The financial impact of COVID-19 came quickly. With millions of people facing unemployment, furlough, or uncertain employment, many home owners must deal with an unexpected financial emergency. Don’t wait until you fall behind on mortgage payments to seek help. Acting quickly could be the key to keeping your home and the money you’ve already invested in it. Here’s how to work with housing experts and lenders to find a solution now.
Call Your Lender
Speak with your lender or a loan servicer who collects the payments on your mortgage. Discuss these possible options:
Forbearance. Lenders might be able to arrange partial, reduced, or skipped payments for a period of time. Note that this does not erase what you owe.
Reinstatement. This refers to a single payment you must make that covers all your late payments at the end of a forbearance period.
Repayment Plan. A lender might allow a catch-up payment plan for those who can’t afford repaying all at once.
Loan Modification. A lender might agree to amend your mortgage in one of the following ways:
∙ Add up all the missed payments to the loan amount and increase monthly payments to cover the new larger loan.
∙ Grant more years to pay off the loan, lower the interest, and/or forgive part of the loan to lower your monthly payment.
∙ Switch from an adjustable rate mortgage to a fixed rate so that you aren’t exposed to monthly payment increases.
∙ Require taxes and insurance be included with mortgage payments so that you avoid larger bills on top of your mortgage.
Avoid Unfavorable Loan Terms
Watch out for lending terms and scams that do more harm than good. Warning signs of a bad deal include language such as “guaranteed approval” and “no income verification.” “No down payment loans” can also be risky. Look out for huge future costs, as in low teaser rates that expose you to a much higher interest rate at the end of a specific date. And loans with prepayment penalties make it harder for you to refinance a high-cost loan in exchange for a lower-cost one.
Consult with a Realtor
Realtors are in the business of helping people with homes, including staying in yours. Ask your Realtor if he or she can put you in touch with a lender who offers fair and affordable loans if your current lender can’t help you. And if you find you must sell your home quickly, avoid the “We Buy Houses for Cash” folks who make promises to financially-strapped owners. Talk to a Realtor if selling is your best option.
Resources
For more information on the federal government’s response to COVID-19 with respect to homes, go to www.nar.realtor/coronavirus. For more information on HUD-approved housing counseling by state, go to www.hud.gov/counseling.
Real Estate Term of the Week
Forbearance: An agreement between a lender and a borrower to temporarily suspend debt payments. The lender avoids a costly foreclosure and the borrower gets a specific time period to catch up on payments. During the forbearance period, the home owner pays either a reduced payment or no payment, depending on the agreement. Some lenders expect a lump sum payment by a certain date, while others permit a borrower to make larger monthly payments after the end of the forbearance period to pay off the overdue amount.