Forbearance has been promoted by the federal government during recent months as a way to relieve some of the economic pressure that many homeowners have experienced in wake of the coronavirus. If you feel that you are having a hard time making your mortgage payment every month, it is one option to investigate. What do you need to know? The first thing to keep in mind is that forbearance options will vary based on your mortgage and your lender. What will be available to you will depend on a variety of factors.
What is a forbearance?
Forbearance temporarily stops the payments you have to make on a loan, such as your mortgage or car payment.
What are the benefits of a forbearance?
Forbearance gives a brief break from some monthly bills. This can be helpful if you’ve had a sudden loss of income. A typical forbearance period is about three months.
What are some drawbacks to forbearance?
Pay close attention to the terms of a forbearance agreement before moving forward. In many cases, the missed payments have to be paid back in a lump sum at the end of the forbearance period. Interest will continue to accrue during the forbearance period. You will also be expected to return to making monthly mortgage payments as you did before the forbearance period. Unless you are expecting a large amount of income at the end of the three months, a forbearance may place you in a more difficult position.
How do I know if forbearance is right for me?
Forbearance can be a helpful option if you are experiencing a temporary reduction in income due to a factor such as a short leave from your job. Yet, forbearance can be more harmful than helpful if you are simply in a home that you cannot afford long-term. This is why it can be important to speak with a HUD-certified housing counselor who is able to assess your individual situation and help you explore all of your options. Working with a homeownership advisor can also prepare you to speak with your loan servicer when you’re ready to take action.
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Forbearance during COVID-19
Due to the COVID-19 pandemic, forbearance has changed over the past few months. These changes are meant to assist those who have suffered financially as a result of the pandemic. If you feel like you have been negatively impacted by COVID-19, the first and most important step to take is to contact your loan servicer. Your loan servicer will be able to walk you through the various options that you have available, as set out by the guidelines given to them by the lender.
In Minnesota, 31 organizations have agreed to COVID-19 specific forbearance guidelines set by the state, which include a 90-day forbearance period, not requiring a lump sum payment at the end of the period, and not negatively impacting the mortgage holder’s credit score. Some organizations may be offering longer forbearance periods, or other variations in these terms.
Despite the various options available, it is important to note that if you were in foreclosure or owe more than 12 months of mortgage payments prior to COVID-19 you may not be eligible for some of the modified COVID-19 options. However, if this is the case you may have other options available to you. For example, the bank may break down the amount owed into smaller, more affordable payments. If monthly payments aren’t an option, the bank may permit adding the delinquent amount to be paid at the end of the mortgage.
The one constant with forbearance is that the circumstances may be different for every mortgage and lender. That’s why it’s important to start with a call to your servicer.
How do I apply for forbearance?
If you do decide that loan forbearance is the right option for you, you will first have to apply through your loan servicer. You will need to gather relevant documents, such as your tax returns and banking information. If you are approved, you will typically have some kind of repayment plan in place. Not every homeowner will be able to qualify for forbearance, but it is an option if you have experienced any kind of financial hardship that has left you unable to meet your mortgage payments.
What happens after I am approved?
After you are approved, make sure that you keep track of all deadlines that are given to you by the loan servicer so that you know exactly when the forbearance period ends, and when you must start making payments again. Make plans for how you will pay for the mortgage payments when they come due. Take notes about all contact you have had with your loan servicer, including what you discussed on what day, where, and the time of the interaction. Also keep a record of any additional correspondence between you and your loan servicer by keeping copies of any letters you receive or send to your servicer during this period.
These steps are important in ensuring that a forbearance period helps you pay off your mortgage rather than putting you further behind in your payments.
If you think that forbearance is the right step for you, we recommend starting with a free and confidential appointment with one of our homeownership advisors. Our team members are highly trained and can walk you through the entire process to ensure the best outcome for you. We can also help you explore other options to preserve your home.
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About the Author:
Emilie Dozer
I have a passion for housing and I am very excited to get involved in the meaningful work that NeighborWorks Home Partners is doing within the Twin Cities. I am currently a student at the University of St. Thomas studying both Justice and Peace Studies and Sociology. In my free time I enjoy listening to podcasts and cooking with my roommates.
