Borrowers who are granted forbearance are temporarily able to stop making payments on their mortgage or have the payment amount cut back. You can sell your home while it is in forbearance, but the debt accumulated during the forbearance period will have to be paid back.
When the coronavirus pandemic struck the United States in 2020, many homeowners found themselves out of work and tight on money. With the crisis came the introduction of mortgage forbearance. Forbearance allows borrowers to temporarily pay smaller mortgage payments, or not make payments altogether. But forbearance is a short-term solution and borrowers will still have to pay off all debt they accumulated. So, what can you do if your forbearance period is almost up and you’re still unsure about making your mortgage payments?
If you’re worried about foreclosure, one option that you have is to sell your home. Selling your house can give you enough money to pay off your current mortgage loan and relocate to a more affordable home. But, what if you’re in the middle of your forbearance period? Will you still be able to sell your house?
What is mortgage forbearance?
Mortgage forbearance is when a lender allows the borrower to temporarily pay lower mortgage payments or pause payments altogether. At the end of your forbearance period, borrowers can repay the debt through a repayment plan, loan modification, deferral or partial claim, or a lump sum payment. (Note that Fannie Mae and Freddie Mac loans do not require or accept lump sum payments.)
The federal law known as the Coronavirus Aid, Relief, and Economic Security Act (CARES) was created in March 2020 in response to the coronavirus pandemic. One of its purposes is to help those who are experiencing financial hardship and may not be able to make regular mortgage payments. Since its creation, millions of homeowners have taken advantage of mortgage forbearance.
Forbearance vs. foreclosure
While the two terms sound similar, they have two different meanings. A forbearance agreement is a short-term solution for homeowners who are unable to pay off their current mortgage payments. The borrower’s monthly payments are lowered or postponed.
However, a foreclosure is when the lender seizes and sells a home when the borrower cannot make their mortgage payments. Homes cannot be foreclosed during the forbearance period.
Can you sell your house while in forbearance?
Yes, you can sell your house during the forbearance period. One may choose to do this to avoid the foreclosure process. But keep in mind that any missed or deferred payments from your forbearance will be paid back from the sale proceeds.
Before getting approved for forbearance, Adam paid $2,000 a month in monthly mortgage payments. After forbearance, he paid $1,000 a month. He sold his home three months into the forbearance period. Even though Adam’s forbearance plan allowed him to only pay $1,000 for three months, he still owes his mortgage lender $3,000. This money will be taken out of the final purchase price.
This same concept is applied to delayed payments. Even if forbearance allowed you to miss three months’ worth of mortgage payments, you will still have to pay that amount to the lender. Forbearance does not permanently get you out of making payments. It is only for temporary relief.
The remaining balance of the mortgage also must be paid off. This, too, could come out of the purchase price. Let’s say that there is $50,000 left on your mortgage loan and you sell your home for $70,000. $50,000 of that sale will go to your mortgage lender, meaning that you will only realize $20,000 in profits.
Despite the cut in profits, it could be worth it in the long run. A foreclosure can have a major impact on your credit report and make it harder to buy a home in the future. So, depending on your circumstances, selling your home may not be a bad idea. You can put your house up for sale anytime during the forbearance period.
How to sell your house while in forbearance
The process to sell your house while in forbearance is the same as selling your home at any other time. There are no special steps or processes that need to be done in order to sell the home.
If you’re interested in selling your home, talk to a real estate agent or broker. They can help you take the necessary steps to do so. If you want to bypass extra fees and commissions, you can look into selling your home on your own.
Pros and cons of selling your home while in forbearance
Selling your home while in forbearance is not much different than selling your home at any other time. The biggest thing to keep in mind is that it does not get you out of paying off your debts.
Here are a few pros and cons to think about if you’re considering selling your home in forbearance.
Here is a list of the benefits and drawbacks to consider.
- Make a profit. You can likely make a profit from selling your home. Even if you can’t afford your current house, the money you make by selling it could help you relocate to a more affordable location.
- Help with finances. This can get you out of a sticky financial situation. Even with forbearance, if you’re still struggling to pay your mortgage balance, selling your home and using that money to pay off debt and relocate can really help your finances.
- Avoid foreclosure. Selling your house while in forbearance could also help you avoid foreclosure. Foreclosure can have a major impact on your credit and ability to purchase a home in the future. If selling your home can help you avoid foreclosure, it’s worth it.
- Time spent selling your home. Getting your home ready to sell is work itself and can cost money. You may have repairs to do, paint to touch up, and so on. If you use an agent or broker, their fees and commissions will have to be paid for. You can sell your house without an agent, but this does add to your workload.
- Still owe mortgage payments. Selling your home does not get you out of paying the money you owe from forbearance. You will still have to pay back the missed payments, and this will likely come out of the final purchase price.
- May be more difficult to buy a house. Buying a house after forbearance may impact your ability to get a mortgage as lenders see you as a higher risk. There may be a wait of up to 12 months, which will impact buying your next house.
- Housing market could fluctuate. Depending on the market, it could be harder to find a new home. The last thing you want after selling your home is to not have a place to move to, so be sure there are houses in your price range before you sell.
Should I sell my home in forbearance?
There are two main circumstances that make selling your home in forbearance worth it. First, and most importantly, is your home worth more than what you owe? With or without forbearance, selling your home is usually only worth it if the value exceeds your debt.
The second is if it looks like you won’t be able to make mortgage payments after the forbearance period ends. You have other options besides selling your home to avoid foreclosure, but that is one solution if your house has a high value.
How to apply for forbearance
To request forbearance, consult your mortgage servicer. You’ll have to ask them directly for forbearance, as it won’t automatically be given. Be sure to ask your lender questions about late fees, when the forbearance period will end, if interest will be charged, and so on.
Here are a few things to do after your forbearance plan is in place:
- Make sure your property insurance and taxes are current and will be paid
- Cancel or change automatic payments for your mortgage
- Monitor your monthly mortgage statement
- Regularly check your credit
In order to keep an extra watchful eye on your credit, consider using a credit monitoring service. These services alert you to changes in your score to help you further improve your credit.
While it may seem like selling your home could solve your issues, you may not want to relocate or deal with the stress. What can you do if you’re financially strapped, but don’t want to sell your home? Borrowers have a few other options if they’re struggling to make their mortgage payments.
- Loan modification. A loan modification restructures your loan and could change the loan terms’ length and monthly payment amount. Your monthly payments could be lower, and you might have more time to pay off your mortgage loan.
- Refinance your mortgage. Refinancing your mortgage is when you close one mortgage loan and take out a new one. Doing this could lower your interest payments or monthly payments in general. You can start by comparing the lenders below to see if refinancing is the best option for you.
Can you lose your house after forbearance?
You do not lose your house at the end of your forbearance period, but you are expected to resume regular monthly mortgage payments. You can speak to your lender about other options when your forbearance period ends if you still can’t make mortgage payments.
Can you buy another house after forbearance?
Yes, you can buy a home after forbearance. However, you may have more difficulty getting your mortgage application approved. Mortgage lenders may also require you to pay higher interest rates.
Can you refinance your house if you are in forbearance?
Generally speaking, you can refinance your home three to six months after your forbearance ends.
How does mortgage forbearance affect your credit?
While your lender may report your mortgage forbearance, it should not affect your credit so long as you keep making the required payments.
- Mortgage forbearance is when your mortgage lender cuts back a borrower’s monthly payments or temporarily stops them completely.
- You can sell your home while in forbearance, but the debt accumulated during the forbearance period will still need to be paid back.
- Forbearance is a temporary solution and, once it ends, you’re still responsible for paying off your mortgage loan.
- It may be smart to sell your home in forbearance if it’s worth more than what you owe. This way you’ll also avoid foreclosure.
Learn more about mortgage relief
When you’re financially in a tight spot, making sure that you meet your mortgage payments can be very stressful. Your home and credit are on the line in a mortgage loan, and you don’t want to miss payments.
The good news is there are mortgage relief options for those who are financially struggling. Learn about more relief programs here, as well as how to spot and avoid scams.
View Article Sources
- What is mortgage forbearance? — Consumer Financial Protection Bureau
- Learn about forbearance — Consumer Financial Protection Bureau
- Understanding Forbearance During COVID-19 — FreddieMac
- Options after a forbearance plan or resolved COVID-19 hardship — Fannie Mae
- The Definitive Guide to Mortgage Relief — SuperMoney
- What Is a Mortgage Forbearance Agreement? — SuperMoney
- What is Preforeclosure and How Does It Work? — SuperMoney
- Cash-Out Refinance vs. Home Equity Loan — SuperMoney
- Can You Refinance Your Home After Bankruptcy? — SuperMoney
- What Does Curtailment Mean in Real Estate? — SuperMoney
- What Is an Asset-Based Mortgage? — SuperMoney
- Expert Guide to Refinancing Your Loans — SuperMoney
Camilla has a background in journalism and business communications. She specializes in writing complex information in understandable ways. She has written on a variety of topics including money, science, personal finance, politics, and more. Her work has been published in the HuffPost, KSL.com, Deseret News, and more.