If you’ve been financially impacted by COVID-19, you’re not alone. While about 3.7 million homeowners are in forbearance, early July saw the largest drop in delinquencies since the pandemic started. Now, forbearance numbers have fallen for eight straight weeks.
So, there is hope — and evidence — of recovery. The job market is showing signs of growth. Meanwhile, the housing market is booming. Forbearance numbers may continue to decline, and only time will tell if more homeowners are affected.
Still, it helps to prepare. If you’re a homeowner, knowing more about the ins and outs of forbearance can bring some peace.
5 facts about forbearance every homeowner should understand
First, what is forbearance?
Generally, forbearance is the first step for any homeowner needing temporary mortgage payment relief. Forbearance allows you to stay in your home instead of turning to foreclosure. Forbearance typically lasts from three to six months.
It can help to know that:
1. You can suspend your payments.
The very first thing to do if you’re experiencing financial hardship that could affect your ability to pay your mortgage is to contact your servicing team. Let them know you’re seeking forbearance related to COVID-19.
In the event that your servicing team is different from your lender (selling a loan is a common practice to maintain liquidity), search for your servicer using the Mortgage Electronic Registration Systems.
The recently passed CARES (Coronavirus Aid, Relief, and Economic Security) Act provides extra protection for homeowners with a federally-backed mortgage against foreclosure, with options including forbearance. You can look up your mortgage here to see if it’s federally-backed.
Though this isn’t loan forgiveness — and missed payments will eventually have to be paid back — forbearance could give you much-needed flexibility in the midst of a financial crisis. Missed mortgage payments won’t be reported to credit bureaus. You also won’t incur any excess interest, fees, or penalties.
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2. You can get forbearance for up to 180 days.
Start by contacting your loan servicer to request forbearance caused by a pandemic-related hardship. To speed the process along, have your account number ready. Make sure to request documentation of your forbearance or mortgage relief plan in writing.
Many forbearance plans last up to three months, but the CARES Act allows forbearance periods for federally-backed mortgages of up to 180 days. You may also request to extend your forbearance another 180 days if you need extra time.
This could look like:
- Your monthly mortgage payment of $1,400 is due on August 1, 2020.
- If you can’t make the payment and don’t know when you can, you may choose a 180-day forbearance plan lasting through January 2021.
- You may also contact your servicer at the end of this forbearance period to request a 180-day extension if you need it.
- Or, you could make partial payments — of $500 a month, for example — throughout the 180 days to reduce the final amount of repayment.
Even during forbearance, you can expect to receive a bill from your servicer every 30 days. While late fees and interest won’t accrue during forbearance, a statement is still sent, showing your account history and total amount due reflecting any partial payments.
Also, a forbearance plan only includes property taxes and homeowner’s insurance if they’re escrowed (rolled into your mortgage). It doesn’t cover condo and HOA fees.
3. If you can, it’s a good idea to keep paying your mortgage.
Mortgage assistance can relieve the pressure, but it’s still in your financial interest to continue making payments on your mortgage. The CARES Act grants a right to forbearance caused by financial hardship for federally-backed mortgages. For a privately-owned mortgage, lenders may also provide forbearance, deferment, or loan modification plans.
But if you’ve been given the relief, then why pay until it’s required?
Remember, forbearance doesn’t mean forgiveness. You’ll soon be responsible for the suspended payments. So, it makes sense to pay what and when you can, lessening the impact of what you’ll owe when your forbearance plan expires. While in forbearance, the CARES Act also ensures that no charges apply to any late payments you make.
4. You can still refinance or buy.
The FHFA recently made a helpful update. Once your forbearance period is over, you’ll be eligible to refinance your mortgage or buy a new home after you’ve made three consecutive repayments. Prior to this, a homeowner had to wait for up to 12 months of repayments following forbearance.
For many homeowners, this is welcome news. The housing market is currently booming, playing a pivotal part in reigniting our economy. Home equity has also recently reached an all-time high. So, opting to sell your home and purchase a new one after forbearance could put you in a better financial position — either by downsizing or selling your home at a profit.
And, many renters are seeing this crisis as an opportunity to buy. There have been numerous reports of landlords still charging tenants rent after being granted forbearance. These instances illustrate the benefit of buying your own house — with rates currently at all-time lows — to build your investment, instead of continuing to pay a landlord’s mortgage.
5. You’re better off using it as a last resort.
If you’ve gotten behind on your mortgage and can’t afford to refinance, or don’t have time to sell, then use forbearance. Forbearance, especially with the additional protection extended under The CARES Act, is a helpful safety net that can save you from your final option — foreclosure.
While forbearance can be helpful, it’s better off avoided because:
- Pressing pause can create a snowball effect of accumulated debt once mortgage payments are due if you aren’t prepared for it.
- Depending on the terms, your forbearance plan may require you to pay back a lump-sum or follow a repayment plan.
- Forbearance for federally-backed mortgages concludes with a repayment plan, spreading out your outstanding balance over several months and adding it to your existing monthly mortgage.
There are a few ways to minimize your need for forbearance in times of crisis. Put your stimulus check toward your mortgage payment. Ask friends or family for a gift or loan during a temporary furlough.
For a longer stretch of unemployment, consider taking it from your retirement account, where up to $100,000 in penalty-free withdrawals are permitted. And definitely talk with your loan officer and/or a certified housing counselor so that you know you’ve explored all the available options.
Always here to lend a hand in a time of crisis
You might be happy to know that, for whatever you need, a friendly loan officer is waiting. Not only that, but your physical and financial health remains our top priority. Whether by phone, email, video, or app, we’re fully equipped to help you manage your mortgage remotely.
For educational purposes only. Please contact your qualified professional for specific guidance.
Sources deemed reliable but not guaranteed.