If you’re facing a financial hurdle in life, you may worry about your ability to keep up with mortgage payments. Once you fall behind and go into default, your lender can eventually foreclose on your home.
Luckily, it’s not a speedy process so you have time to explore mortgage relief programs while you regain your financial footing. Start reaching out to your lender and these programs as soon as you know you won’t be able to make your mortgage payment. You’ll have a lot more flexibility with your relief options when you do.
Here are some mortgage relief programs that can prevent you from falling into unforeseen debt:
Mortgage Relief Due to Coronavirus
The COVID-19 pandemic has swept the world and the nation, with record numbers of Americans filing for unemployment as the economic impact of the virus begins to take its toll. If you’ve been adversely affected by the current crisis, you may be wondering what to do if you suddenly can’t pay your mortgage.
Before you start to worry about losing your home, it’s important to refer to Congress’s mortgage relief program—the Coronavirus Aid, Relief, and Economic Security Act (aka CARES Act)—which states that no lender or loan servicer may initiate the foreclosure process before May 17, 2020. They can’t start the foreclosure process (whether judicial or non-judicial), nor can they finalize any existing judgment or sale during this period.
That’s one worry off the backs of homeowners with financial troubles, whether it’s a new issue or was ongoing from before the start of the pandemic.
Mortgage Forbearance Options
With a mortgage forbearance, your lender either temporarily pauses your mortgage due dates or lets you pay at a reduced rate for a certain period. It’s crucial to realize, however, that this doesn’t mean any part of your loan is forgiven; instead, you’ll have to repay what you owe later on. The purpose is to provide you temporary financial relief while navigating a job loss or cut in pay.
Under the CARES Act, lenders must offer forbearance for at least 180 days (six months). On top of that, you as a borrower can request an additional 180 days of forbearance, essentially putting your mortgage on hold for a total of nearly one year.
The benefit of using the CARE Act’s forbearance option program is that you won’t accrue penalty fees or interest (beyond the interest included in your monthly payment). Plus, the forbearance won’t be reported to the credit bureaus.
However, the CARES Act doesn’t clarify when the forbearance funds need to be repaid. That means it’s up to your lender to decide when that money is due—and it may be sooner rather than later. Before you agree to a forbearance period, make sure you’re clear on the details of the lender’s expectations for repayment.
Any homeowner who has been impacted by the coronavirus pandemic can qualify and you don’t need any type of documentation to back your claim. Mortgage forbearance is available for the following types of home loans:
- Fannie Mae and Freddie Mac loans
- FHA loans
- VA loans
- USDA loans
Some of these programs, including FHA mortgages, have additional relief options available. Talk to your lender to explore your options.
You don’t need to be behind on your payments to qualify for forbearance. The earlier you get started, the better—plus, you’ll relieve yourself of some undue stress. And you can always stop the forbearance at any point once you regain your financial footing.
Loan Modification Options
Loan modification programs are also available—generally for people who have had a longer-term issue with making their mortgage payments.
Details on loan modification vary based on the type of mortgage you have. If your home loan is backed by Fannie Mae or Freddie Mac, you may qualify for their Flex Modification program.
The program is designed for individuals who are already at least 60 days past due on their mortgages. However, your lender may deem your loan an “imminent default” even if you haven’t been overdue that long but they don’t think you’ll be able to pay.
What happens with a loan modification?
It lowers your mortgage payment amount usually either by giving you a lower interest rate or drawing out the length of your repayment term. The latter process does make your payments more affordable, but you do end up paying more over time because of the longer loan period. The program is a useful option to discuss with your lender.
In addition to federal relief options, many states also have programs to help homeowners going through financial crises. The Consumer Financial Protection Bureau recommends checking your state’s website for the most up-to-date information. You may benefit from things like an extended forbearance mortgage moratorium or a ban on credit reporting.
If you’ve recently lost your job through no fault of your own, remember to apply for unemployment.
While it likely won’t amount to what you normally earn, it can help to at least make partial payments. That can show your lender that you’re committed to keeping the home and paying what you can until you’re back on your feet.
Reach Out to Your Lender
Even if your mortgage doesn’t fall into one of these programs, lenders across the board are putting relief programs in place. Call your lender as soon as possible to see what options you have to help with your mortgage payments and avoid long-term financial distress.