Are you currently experiencing financial hardship and wondering where your next mortgage payment is going to come from? If this sounds like you, forbearance may be an option.
Mortgage forbearance allows you to suspend your monthly mortgage payments while you get back on your feet. It can provide some much-needed relief and help you avoid foreclosure. Let’s look at everything you need to know to apply.
What is mortgage forbearance?
If you have a tough time paying your monthly bills, mortgage forbearance may be a good option for you. Mortgage forbearance involves postponing your mortgage payments for temporary financial relief.
Your loan isn’t forgiven, but the payments are on pause until the forbearance period ends. This reprieve can help you and your lender avoid foreclosure.
Mortgage forbearance is an option for borrowers experiencing financial hardship brought on by things like a job loss or disability. Most recently, millions of Americans have requested mortgage forbearance under the CARES Act to deal with the ongoing effects of the coronavirus pandemic.
How does mortgage forbearance work?
Mortgage forbearance is designed to provide temporary financial relief, so it usually lasts for less than a year. To apply, you’ll start by contacting your lender. The exact requirements will vary depending on your lender and whether you have a government-backed or private mortgage.
If you qualify for forbearance, your lender will outline the terms of your mortgage forbearance agreement. This includes how long your forbearance will last, whether your lender will report it to the credit bureaus, and what happens once it ends, such as how the skipped payments will be repaid.
You won’t have to make any payments on the principal or interest during the forbearance period, but your interest will continue to accrue. And by law, your lender must continue sending you monthly mortgage statements, even though the payments are suspended.
Will mortgage forbearance affect my credit?
It might – unless your lender agrees not to, they can report your forbearance to the credit bureaus. You can always ask your lender not to report the forbearance, but they don’t have to honor your request.
If your lender does report the forbearance, your credit score will likely go down. However, this is still less damaging than missing mortgage payments or foreclosing on your home.
The exception to this rule is if you’re experiencing special circumstances, like a global pandemic. According to the CFPB, the CARES Act states that lenders are required to report your accounts as current in certain situations.
Does Mortgage Forbearance Affect Refinancing?
As interest rates hover around at a historically low level, you might be thinking about refinancing your home. But here’s the bad news, if you are in forbearance, you might not be eligible to refinance your current mortgage.
If you applied for forbearance but continue making your mortgage payments, you’ll likely still be able to refinance. If you’ve missed payments, however, you won’t be able to refinance your mortgage.
How to get mortgage forbearance
You’ll need to contact your mortgage service to qualify for forbearance. Ideally, you’ll do this before you fall behind on your mortgage payments to minimize the damage to your credit score.
When you contact your lender, you should have a recent mortgage statement and your account number on hand. Give a brief description of your financial situation and let them know if you’re able to make a partial monthly payment or are looking to suspend payments altogether.
Unless your forbearance is related to the pandemic, your lender will likely request additional documentation. After you’ve provided everything they need, your lender will send a formal document outlining the terms of your forbearance.
If you agree with the terms offered, you’ll sign the document and proceed with your forbearance. During forbearance, you should continue monitoring your monthly mortgage statements and credit. That way, you’ll quickly spot and can resolve any errors.
What happens when mortgage forbearance ends?
When forbearance ends, you’ll resume making your monthly mortgage payments as usual. And depending on the terms of your agreement, you’ll have to make up for missed payments and interest.
And once forbearance ends, you’ll have the right to sell your home. However, you will have to wait three months and make three consecutive mortgage payments before you can take out a new mortgage.
CARES Act Mortgage Forbearance
The CARES Act was passed in March 2020 to provide temporary economic relief to consumers due to shutdowns and job losses. Part of the act called on lenders to provide mortgage forbearance programs.
If you’re experiencing financial difficulties brought on by the pandemic, you may be able to temporarily suspend your mortgage payments. However, the way you will go about it mostly depends on the type of loan you have.
If you took out a government-backed mortgage, you have the right to request mortgage forbearance. This applies to the following government-backed loans:
- Fannie Mae
- Freddie Mac
Due to the ongoing coronavirus pandemic, you have a right to request forbearance up to 180 days on all government-backed loans. And once the initial term ends, you can request an extension for an additional 180 days.
Besides letting your loan servicer know that you’re experiencing financial hardship, you don’t have to provide additional documentation to qualify for forbearance. There are no additional fees or charges for receiving loan forbearance, but your regular interest will continue to accrue.
If you don’t have a government-backed loan, you may still be eligible for mortgage forbearance. Contact your loan servicer to find out what options are available to you. You can find their contact information listed on your monthly mortgage statement.
If you do receive forbearance under the CARES Act, your lender cannot require you to repay missed payments in a lump sum after the program ends. And you’ll also want to watch out for scammers looking to take advantage of you.
Be wary of any suspicious calls, emails, or text messages promising to provide mortgage relief. You can only receive forbearance through your mortgage servicer.
The bottom line
If you’re struggling to pay your bills every month, mortgage forbearance can help you get back on your feet. When you qualify for forbearance, you temporarily press pause your monthly mortgage payments.
The CARES Act program ends on Sept. 30, so if you’re looking to apply for forbearance, you’ll need to act quickly. Applying for mortgage forbearance is always an option, but the terms are much more favorable under the CARES Act.