There comes a time for many people when paying the mortgage becomes a financial burden. If you’ve ever been in that situation, you know the hardship it can cause. But, there are actions you can take to make things a little easier.
Mortgage forbearance is one avenue you may want to explore if you’re having trouble paying your bills. But before you make that decision, it’s important to know all you can about it and how it can affect your credit.
Mortgage forbearance is when your mortgage company allows you to either pause your mortgage payments or reduce them for a limited amount of time. The goal is to get you back on your feet financially.
If you want to request a mortgage forbearance, you need to first contact your lender and find out what the qualifications are. Each company is different. The type of mortgage you have can also impact your options.
You’ll need to submit an application and be able to provide your most recent mortgage statement, and estimates of your current monthly income and your current monthly expenses. You also need to explain why you’re seeking a forbearance. You may be asked to provide documents to prove your claim.
When you are approved, your lender will explain the terms of your forbearance so you can decide if it’s the right choice for you. The terms will detail the length of the forbearance period as well as how much your payments will be if you are getting reduced payments. The lender will also detail how you will repay them once the forbearance period is over. Some arrangements call for a lump sum payment while others will spread out the payments you missed over a certain time and add them to your monthly payment, lengthening your loan term.
Sometimes you may estimate that your financial hardship will last a certain amount of time, but it ends up lasting longer than you anticipated. Other times, you may have thought that you would have had the money to repay it, but end up not having the money. If either of these instances happen, you can ask for a mortgage loan modification to help you afford your mortgage payments.
If you are denied, you can appeal the decision. A new loan officer will review your application and make a decision.
In most cases, mortgage forbearance will appear on your credit. If it won’t, your lender will let you know. Once it appears on your credit, you’ll need to prove you are a credible borrower if you try to get a new home loan after having a mortgage forbearance. Many lenders like to see one year’s worth of on-time mortgage payments following a forbearance.
Under the current CARES Act to help people affected by the COVID-19 pandemic, mortgage forbearance should have no negative impacts on a person’s credit.
You need to start making payments once the forbearance period is over. Since the terms of each agreement are different, it will depend on your lender.Â
Generally, mortgage forbearance doesn’t last for more than one year. During that time, your mortgage company may also ask for status updates to see how you are doing financially and when you may be able to resume your monthly payments. It’s important to note that when you are in mortgage forbearance, your account will still accrue interest.
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If you don’t want to go through the mortgage forbearance process, there are some alternatives. These include:
This can help you to get a better rate and lower your payment.
You can ask to change the original terms of your loan by extending the term, lowering your interest rate, or reducing your principal balance. If you are more than 60 days behind on your mortgage payment, you may not be eligible for a loan modification.
If you’re looking to reduce your expenses and there’s equity in your home, you may consider selling it.
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You don’t have to be unemployed to get mortgage forbearance through the CARES Act. If you prove financial hardship, you can ask for a forbearance for 180 days. When that time is up, you can ask for an additional 180 days if you need it.
To qualify under the CARES Act, your mortgage needs to be federally backed. Many are, so there is a good chance you can qualify. If it is not, you should contact your lender and see what your options are.
If you’re still unsure whether a mortgage forbearance is right for you, consider these pros and cons:
Pros:
Cons:
Mortgage forbearance is not for everyone. You should weigh all the options before deciding which path is right for you.
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