Due to the coronavirus pandemic, an unprecedented number of people are in need of and have applied for mortgage forbearance. This is very common in New York which was hit very hard by covid-19 with many businesses being temporarily or permanently closed leaving many people out of work. Show
What is Mortgage Forbearance?Forbearance is when your mortgage lender allows you to temporarily stop making payments or reduce the amount you have to pay towards your mortgage. For example, if you have a 1 year forbearance period, you would not be required to make any payments during that time and won’t face any of the normal repercussions like penalties and damaged credit, though you can make optional payments at any time. It is important to note that forbearance is not the same as forgiveness – you are still responsible for making up and skipped or reduced payments. The exact timing as to when the missed payments are due will vary based on your specific agreement with the lender, but the payments will typically be made up in one of the following ways:
How to Request a Forbearance?With the passing of the CARES act that went into effect during the coronavirus pandemic, the government has made it easier to request forbearance. If your mortgage is backed by HUD/FHA, VA, USDA, Fannie Mae, or Freddie Mac, you only need to explain that you have a COVID-related financial hardship in order to qualify for the relief. If you are unsure about who is backing your mortgage, your best option is to contact the loan servicing company where you make your mortgage payments and ask them. If you already have a forbearance plan and still need more time, you are eligible to request an extension (depending on who backs your loan) for an additional 180 days due to coronavirus hardship. You can learn more about your options at some of the resources we’ve linked at the bottom of this post. During the forbearance period, servicers aren’t allowed to charge fees or interest beyond what you would have had to pay if you were making the regular monthly payments. So you won’t be surprised with any late fees and you won’t see any impact on your credit score. Can I Sell My House While in Forbearance?One of the questions we have been getting asked a lot is whether someone can sell their house while in forbearance or sell a home where forbearance was previously given, but outstanding payments are still due. The good news is that there are no restrictions on selling your home that are imposed by forbearance. However, you do still owe the lender for any missed payments, so you can expect to see that amount come out of any proceeds you’d receive from the sale of your home. As long as your home is worth more than you owe the lender, you’ll have no issues selling the property. However, if you owe more than the home is worth, whether in forbearance or not, you’ll have to work with your lender to do a short sale or deed in lieu of foreclosure. Lenders, especially ones in New York where the foreclosure process is very expensive, are often willing to negotiate in order to avoid having to go through the foreclosure process which is something you want to avoid as well. If you are in this situation, please give us a call at 631-388-7771 as we have a lot of experience working with the lenders to help homeowners in this situation. When Should I Sell My House in Forbearance?You obviously applied for forbearance so that you could stay in your home, but in some situations it may be better to consider selling your home. If your forbearance period has run out and you don’t see a path for you to be able to make up the missed payments and believe you will continue to fall behind, it’s probably time to consider selling your home. Remember, that once the forbearance period expires, the lender will start tacking on late fees and penalties, and you’ll see it impact your credit as you fall behind on your payments. If downsizing your home is an option, this would be a very good time to consider that in order to reduce expenses to a level that are affordable. This is important because as you fall behind on your payments, your mortgage balance will grow and start to erode any equity (the difference between the value and the amount you owe to the lender) you have in your home. In this case, it’s recommended that you try to avoid going into preforeclosure and sell your home as time is your enemy and you’ll want to move quickly. What Are My Other Options While in Forbearance?If you are not in forbearance but it is something you are considering, you likely have some other options. Aside from selling your home to avoid forbearance, you can also take some preemptive measures to try and avoid forbearance in the first place. With the current low interest rates, refinancing to lower your monthly payments may be a viable option. Something else you can try is working with your lender and discussing whether a loan modification may be a good option for you. However, if you are looking for some advice or if you have already determined that selling your home may be your best option, please contact us to get a fast cash offer on your home before your situation gets any worse. Here are some helpful government resources:
Do you have to pay mortgage when house is for sale?Who is responsible for the mortgage payment while your house is selling? You are the owner of the home until the day the sale closes, which means you're responsible for your mortgage payments during this time.
How do you sell a house you owe too much on?If you absolutely need to sell your home when you're underwater, you might be able to convince your lender to approve a short sale. In a short sale, your mortgage lender agrees to let you sell your home for less than what you owe. In such a sale, you can price your home more aggressively to move it quicker.
What happens when you sell your house but haven't paid off mortgage?Your real estate agent or attorney can work with your mortgage holder and title company to prepare loan closing documents or a settlement statement. When the home is sold, those funds are used to pay the remaining balance on your loan and you can retain the remainder (if any) as profit on the sale.
What happens when your house sells for less than you owe on it?When your lender receives less than you owe them in order to sell your house, the amount they lose is considered canceled debt. The lender will have to report it to the IRS. Since you used that money and didn't pay it back, the IRS considers that to be income which is subject to income tax.
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