Mortgage Forbearance: Is it Your Best Option?
Paying your mortgage should be one of your highest priorities. A house is often a person’s largest financial investment. It is also important to have a secure and safe place to live.
Unfortunately, life sometimes throws curveballs. In recent months, many homeowners have found themselves unable to cover all of their bills due to layoffs and health concerns.
Once you know that paying your mortgage is going to be a challenge, you need to take action. You can ask yourself these questions to determine if mortgage forbearance is your best option.
Are You Experiencing Temporary Hardship?
Mortgage forbearance is designed to help homeowners get through a short period when paying their home loan is difficult. Currently, a forbearance typically lasts six months. After that, you may be eligible to apply for an extension of another six months.
A temporary hardship could be defined as one that you should recover from by the time the forbearance period is over. Work furloughs and layoffs are an example of a hardship that can be overcome within this time. Certain health issues that prevent you from working could also fall into this category.
Keep in mind that lenders may ask for you to verify that the hardship is temporary. They may request information about your current employment status. They may also want to know about your income and assets to make sure you can continue to repay the loan.
Do You Have Other Financial Resources?
Mortgage forbearance is meant to be a last resort to use before you risk foreclosure on your home. For this reason, homeowners are encouraged to explore every possible option to continue making payments.
It might be necessary to pull funds from a retirement or savings account to make your house payment. Family members are sometimes willing to help out with a loan or cash gift. These options might not be ideal, but they could help you past one or two months of having a lower income.
Can You Still Cover a Portion of Your Mortgage Payments?
Mortgage forbearance plans take several different forms. Some homeowners work out an agreement that allows them to only pay the loan interest for a while. Others may make partial payments or skip them completely.
It is typically best to continue to make some type of payment on home loans. This demonstrates responsibility to lenders, and you will have less money to repay when the forbearance period is over.
Have You Looked at Your Other Options?
Refinancing your loan for a lower interest rate may help you be better able to afford the payments. This might be an option if you have been making your payments on time every month and can get a better interest rate on the loan.
Will You Be Able to Manage the Repayment Plan?
The forbearance agreement includes an outline of how lenders expect borrowers to repay their mortgage payments when the forbearance is over. Some require a lump sum payment to cover the previous months of payments.
Others allow the missed payments to be tacked onto the end of the loan. You might also be able to divide up what is owed and add it to your regular monthly payments. Making sure you can honor this agreement preserves your credit history and prevents future issues with getting a home loan.
The decision to seek forbearance is not one to make lightly. Depending upon your financial situation, you may be able to make other arrangements to cover your house payment. The important thing is to take action. Demonstrating your desire to uphold your responsibilities as a borrower helps you to maintain good standing with the lender.
Jimmy Vercellino is an experienced Phoenix mortgage lender. He and his team work hard to provide a timely, efficient and excellent home loan process for buyers. As a loan specialist, Jimmy manages the entire process for his clients, making the home buying experience a pleasure instead of filled with stress.