When it comes to mortgage forbearance, there are a lot of misconceptions out there. Many people think that getting a forbearance means that they don’t have to make their mortgage payments for a certain period. That’s not necessarily the case.
What is Mortgage Forbearance?
Mortgage forbearance is a way for homeowners to stay in their homes even if they can’t make their mortgage payments. When you have forbearance, your lender agrees to let you pay less or nothing at all for some time.
After the forbearance ends, you will usually have to make up the missed payments, either at once or by adding them to the end of your loan. Forbearances are typically used when homeowners experience financial hardship, such as job loss or medical bills. While a forbearance can provide some much-needed relief, it’s important to remember that you will still owe the money that you don’t pay during the forbearance period. As a result, it’s essential to consider all of your options before choosing forbearance.
How to get a Mortgage Forbearance?
Mortgage forbearance is when your lender agrees to let you temporarily pay reduced or no payments. This can be a practical option if you’re struggling to make your mortgage payments due to financial hardship, such as a job layoff or medical bills. Forbearance is not forgiveness – you will still owe the full amount of your loan. And while it may help you avoid foreclosure in the short term, you should only consider forbearance if you have a plan for how to catch up on missed payments once the forbearance period ends.
It would be best if you had a few things before even applying for forbearance. The first is documentation proving financial hardship due to the COVID-19 pandemic. This can be a layoff notice, decrease in hours or income, or medical expenses related to the virus. You’ll also need to show that you’ve made an effort to make your regular mortgage payments on time until this point of financial hardship.
Once you have all the required documentation, reach out to your mortgage company and explain your situation. They may require additional information, but they will let you know what the next steps are if they agree to grant you forbearance. In most cases, a forbearance lasts for three to six months, but it can be extended if needed.
During the forbearance period, continue to pay what you can towards your loan – even if it’s just a small amount. This will help lower the amount of interest accrues and make it easier to catch up on missed payments once forbearance ends. Keep in close communication with your loan servicer during this time, and update them on your financial situation. They can work with you to find the best solution for your unique circumstances.
Forbearance is just one option available to homeowners struggling to make their mortgage payments due to COVID-19. Other options include refinancing, modifying your loan terms, or taking out a personal loan. Be sure to research all the options and speak with a housing counselor before making any decisions about your mortgage.
What are the COVID-19 Mortgage Forbearance Programs?
In response to the COVID-19 pandemic, many lenders are offering mortgage forbearance programs. Under these programs, borrowers can temporarily stop making payments on their loans. The programs are designed to help people who have lost their jobs or income due to the pandemic.
There are two types of forbearance programs: government-sponsored and private. Government-sponsored forbearance programs are available for people with FHA, VA, or USDA loans. Private forbearance programs are available for people with conventional loans.
Each program has its terms and conditions. For example, government-sponsored programs typically last for six months, while private programs can last for twelve months. Mortgage forbearance is a good option for people who need temporary relief from their mortgage payments.
However, it is important to remember that interest will continue to accrue during the forbearance period. As a result, the total amount owed on loan will likely increase. Forbearance should only be used as a last resort. People who can afford to make their mortgage payments should continue doing so.
What are the pros of mortgage forbearance?
There are many potential pros to mortgage forbearance for both borrowers and lenders. For borrowers, forbearance can provide a much-needed break from making monthly payments, which can be helpful if the borrower is facing temporary financial hardship. This can free up money that can be used to cover other essential expenses, such as food or medical bills.
Forbearance can also help avoid missed payments, which can damage a borrower’s credit score. In addition, forbearance may be less expensive than other options for dealing with financial difficulties, such as refinancing.
For lenders, forbearance can help avoid foreclosure, which can be costly and time-consuming. In addition, by working with the borrower to develop a plan for repaying the missed payments, the lender can help to ensure that the borrower can eventually make full payment on the loan. This can help preserve the property’s value and minimize losses for the lender.
Overall, mortgage forbearance can benefit both borrowers and lenders in certain circumstances.
What are the disadvantages of mortgage forbearance?
Mortgage forbearance sounds like a great deal when struggling to make your monthly payments. What’s not to like about being able to put off those payments for a while? But there are some serious disadvantages to this option that you should be aware of before you sign on the dotted line.
For one thing, interest continues to accrue on your loan during the forbearance period, so you could owe a lot more money than you do now when it’s time to start making payments again. In addition, your credit score will take a hit during the forbearance period, making it difficult to get a loan in the future. And finally, if you can’t make the payments when they eventually come due, you could still end up in foreclosure.
So while mortgage forbearance may seem like a good option when you’re struggling to make ends meet, it’s essential to understand the potential drawbacks before committing to this type of arrangement.
Mortgage Forbearance FAQs
Can one sell their home during forbearance?
People who are experiencing financial hardship due to the pandemic may be wondering if they can sell their homes during forbearance. The answer is yes, but there are a few things to keep in mind.
First, it’s essential to understand that forbearance is a temporary relief from making mortgage payments. It does not erase the debt or change the terms of the loan.
Second, lenders typically require forbearance agreements to be in writing, so be sure to get everything in writing before proceeding with a sale. Finally, it’s important to remember that any missed payments will still need to be paid back, either in a lump sum or through a repayment plan.
As such, selling a home during forbearance may not be the best option for everyone. Those who are considering it should speak with their lender and consult with a real estate professional to determine if it’s the right decision for their situation.
Can forbearance be extended?
Yes, in some cases, forbearance can be extended. However, this is typically only an option for those who are still experiencing financial hardship and are unable to make their mortgage payments.
Extending forbearance may give the borrower more time to get back on their feet, but it’s important to remember that any missed payments will still need to be paid back. In addition, extending forbearance may negatively impact the borrower’s credit score.
As such, borrowers should only extend forbearance if they absolutely cannot make their mortgage payments and should speak with their lender before doing so.
What happens if I miss a payment during forbearance?
If you miss a payment during forbearance, your lender may require you to repay the missed payment in a lump sum or through a repayment plan. In addition, your credit score may be negatively impacted.
It’s important to remember that forbearance is not a free pass to skip payments. If you’re struggling to make your payments, you should contact your lender as soon as possible to discuss your options. Missing payments could put you at risk of foreclosure.
Do rental properties and second homes qualify for forbearance?
The answer is maybe. Some lenders may offer forbearance on rental properties and second homes, but this is not always the case.
Borrowers struggling to make payments on their investment properties should contact their lender to discuss their options. It’s important to remember that even if your lender does offer forbearance, you will still be responsible for making up any missed payments once the forbearance period ends.
The Bottom Line
If you’re struggling to make your mortgage payments, mortgage forbearance may be an option worth considering. However, it’s important to remember that forbearances are typically only temporary solutions. As a result, you’ll still need to make up the missed payments once the forbearance period ends. Before choosing forbearance, be sure to consider all of your options and speak with your lender to see if it’s the right choice for you.