The Biden Administration recently announced an extension of critical protections for homeowners struggling to make mortgage payments due to COVID-19. A foreclosure moratorium has been extended, as has a mortgage payment forbearanceprogram. Now, homeowners have until June 30, 2021, to get help. What does that mean to you if you are a homeowner? How can you take action now to protect yourself from losing your home?
According to data from the Urban Institute, an estimated 10 million homeowners fell behind on their mortgage payments as a result of COVID-19-related changes. This has led to many people missing or deferring payments on their home loans. The risk
of foreclosure on those homes is higher than at most times in the past.
The COVID-19 crisis brought with it changes in employment for many. Some jobs were eliminated. Others were scaled back significantly. Some families were forced to stay home to take care of children who were no longer able to go to school or
daycare. Still, others lost a loved one to the virus, limiting their ability to make payments.
The need for protections was evident. The Trump Administration put in place some initial protections. Those were set to expire at the end of March, creating the risk for many homeowners to struggle while the pandemic continues to rage.
The CARES Act, a program put in place in 2020, provides opportunities to help homeowners. This act was designed to help people who were experiencing difficulty with making on-time mortgage payments due to COVID-19 to get some level of relief. Millions of Americans have used this act to provide them with some level of protection.
One of the tools made available through the CARES Act was mortgage forbearance. Forbearance allows a homeowner to request that their mortgage loan lender or servicer pause payments or, in some way, reduce the mortgage payments for a
limited amount of time. The goal is to help provide time for a person to build back up their ability to make payments on time.
With the CARES Act, homeowners may:
There is no simple, one-size-fits-all option. Some options your mortgage company may offer include:
Paused payments with payments tacked onto the end of the existing mortgage
You may have this type of protection of your mortgage is backed by Fannie Mae, Freddie Mac, USDA, HUD/FHA, or the VA. Most mortgages in the U.S. fall under these qualifications.
One of the key concerns about mortgage forbearance is its impact on your long-term finances. For example, could it hurt your credit score if you skipped these payments?
That depends. It is important to read the forbearance documents provided by the lender to fully understand what your options are and what limitations this type of arrangement may provide. Keep in mind that a forbearance isn’t free money – you still have to pay back what you owe, and, in some cases, your debt may increase due to the compounding interest that continues to remain in place.
It’s best to understand what you agree to before doing so. Read through the forbearance offer because lenders have some flexibility in what they offer.
Here’s the hard part about mortgage forbearance. Once you commit to it, your lender is not likely to allow you to refinance your loan immediately. That is, during active forbearance, you are not able to refinance your mortgage loan in most cases.
However, you can stop the forbearance at any time. Once you do that and make at least three consecutive payments on time, you can then consider the options for refinancing.
If you are currently in mortgage forbearance or considering it, ask yourself a few key questions:
Most property owners need to remember that forbearance creates a break for now, but it may not offer a long term solution. That’s where mortgage refinancing can help. It allows you to create a new set of loan terms, a monthly payment that fits your lifestyle, and the ability to protect your credit score.
If you use forbearance on your real estate, what is the best long-term outcome? For those who are able to get back to work in a few weeks or months and just need a break, this can be a good overall solution. For those who need more of a permanent solution, refinancing may help.
You may qualify to refinance your mortgage loan as long as you have verifiable income and equity in your home. You may need a good credit score, but programs are available to help many.
For those unsure what to do, one of the first things to do is to contact your lender to find out what the terms of forbearance are. Can you refinance? Is your credit score being negatively impacted by forbearance (is the lender reporting on-time payments or late payments to the credit reporting agencies)?
Then, determine what your options are for mortgage refinancing. If you’re unsure what your options are, reach out to a specialist who can help you based on your income, credit score, and available interest rates. If you do not qualify right now, you may qualify in the long term. Home owning is a big responsibility. Weighing your options in home ownership like this is critical.
If you’re unsure if refinancing is the right option for you – or what your next step is in making your mortgage more affordable, reach out to our team at Houzerz. Let us provide a fast consultation to discuss the opportunities we can offer in mortgage refinancing. It’s fast and easy.