Mortgage Forbearance | Mortgage Forbearance Affect on Credit Score

Hi, Jennifer Yoingco of Texas Home Group. For the past two weeks, we talked about buying a property. We discussed the procedures of acquiring a resale property directly from its owner (FSBO) and obtaining a brand new home directly from a builder.

For those of you who were able to procure their houses in cash, congratulations! All you have to think right now is how to maintain your new residence.
For those who were able to acquire their properties through mortgage financing, let me give you some important points to remember to help you through, just in case you experience financial hardship. After all, life is not a smooth ride… there will be bumps and obstacles along the way. God forbid, but mortgage forbearance can save your home from foreclosure.
Today we will talk about mortgage forbearance if it is tool you need during this time.
So, let’s explore it right now.

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Now, on to our topic.

A lot of people have been facing financial difficulty these last few months due to illness, death in the family, job loss, or reduced work hours. But according to Marian Siegel of Housing Counseling Services, this is a Washington-based non-profit organization that helps homeowners prevent foreclosure located in Maryland and Virginia; she said that not many people have stopped paying their mortgages or sought forbearance. This could be attributed to the temporary financial assistance that they are receiving from the government and non-government organizations OR they are simply not aware of what forbearance is and what it can do to help them out of their financial dilemma.

What is mortgage forbearance? According to Investopedia, forbearance is the temporary postponement of principal mortgage payments. It is granted by the lender or creditor instead of forcing a property into foreclosure. Take note of the words temporary postponement. Many people mistake this as total cancellation or forgiveness of payment in this time of crisis. Forbearance does not work that way. It only allows you to suspend or pause or reduce your mortgage payments for a specific period of time. You are still required to pay your missed payments after that period has passed. Take note, forbearance is NOT forgiveness.  These are totally 2 different terms. Mortgage forgiveness (from the term itself) means your mortgage is forgiven and that you don’t have to pay it back. This is typically associated with loan modification.

Do not wait until you missed a payment before you call your lender. Contact them as soon as you realize that you are having financial difficulty that will affect your ability to pay. But you may also reach out to a certified housing counselor first. You can check the Department of Housing and Urban Development for a list of approved housing counselors. Choose a counseling agency that is not affiliated with the lender and provides advice at no charge. They can assist you in finding out what you can afford by helping you analyze your income and expenses. Remember that forbearance is often non-negotiable once finalized. So it is best that you are aware of what you are exactly getting into.

Disclaimer – I am not a licensed loan officer.  This video is for informational purposes only.   Call your lender regarding your specific needs.

It is best to have a clear understanding of the repayment terms. Common options include paying a higher monthly amount in a specified period to make up for the missed payments. You may also choose to pay the entire missed amount once the forbearance ends.

How does forbearance work? Again, do not wait until you miss a payment. Call your lender right away or consult a certified housing counselor to help you assess your financial situation. Qualifications often vary depending on your servicer.

But how would you know if you qualify for a mortgage forbearance? Check if your mortgage is backed by the Federal Housing Administration (FHA), Veterans Affairs (VA), or Agriculture Department (USDA). Borrowers of a federally-backed mortgage loan are qualified for up to 180 days of forbearance in this time of crisis. All you have to do is call your servicer and explain your current situation.

What if you do not have a federally-backed mortgage? Then your loan is not covered by the CARES Act. But do not fret! Almost all private lenders/mortgage providers are offering a forbearance and loan modification program of some sort. All you have to do is contact your loan servicer to see what options are available for you. Most often, the options will depend on the type of loan you have.

Your servicer will then work with you to set up a forbearance agreement. It is important to have a black and white documentation that outlines the terms and condition of the agreement that includes the following::
1. The length of the forbearance period
2. The amount of payment required
3. Stipulate if the lender will report the forbearance to the credit bureaus
4. How payments will be made at the end of the forbearance period

Under normal situations, forbearance can affect your credit score unless your lender agrees not to report it. However, at this time of crisis, it will not hurt your credit score as a negative activity.

When the forbearance period ends, you will have to repay the lender according to the previously agreed terms. However, if you feel that your financial hardship will last longer than expected, you may ask your lender about a mortgage loan modification. This will help make your payments more manageable by changing the terms of your original mortgage.

But if you have a federally-backed mortgage, you can request for an extension of the forbearance up to an additional 180 days under the CARES Act.

If you can make your monthly mortgage payments and have stable jobs, I suggest not to apply for mortgage forbearance. Why?  Because if you plan to sell your home and buy another home, because of the forbearance you took, you have to wait for at least 3 months, meaning, you have to have 3 consecutive and timely payments on the mortgage once the forbearance is released before you can get another loan.  This is the reason that forbearance is not a benefit to all folks.
The banks are not explaining these consequences.

So make sure if you plan to sell your current home and want to buy a home asap and can afford not taking a forbearance, then don’t do it.

To summarize, being hit by financial hardship is hard when faced alone especially in this time of crisis. But remember, there are people who can help solve your dilemma. Talk to your housing counselor, your financial advisor or your lender. Check your options. You cannot just decide to stop paying your mortgage. It will greatly affect your credit report and worst, you can end up in default.

It pays to be knowledgeable.

If you have learned something today, I invite you to subscribe to my channel and hit the like and notification bell. Again, this is Jennifer Yoingco. You are my priority for anything real estate and Your guide to greater Houston living.
I will see you in my next video.  Bye.

Resources:
1.https://www.nerdwallet.com/blog/mortgages/mortgage-forbearance/
2. https://www.washingtonpost.com/business/2020/05/18/what-you-need-know-about-asking-mortgage-forbearance/
3. https://www.consumerfinance.gov/about-us/blog/guide-coronavirus-mortgage-relief-options/
4. https://www.bankrate.com/mortgages/everything-you-should-know-about-mortgage-forbearance/
5. https://www.dallasnews.com/business/real-estate/2020/03/31/how-does-it-work-if-you-skip-mortgage-payments/
6. https://www.investopedia.com/terms/m/mortgage_forbearance_agreement.asp