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Mortgage forbearance

If you anticipate having difficulty making your mortgage payment, contact your lender as soon as possible.

What is mortgage forbearance?

Forbearance is when a lender allows you to suspend payments for a set time due to financial hardship resulting from:

  • A sudden loss of employment.
  • A significant reduction in income.
  • A natural disaster event.

If your mortgage is already in forbearance and you’re anticipating difficulty making payments after it ends, contact your lender immediately. If your loan is insured by the government, you may be eligible for an extension, depending on when your mortgage was originally in forbearance.

Do all lenders offer forbearance?

In general, all lenders are required to discuss repayment options with you, including forbearance, if you’re having trouble making your monthly mortgage payments, according to the Consumer Financial Protection Bureau (CFPB).

If you’re already in forbearance and need more time to start making payments again, ask your lender for a forbearance extension. If your financial hardship is due to COVID-19, it should be relatively straightforward to get an extension.

How to request a COVID-19 related forbearance extension

  • If your loan is backed by HUD/FHA, VA, USDA, Fannie Mae or Freddie Mac. Contact your lender and explain that your hardship is due to COVID-19, and your request should be honored. COVID-19-related extensions are not automatic, so it’s critical to request an extension before your forbearance ends.
  • If your loan isn’t backed by a government agency. Don’t panic. Instead, call your lender as soon as possible to discuss repayment options. Besides a forbearance extension, your lender may have other options available to help you avoid an unnecessary foreclosure.

What if your financial hardship isn’t related to COVID-19?

If your situation isn’t COVID-19-related, it’s still important to let your lender know as soon as possible if you anticipate difficulty making your loan payments. You may be able to extend your forbearance period or take advantage of other options to help make your payments more affordable.

Here are three steps you can take:

  1. Contact your mortgage servicer to request repayment help. Your servicer’s contact information is on your monthly mortgage statement.
  2. Use your lender’s phone number and email to communicate, and follow up if you don’t hear back after a reasonable time frame.
  3. If you can’t get a forbearance extension after speaking with your lender, consider other repayment options, including:
    • A loan modification. A loan modification is when your lender changes the terms of your loan, for example, by extending your loan’s term length to reduce your monthly payment.
    • Using a partial claim. A partial claim is an interest-free loan from HUD that can be used towards overdue payments, according to Nolo Law. The loan isn’t due until your mortgage is paid off.
    • Short-selling the property. In this situation, the lender accepts less than what the property is worth, but the loan is considered paid off in full. You lose the home, but you won’t have a foreclosure on your record.
    • Deed in lieu of foreclosure. This is another last resort option that gives the lender the deed to your home instead of foreclosing.

The good news is, help is often available, but lenders will be forced to take action if you don’t communicate with them. So it’s important to be proactive.

How does forbearance affect my ability to get a new mortgage?

Generally speaking, forbearance can drag down your credit score unless your lender has agreed not to report it. But under the CARES Act, lenders are required to report your mortgage as being current, as long as you were in good standing at the time of forbearance.

If you have a Fannie Mae or Freddie Mac loan and want to refinance to take advantage of lower interest rates, you must take the loan out of forbearance first and make at least three consecutive payments. Afterwards, you can look into refinancing the loan, including the payments you missed during the forbearance period.

Image: Getty

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