The last year has been extremely challenging for millions of Americans. Mortgage forbearance and foreclosure moratoriums have saved millions of homeowners from losing their homes. In fact, The Mortgage Bankers Association reports that 2.7 million homes are currently in forbearance. As these COVID relief options begin to come to an end in Washington and around the country, you may be worried about what your options are.
If you know you won’t be able to make up the payments you missed or if you are still one of the millions of Americans out of work, what are your options? Are you able to sell your home while it is in forbearance?
What is Mortgage Forbearance?
First off, let’s talk about what forbearance is. A mortgage forbearance allows the homeowner to put their payments on pause if they are dealing with a short-term crisis that has caused a financial burden. The payments that are missed are not forgiven. Once the forbearance period ends, the missed payments will become due plus interest. That can be in the form of a lump sum once the forbearance period ends, or the payments can be broken up into smaller amounts and added on to your regular mortgage payment. While a homeowner is in forbearance, their house will not enter into foreclosure, and the missed payments will not be reported to the credit bureau.
Usually, there is a long list of requirements a homeowner must meet to be allowed to enter into forbearance. Thanks to the CARES Act which was designed to help the millions of Americans who were struggling due to COVID-19 and the restrictions that went along with it, lenders have been told to ease the requirements for forbearance. Lenders are not requiring proof of hardship and have essentially put millions of mortgages on hold for as long as 12 months. As of now, these new requirements are only in place through the end of June. However, forbearance options may still be available depending on your lender and loan type, should you need them but there is no guarantee.
Should I Consider Selling?
If you are currently in forbearance and do not foresee your situation improving soon, you may want to consider selling your home. Selling your house would relieve you of the stress of being behind on your payments, and it would likely make you some money too. Home values in Washington have increased significantly in the last few years, and we are currently in the midst of one of the hottest seller’s markets in history.
If you have never sold a home before, you may be wondering how it works. After listing your home for sale, you and the buyer will enter into a contract where you will negotiate things like purchase price, closing date, and what repairs should be made. Once all loan and contractual contingencies are met and the paperwork is recorded, the buyer will take ownership. The money they pay you for the house will be paid to the title company you choose to work with, who will then pay off your mortgage loan. Your principal balance plus any payments you skipped while in forbearance will make up your total balance due. If there is any money left over once the loan is paid off, it will be deposited into your bank account, and you are free to do whatever you’d like with it.
As many homeowners approach the end of their forbearance period, it is worth noting that if you are still struggling financially, some lenders will agree to extend the forbearance if you are able to prove that you are trying to sell the home. Most lenders would prefer to extend the forbearance period and receive a full payoff once the home sells rather than go through the foreclosure process. Foreclosing on a home ends up costing lenders money since they would receive a much lower percentage of your outstanding balance.
Things may be tricky while trying to find a new home to buy or rent. Since you do not have a job, it will be more challenging to be approved. Your credit won’t get dinged for missing mortgage payments while in forbearance, but if you missed other payments like a car loan or credit card loan, those could hurt your credit score, which will further complicate the process.
House Selling Options While in Forbearance
The process of selling your home while in forbearance is not that different from selling a home that is up to date on mortgage payments. You can hire a real estate agent who will help you determine a price for your home and then market it for sale. Since we are in a seller’s market, you should have no trouble selling your home quickly and at close to the asking price as long as your marketing efforts, showing availability and price are on par with the market you are selling in. You will have the opportunity to review and negotiate any offers you receive and should do so in order to maximize the amount of money you receive. You would be responsible for paying your real estate agent a commission as well as the buyer’s agent’s commission once the transaction closes plus county recording fees, HOA transfer fees and possibly escrow fees which do take a bite out of your profit.
If you are one of the few people who do not have equity in your home, the process becomes much more complicated. If you owe more on the home than it is worth, you would have to go through what is called a short sale. You would not only have to negotiate terms of sale with a new buyer, you would also have to have the lender agree to the purchase price since it will be less than the amount you owe. This can be a very long and frustrating process if your lender is not willing to work with you, which could cause you to miss more payments, accumulate more fees and interest, and possibly even fall out of the forbearance period.
An Even Better Idea for a Home in Forbearance
If you want a quick sale without paying thousands of dollars in repairs, closing costs, or commissions, Sound Home Buyer can help. We can make you an all-cash offer on your home. We buy houses as-is, no need to make any improvements or repairs. In fact, you can even leave some of your junk behind if you really wanted to. We can close on your timeline, which can be seven days from now or a month from now. We give you a lot of control of the situation. We will buy single-family homes, condos, manufactured homes, and even multifamily buildings in Washington.
If you’re in a tough spot, we can talk you through your options. We are a full-service real estate company, so if our offer doesn’t work for you, we would be happy to help guide you through the traditional real estate sales process while keeping our cash offer on the table. If your home needs repairs before you list it on the market, we may be able to fund some of those improvements to help you out even more. We really want to make the process smooth and favorable for all involved. Let’s get in touch and discuss your offers.