Life is unpredictable, and there may come a time when you face temporary financial hardship and are unable to pay your monthly mortgage payments on time.
Hopefully this won’t be the case, but it’s important to be aware of your options during times of struggle. Mortgage loan terms often span 30 years, and there’s a lot that can happen during that period of time.
In these instances, you may choose to ask your lender about forbearance. Let’s dig into what mortgage forbearance means, how it works, and how to apply.
How Does Mortgage Forbearance Work?
Mortgage forbearance is an agreement made between a lender and a borrower who is unable to make their monthly payments due to a financial hardship.
This agreement generally allows the borrower to pause or reduce payments for a temporary period of time. The COVID-19 pandemic is the most recent example of a widespread use of forbearance to offer borrowers relief.
Other examples of short-term hardships that may qualify a borrower for forbearance include:
- Disability or illness
- Job loss
- Recent disaster
- Death of a wage earner
The purpose of forbearance is to allow the borrower time to acquire the funds while the lender agrees to not foreclose on the property.
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Forbearance does not mean your payments disappear. Borrowers will have to repay any missed payments in the future. That’s why forbearance should only be used as a last resort, because otherwise you will just acquire a backlog of payments.
Forbearance agreements usually last three to six months, with renewal up to 12 months. The COVID-19 pandemic forbearance is regulated, so it has specific deadlines.
When is the Deadline for Applying for Mortgage Forbearance?
Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020 to provide economic assistance to workers, families, and businesses.
Under the CARES Act, Americans experiencing financial hardship due to the pandemic are potentially eligible for forbearance if:
- They are directly or indirectly financially affected by the pandemic
- They have a federally backed mortgage, including an FHA loan or VA loan
Mortgages that are not federally backed still may have options from the lender. These borrowers are encouraged to speak directly with their lender to learn about their relief options.
If a borrower’s loan is backed by Fannie Mae or Freddie Mac, there is currently no deadline for requesting a mortgage forbearance.
What Other Relief Options Do Borrowers Have?
Whether your financial hardship falls under the CARES Act requirements or not, your next move should be to contact your mortgage lender to find out your options. Your lender will be able to specify whether you qualify.
Be prepared to present them with the following information, if needed:
- Explanation of your current financial struggles, and whether it’s long-term or short-term
- Mortgage statements
- Pay stubs and tax returns
- Monthly debt payments
If you qualify for forbearance, you and your lender will outline the length of the period and the repayment terms. If you need more time to recover after the period has ended, you can request an extension.
Depending on when your forbearance began, you may be eligible for up to 18 months of forbearance, under recent government extensions. The final say belongs to your lender, though.
What Happens When Forbearance Ends?
Your repayment options will vary depending on your lender. If you’re able to, you can repay the amount in a lump sum, but this won’t be required.
Your repayment options might include:
- Repayment plan, where a portion of your owed amount will be added your regular monthly payments
- Payment deferral, where the missed amount will be moved to the end of your loan term
- Modification, where your payment will be lowered and the amount you owe will be added to your loan
Make sure you’re clear on your repayment options so you can properly prepare for when they start up again. If you want to end your forbearance early, you have the option to do so. Contact your lender to discuss your options.
During forbearance, borrowers also are encouraged to keep a close eye on their credit scores. The CARES Act states that payments should not be reported as late or missed, and forbearance should not hurt your credit score.
However, mistakes can happen, especially with the amount of forbearances mortgage professionals are navigating during the pandemic. As a result, check your loan statements and credit report vigilantly to catch any potential errors.
Next Steps: After your forbearance ends
If you finished your forbearance, it is a great time to review your options for refinancing, reach out to your River City Mortgage lender today.
We are committed to helping you find a permanent solution that will allow you to make sure you are in the best position financially after your forbearance or modification.