Understanding Mortgage Forbearance During Covid-19
I was speaking with a homeowner last week who was considering asking their mortgage lender about doing a forbearance on their loan, and wanted to know if that would affect her ability to apply for a mortgage to upgrade to a new home next year.
Many homeowners are worried about their ability to make their mortgage payments, and wondering if they should cease their payments during the COVID-19 crisis. I would highly recommend against this, not without first checking with your mortgage company.
If is not causing a hardship to make your payments, it is much safer to continue making them. That being said, the 2 trillion dollar CARES Act may enable you to have your mortgage payments placed in forbearance for up to a year. You would need to check with your mortgage company to see if they are federally backed by Fannie Mae, Freddie Mac, or Ginnie Mae. About 70 percent of mortgages in the U.S. are, but it is best to verify.
What is forbearance?
• Forbearance will allow you to suspend mortgage payments if you are experiencing a financial hardship that prevents you from being able to make timely payments.
• Forbearance is not a forgiveness of your mortgage payments. You will still be responsible for payments you do not make after the forbearance period has ended. Your mortgage company will explain the repayment requirements.
• This could be as simple as moving the missed payments to the end of the loans amortization period.
Do I qualify?
• Your mortgage company will determine if you qualify based on whether you are experiencing a financial hardship due to the Covid 19 crisis.
• Fannie Mae and Freddie Mac have stated that this applies "whether you’re facing job loss, reduced income, illness, or other issues that impact your ability to make your mortgage payment."
• Keep in mind, if your financial hardship is related to COVID-19 your forbearance can be used for your primary residence, second homes, or even investment properties.
What are the negative consequences?
• Your credit should not be affected if your mortgage company approves your forbearance request. However, you need to verify this with your lender as policies can vary between companies. Always check first.
• Freddie Mac has instructed mortgage companies not to report borrowers for forbearance plans as "delinquent" to the credit bureaus. As I said before…Always check first.
• While your credit should not be affected, a forbearance on your mortgage loan could negatively affect your ability to refinance your loan or qualify for a new one.
- Remember to ask how the payments deferred during your forbearance period will need to be repaid. Some mortgage companies may require all of the payments to be paid at one time at the end of the loan, which could mean a large balloon payment of 6 months to a years worth of payments due at one time.
How can I apply?
• Contact your mortgage company to apply.
• Some mortgage companies may take longer than others to respond to forbearance requests. Expect delays as many homeowners may be making similar requests during the Covid-19 crisis. Make sure you are keeping up with your payments if possible, until your forbearance request is approved.
Forbearance is not your only option for financial relief.
There are other options to help you minimize your debt during this unprecedented crisis. Everyone is dealing with their own unique situation, so the help you need may not be the same as someone else. This is not a time where one glove fits all needs.
Here are links you can use that may offer assistance.
• Check out the expanded unemployment benefits for those laid off and for independent self-employed workers.
• Learn more about the traditional and expanded relief for small businesses.
• Get information and resources on how to handle student loans.
• Find low interest loans to help businesses and homeowners recover from declared disasters
• Ask for an extension on filing your taxes, which are now due on July 15, 2020.
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