae is eligible. If you have a VA home loan, FHA loan, or USDA loan for a second home or rental property, however, these mortgages are ineligible.
Can I Still Refinance My Mortgage While in Forbearance?
With interest rates at an all-time low, many homeowners have, or are, considering a mortgage refinance. While it wasn’t always the case, mortgages in forbearance are now eligible for refinancing. The Federal Housing Finance Agency (FHFA) announced the change in May. Even so, you still need to meet certain requirements to refinance.
How Do I Bring My Mortgage Back to Current After the Forbearance Period Ends?
You have a few options when it comes to repaying the missed payments at the end of your forbearance period. The most desirable option is to do a reinstatement or make a repayment plan. A reinstatement involves paying the entire balance at once. With a repayment plan, you pay your mortgage payment plus a bit extra until you’ve paid off the amount you accumulated during your forbearance period.
If you can’t afford either of these options, you have a couple of others. You may be able to defer your missed payments until the end of your mortgage. Another option is a mortgage modification, which you may be able to get if you can no longer afford your pre-forbearance loan payments.
Options for Selling a Home Quickly
If you don’t want to put your mortgage into forbearance, or you can’t afford your payments after your forbearance period ends, you may consider selling your home. In such cases, selling quickly may be the ideal solution. Here are a few options to consider:
Sell to an Investor
One option is to sell to an investment company that specializes in purchasing homes. Closings are typically much quicker than if you were to sell through an agent or on your own. Some companies will buy homes in any condition. If you choose to go this route, research the company first. While many are legitimate, some are fraudulent.
Put Your House up for Auction
Contrary to what many people think, you can put your home up for auction. It can take anywhere from 45 to 60 days from listing to close, but the auction eliminates prolonged negotiations and reduces the amount of effort you need to put into getting the home listed and shown. Keep in mind, however, that auctions can be risky, as you have little say when it comes to the final sale price. While you can set the minimum bid, what you actually get depends on who bids, and how much they offer.
Do a Short Sale
A short sale is when your lender agrees to let you sell your home for less than you owe on your mortgage. To qualify, you must be very behind in your mortgage payments, or the property must be less than what you currently owe. A short sale can also help you to avoid foreclosure.
Apply for a Sale-Leaseback
Another option to consider is a sale-leaseback. With such options, you can sell your home to a company without having to move. Whether you want to avoid going into forbearance or you won’t be able to afford your payments when your forbearance period ends, many sale-leaseback programs enable you to sell quickly and rent your home back until you’re ready to move.
Should You Apply for Forbearance?
Forbearance can provide some much-needed financial relief during stressful, uncertain times. The action is only temporary, however. For many homeowners, it makes a lot of sense. Before you decide to apply, make sure that you’ll be able to afford your mortgage payments after the period ends and that you’ll be able to repay the amount that accrues during forbearance. With some consideration, you’ll find the best option for you.
If you’re at risk of forbearance, talk to a financial advisor about which options might be best for you and explore additional options that could help you sell your home quickly.