The COVID-19 pandemic has turned the world and the real estate industry on its head. Many Americans have been laid off, furloughed, or otherwise aren’t making the same income they did before the pandemic started. Unfortunately, this means many homeowners are struggling with their mortgage payments and it’s difficult to see a way out.
Luckily, there are options for struggling homeowners, especially during a worldwide pandemic and recession. Let’s learn about options like forbearance, short sales, and what you can do if your issues are COVID related. This is a difficult time for many homeowners, but you can get through it with the right help.
What is Forbearance?
Forbearance means “holding back” and that’s what both you and your lender are doing in forbearance. Forbearance is an agreement between borrower and lender to put mortgage payments on hold or for the borrower to pay lower rates for a period. Forbearance is not forgiveness and delayed or lower payments will need to be paid back.
Is Mortgage Forbearance a Good Idea?
It’s tough to say that mortgage forbearance is a good idea but it’s undoubtedly a better idea than missing your payments and heading toward foreclosure. The idea behind forbearance is to keep things from getting worse. While it’s difficult to say forbearance is a good idea for any homeowner to do, it can help save you from much bigger problems.
How Can I Get a Forbearance on my Mortgage?
Your first step is to call your lender and look over your options. While lenders and bankers have a reputation as number-driven bureaucrats, they’re real people and understand that thousands of homeowners have been put in danger of losing their homes due to the coronavirus pandemic. They aren’t going to kick you to the curb if you’ve missed a mortgage payment, but they must know your situation which can’t happen unless you call to discuss your options.
The CARES Act and Forbearance
On March 25th, 2020 the U.S. Senate passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act as a lifeline to those struggling with payments and other economic issues during COVID-19. The CARES Act offers two protections for homeowners during the coronavirus pandemic including:
Your lender or loan officer may not foreclose on your property until at least August 31, 2020. The CARES Act prohibits lenders from starting a judicial or non-judicial foreclosure or from finalizing a foreclosure sale. This protection runs from March 18 to August 31, 2020.
If you experience financial hardship due to the COVID-19 pandemic, you have a right to request a forbearance for up to 180 days. This protection also includes a right to obtain an extension for a total of 360 days of forbearance. Your lender cannot add any fees or interest beyond normal fee schedules. You are not required to submit any documentation to prove a pandemic-related financial hardship, but you must contact your lender.
You can find additional information on the CARES Act and its protection for homeowners during the pandemic at ConsumerFinance.Gov.
More questions about Forbearance
How Many Forbearances Are You Allowed?
Every lender handles forbearance differently, but borrowers cannot generally file for forbearance and then file for another forbearance immediately after the first one runs out. In the case of COVID-19, you can automatically file an extension for forbearance for an additional 180 days, but forbearance is generally an emergency stop-gap measure used once for your mortgage. The number of forbearances that your lenders allow is how many you’re allowed.
Does Forbearance Affect Credit?
Many homeowners are afraid that forbearance will reduce their credit score to rubble but that’s not true during the coronavirus pandemic. Though your lender will list your mortgage as in forbearance, it will not currently negatively affect your credit score per CARES Act guidelines. You should still talk with your lender to be certain they’re following all guidelines.
Normally forbearance would negatively affect your credit score, but the financial penalties of forbearance are much milder than the penalties from a foreclosure which could shatter your financial plans for seven years or more.
What is a Short Sale?
COIVD-related forbearance is the answer for most homeowners, but short sales can also be useful during financial crises. A short sale is an agreement between the homeowner and the lender to sell the home for less than the amount remaining on the mortgage. Short sales are homes that are normally on their way to default or foreclosure. A short sale lets both the homeowner and the lender escape from the mortgage without losing excessive resources or money to foreclosure.
What About Deferment?
If you’re experiencing COVID-related hardship but only need minor help you could talk to your lender about loan deferment options. In deferment your lender agrees to postpone (defer) your payments, typically for 6 or 12 months. Call your lender about deferment options if you’re facing financial hardships due to coronavirus.
Getting COVID Related Forbearance Questions Answered
Forbearance, short sales, and other related matters are complicated enough but the coronavirus pandemic has made things worse. If you feel like you’re underwater or need help quickly before you go into default on your mortgage, its best to reach out to a real estate team that specializes in these unique transactions.
A real estate agency like The Storck Team knows how difficult times have been and what you can do to stay above water. The Storck Team can work directly with you and your lender to explain your options, detail differences resulting from the CARES Act, and take care of your situation with as little stress on you as possible. They can also act as your agent on any short sale or other unique type of transactions.
We’ll Get Through This
The coronavirus pandemic has shuttered businesses and shattered lives but with the help of the CARES Act, a phone call to your lender, and the help of a qualified real estate team you can get through the worst of it. Don’t wait another day while your mortgage heads toward default, pick up the phone to tell your lender you need help today.