Due to the coronavirus pandemic, an unprecedented number of people are in need of and have applied for mortgage forbearance. This is very common in New York which was hit very hard by covid-19 with many businesses being temporarily or permanently closed leaving many people out of work.
What is Mortgage Forbearance?
Forbearance is when your mortgage lender allows you to temporarily stop making payments or reduce the amount you have to pay towards your mortgage. For example, if you have a 1 year forbearance period, you would not be required to make any payments during that time and won’t face any of the normal repercussions like penalties and damaged credit, though you can make optional payments at any time.
It is important to note that forbearance is not the same as forgiveness – you are still responsible for making up and skipped or reduced payments.
The exact timing as to when the missed payments are due will vary based on your specific agreement with the lender, but the payments will typically be made up in one of the following ways:
- A repayment plan would set up a schedule to make extra large payments over a period of time until your missed payments have been made up. This is a good option for someone who is in a better financial situation than when they applied for forbearance and has the ability to make these larger payments.
- A deferral or partial claim is when your missed payments get moved to the end of your loan, extending the overall term, or get placed into a subordinate lien that is due upon the sale or refinance of the property. This option is best suited for someone who is in a similar situation as before the forbearance period and can afford to go back to their original monthly payment.
- A loan modification is when you restructure the terms of the loan with the purpose of reducing your regular monthly payments moving forward. This typically involves reducing interest rates and/or extending the overall term of the loan in order to reduce the payment amount. This option is best for someone whose circumstances have changed and can no longer afford their old monthly payment.
- A reinstatement is when you make a lump sum payment at the end of your forbearance period in order to bring the loan current. If you have received forbearance due to COVID hardship, this will never be a required option.
How to Request a Forbearance?
With the passing of the CARES act that went into effect during the coronavirus pandemic, the government has made it easier to request forbearance. If your mortgage is backed by HUD/FHA, VA, USDA, Fannie Mae, or Freddie Mac, you only need to explain that you have a COVID-related financial hardship in order to qualify for the relief. If you are unsure about who is backing your mortgage, your best option is to contact the loan servicing company where you make your mortgage payments and ask them.
If you already have a forbearance plan and still need more time, you are eligible to request an extension (depending on who backs your loan) for an additional 180 days due to coronavirus hardship. You can learn more about your options at some of the resources we’ve linked at the bottom of this post.
During the forbearance period, servicers aren’t allowed to charge fees or interest beyond what you would have had to pay if you were making the regular monthly payments. So you won’t be surprised with any late fees and you won’t see any impact on your credit score.
Can I Sell My House While in Forbearance?
One of the questions we have been getting asked a lot is whether someone can sell their house while in forbearance or sell a home where forbearance was previously given, but outstanding payments are still due. The good news is that there are no restrictions on selling your home that are imposed by forbearance. However, you do still owe the lender for any missed payments, so you can expect to see that amount come out of any proceeds you’d receive from the sale of your home.
As long as your home is worth more than you owe the lender, you’ll have no issues selling the property. However, if you owe more than the home is worth, whether in forbearance or not, you’ll have to work with your lender to do a short sale or deed in lieu of foreclosure. Lenders, especially ones in New York where the foreclosure process is very expensive, are often willing to negotiate in order to avoid having to go through the foreclosure process which is something you want to avoid as well. If you are in this situation, please give us a call at 631-388-7771 as we have a lot of experience working with the lenders to help homeowners in this situation.
When Should I Sell My House in Forbearance?
You obviously applied for forbearance so that you could stay in your home, but in some situations it may be better to consider selling your home. If your forbearance period has run out and you don’t see a path for you to be able to make up the missed payments and believe you will continue to fall behind, it’s probably time to consider selling your home. Remember, that once the forbearance period expires, the lender will start tacking on late fees and penalties, and you’ll see it impact your credit as you fall behind on your payments.
If downsizing your home is an option, this would be a very good time to consider that in order to reduce expenses to a level that are affordable. This is important because as you fall behind on your payments, your mortgage balance will grow and start to erode any equity (the difference between the value and the amount you owe to the lender) you have in your home. In this case, it’s recommended that you try to avoid going into preforeclosure and sell your home as time is your enemy and you’ll want to move quickly.
What Are My Other Options While in Forbearance?
If you are not in forbearance but it is something you are considering, you likely have some other options. Aside from selling your home to avoid forbearance, you can also take some preemptive measures to try and avoid forbearance in the first place. With the current low interest rates, refinancing to lower your monthly payments may be a viable option. Something else you can try is working with your lender and discussing whether a loan modification may be a good option for you.
However, if you are looking for some advice or if you have already determined that selling your home may be your best option, please contact us to get a fast cash offer on your home before your situation gets any worse.