It’s February 2021 as I write this and we are still in the midst of the Coronavirus pandemic. There have been several economic relief programs passed as part of the original CARES Act, and newly elected President Biden has extended most of these – including the eviction moratorium and forbearance provision. If you have been granted forbearance, what can you do if you want to sell? Can you sell your home while in forbearance?
What is Forbearance?
The first thing that we want to do is define forbearance. It’s not a word that rolls off the tongue!
Forbearance just means that your mortgage payments can be paused if you are experiencing economic hardship during the pandemic.
There are a few specifics that are important here:
- Technically, forbearance applies to Government-backed loans only – meaning FHA, Fannie Mae, Freddie Mac, VA, USDA loans. Many, if not most, loans are government-backed, and most conventional lenders are approving forbearance as well. Make sure to check with your lender if you are unsure if your loan is backed by the Federal Government.
- You can request forbearance for up to 180 days, with a second 180-day extension if you still need it once the first period expires.
- Currently, Government-sponsored lenders cannot begin foreclosure until March 31, 2021 (although this may be extended).
Click here for more details on the CARES Act.
Has Forbearance Changed Under President Biden
Not exactly. Since the original CARES Act provides for a 180-day forbearance program with a second 180-day extension if needed, there isn’t a need to change the forbearance specifics at this time.
What Biden did extend, however, are the moratoria on evictions and foreclosures.
Now, Government-backed lenders are prohibited from beginning foreclosure until March 31, 2021.
The original deadline was December 31, 2020. While there is no way to tell if this will be extended past March 31, it’s already February and we have made little headway against the coronavirus. Biden himself has said that we won’t change the trajectory of this virus for several months since vaccine distribution is just starting to get ramped up.
So, while I would anticipate the March 31 deadline being extended, I wouldn’t count on it. I wouldn’t take that risk if I could help it.
Can I Sell My House If I Am In Forbearance?
The quick answer is yes, you can still sell your home if you have been granted forbearance.
And honestly, this may be the best option for some who don’t foresee not being able to pay the mortgage anytime soon.
What will happen is that the amount that hasn’t been paid when you sell will just be added to the loan payoff amount.
For example, let’s say that your mortgage balance is $200,000 and your mortgage payment (principal and interest) is $1000 per month. During forbearance, you have missed 4 months of your mortgage payments, for a total of $4000 owed. When you sell your house, you will owe your lender $204,000.
Note that how fast you sell your house will make a big difference here. If you decide to sell with a realtor or by owner, and you don’t price the home right, you may be looking at several months before you sell – even in this crazy seller’s market.
I see this all the time. You can’t just stick any price on your home and expect it to sell – especially if it’s a fixer-upper.
What Happens if the Payoff Balance is More than What My Home is Worth?
If you owe more than your home is worth, you can still sell it – but you will have to be approved for a short sale.
Note that your lender has to agree to this, which means that you will have to fill out a lot of paperwork.
But, lenders will often approve a short sale because for them it is better than foreclosing.
They don’t like to do it, of course, because they don’t get their investment back, but foreclosing takes time and money, so consider applying for a short sale if you owe more than what you can sell your home for.
While a short sale may impact your credit, it has a much smaller impact than a foreclosure or bankruptcy.
Most of the time you can avoid all of these situations, however. First, I would try to work out a plan with your lender. Many are understanding during this pandemic, and are willing to help. But if you are running into a dead end with your lender, then consider selling your home before you get too far behind on payments.
Does Mortgage Forbearance Affect My Credit Score?
No, forbearance should have no negative impact on your credit score.
Therefore, it’s super important for you to figure out what to do before you wind up in a short sale, foreclosure, or bankruptcy situation.
If the moratorium ends and you find yourself unable to resume payments, then you should make a plan to sell before you wind up in foreclosure.
You’ll want to do this so you can get another loan once you get back on your feet! But if you have a foreclosure or bankruptcy on your credit report, you probably won’t be able to qualify for several years afterward.
How Do I Apply for Mortgage Forbearance?
This should be pretty easy. The CARES Act has specified that lenders do not require extensive documentation showing that you are facing financial hardship.
Contact your lender and ask how to apply for forbearance. You may or may not be able to find this form or instructions on their website, so call their customer service.
They should not make this difficult for you. If they do, then contact the Consumer Financial Protection Bureau.
Let Us Help!
As always, we are here to help you with any issues that you are having with forbearance, short sales, or selling your house in general. The good news is that you can sell during forbearance, and right now (at the beginning of 2021) is a super hot seller’s market. Someone will buy your house if the price is right.