Homeowners struggling to pay their monthly mortgage payments may be eligible for forbearance.
Forbearance allows you to reduce or pause your payments for a period of time, allowing you some relief to build back your finances and resume payments.
During the COVID-19 pandemic, millions of homeowners have requested forbearance. But this option has been available to homeowners well before the pandemic.
If you’re facing reduced income due to job loss, health issues, or other hardships, mortgage forbearance may be an option for you.
Here are five things you should know about forbearance to help you decide.
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1. Who is Eligible for Mortgage Forbearance?
Homeowners can seek forbearance for many types of financial hardships. The most common reasons include:
- Job loss
- Health issues
- Reduced work hours
- Natural disaster
At the start of the pandemic, these types of issues were rapidly occurring as workers faced layoffs, job loss, and health concerns en mass.
As a result, the government passed legislation in March 2020 to offer specific mortgage forbearance assistance for homeowners with federally backed loans.
Homeowners eligible for COVID-19 hardship forbearance must:
- Have an HUD/FHA, VA, USDA, Fannie Mae, or Freddie Mac loan
- Be experiencing financial hardship directly or indirectly due to the pandemic
If you don’t have a federally backed loan, talk to your mortgage lender. They likely are offering similar options to help their borrowers.
Prior to the pandemic, those seeking forbearance were required to show proof of hardship. With the pandemic legislation in place, no proof is required.
Determining whether you are eligible for forbearance always starts with a call to your mortgage lender. They will be able to tell you whether you are eligible and if there are any specific documentation requirements.
2. Mortgage Forbearance is Temporary
Forbearance is not a permanent alteration to your mortgage loan payments.
Once your initial plan ends, you can either request an extension or will need to resume payments.
Forbearance plans usually last three to six months, with extensions possible for up to 12 months. Some loans can potentially extend up to 18 months, depending on when the initial plan started.
With forbearance, your mortgage lender provides a written agreement. This agreement will include the plan length and repayment terms.
If you happen to be denied forbearance initially, you have the right to appeal. Including more documentation or information could help your case.
3. Mortgage Forbearance Does Not Erase Debt
During forbearance, your lender agrees not to initiate foreclosure while you are unable to make payments. Instead, they are agreeing to reduce or halt your payments for a specified amount of time.
This does not mean these payments will disappear or are forgiven.
Once the agreed time period ends, you are required to resume payments. However, this also doesn’t mean you are required to pay it back immediately in full.
Terms will vary by lender, but generally you will have the following repayment options:
- Repay a portion of your owed amount each month with your regular payment
- Defer payments to the end of your loan term
- Modify your payment amount and add the amount you owe to your loan
- Pay off the entire amount in one payment
With the pandemic legislation, lenders are prohibited from requiring borrowers to pay back the entire amount in full. But if you don’t fall under the specific eligibility requirements, your lender could require you to pay a lump sum at the end of your agreement.
Your lender will lay out the terms of your agreement, so nothing will be a surprise. Be sure you fully understand your repayment options and ask questions to your lender if you do not.
4. What is the Deadline for Applying for COVID-19 Related Mortgage Forbearance?
Borrowers currently have no set deadlines to apply for COVID-19 mortgage forbearance.
If you have an HUD/FHA, USDA, or VA loan, you can request a hardship forbearance for as long as the COVID-19 National Emergency is in place.
For those with loans backed by Fannie Mae or Freddie Mac, there is no deadline for requesting forbearance.
5. There Will Not be Additional Fees, Interest, or Penalties Added to Most Mortgages
For non-COVID related forbearance, borrowers could potentially accrue extra interest, fees, or penalties on their loans, depending on the agreement.
Fortunately, with the current mortgage relief options in place, interest can accrue but will not be capitalized, and there will be no additional fees or penalties for most borrowers.
Reach out to learn more about these terms and conditions, from the professional mortgage lenders at River City Mortgage.
We can explain the current COVID-19 hardship forbearance requirements and offer guidance on loan options once your forbearance ends.
Once mortgage forbearance ends, you may choose to adjust your loan terms through refinancing to find a loan that fits your needs better. Our team would love to help you through this process.