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COVID was an event no one could foresee and made many of us feel unprepared. The average American household was already living paycheck to paycheck. Experiencing a financial challenge like the one faced with COVID and its lifespan has sent many homeowners into limbo and a state of hopelessness.
Homeowners have options and even though each of us have individual needs and concerns regarding making our mortgage payments, know you are not alone in this challenging time.
To get started do not wait until you have missed a payment to inquire about options. The sooner you call your lender the more options you will have.
The type of Information you will need to provide; the amount of your average income and knowledge of how COVID may or has changed it, estimate of your current expenses, and current mortgage payment amount and loan balance.
Documentation of hardship in many causes will be needed. Some lenders will have their own form and list of items to provide. Some of the items to provide will include, unemployment filing, letter from Workforce Solutions, paystub showing reduction in hours and or income, and or notice of business closure from employer or a public announcement such as a newspaper.
Fannie Mae and Fannie Mac
If your home loan is owned by Fannie Mae or Fannie Mac and if your ability to pay your mortgage has been impacted by COVID help for homeowners can be found on fhfa.gov . Use the Loan Lookup tool to receive qualified loan programs regarding payment relief. Homeowners can receive personalized assistance from HUD approved housing counselors through the Mortgage Help Network or Disaster Response Network.
Forbearance, Short-term mortgage assistance
Some lenders will not report a forbearance to the credit bureaus if at least one payment is made prior to the forbearance going active. If a forbearance is reported it will not ding your credit as bad as a missed payment.
A forbearance can suspend or reduce your mortgage payments for a set period of time. Interest will still accrue on your loan and will be added to the backend of the balance due and in most cases late fees are not accrued.
The second option will be to have the missed payments placed into a silent 2nd mortgage for those who qualify.
Refinancing your home after forbearance
With mortgage rates at historic lows you may be considering refinancing your home loan. There are some special rules to follow when wanting to refinance after your forbearance is over. To refinance you must know what type of loan program you are financed through.
Conventional loans backed by Fannie Mae or Freddie Mac will require to make three consecutive payments after exiting a forbearance to become eligible for refinancing.
Government backed loans including FHA, VA, and USDA mortgages have different terms for applying for a refinance. FHA mortgages will not require a lump sum payment post forbearance, however may offer a second lien. Special modification plans are offered to VA borrowers, and USDA borrowers may qualify to have their back payments added to the end of their loans.
Speaking with a brokering mortgage consultant will research the best options for you. Speak to your Mortgage broker about your refinance objectives and current financial situation. If your finances are budget restricted let your broker know you may need a loan that lowers your monthly payments.
When reviewing proposals presented for your refinance keep in mind that the COVID timeline is still in the making. We do not know when things will return to normal or what normal will look like. The ability to repay the new loan must make the worst case scenario sense to you.
Proposals should offer debt consolidation, lower monthly payments, and rolled in closing costs when equity and credit scores allow. With so many homeowners experiencing financial hardship due to COVID lenders are willing to work with homeowners to avoid having the loan go into default. Lenders want to do what they can to avoid a repeat of foreclosures from flooding the housing market like what we saw during the “Great Housing Recession”.
Loan modification will set new terms on your mortgage without refinancing. Modifying your home loan is to meet the goal of preventing foreclosure. The new terms can be a mixture of lowering the interest rate, extending the mortgage term, taking any delinquent payments and adding them back into the loan, and lowering the monthly payment.
A loan modification can come after or before a forbearance. To qualify for loan modification the homeowner will need to demonstrate the ability to repay and show the home is their primary residence. Some modifications are temporary and only granted for 3 months. After the probationary period and success in meeting the modification terms you may ask your lender to extend the modification.
The time is now
The best time to refinance during financial hardship caused by COVID is now before you miss a payment. I will help you review your current mortgage and active forbearance terms so you may be able to make an educated decision regarding if a modification or refinance is best for you before and after filing for forbearance.