Yes, you can sell your house while in forbearance – the term used to describe a period of time granted by your mortgage lender when your mortgage payments are either temporarily suspended or reduced.
In fact, selling a home during forbearance is not just possible, it can even be the right move to make if you have sufficient equity in the house to cover the outstanding payments of your mortgage.
The process will differ depending on the actual amount of your equity, and you may still have options to stay in your home, too.
If you owe more than the home’s value, you won’t be able to sell your house as usual.
What is Mortgage Forbearance?
Forbearance (or mortgage forbearance) can be defined as a mutual agreement where the mortgage lender allows the homeowner to temporarily stop making payments, or reduce the amount the homeowner has to pay towards the mortgage for a limited period of time (although extensions are available if required).
These forbearance agreements are designed to be a short-term solution to help homeowners avoid foreclosures.
- If you are granted a 1-year forbearance period, you would not be required to make any payments during that time.
- Additionally, if you were granted forbearance due to financial hardship caused by the coronavirus pandemic, you won’t face any of the normal repercussions, like penalties and damaged credit.
- Remember, you can still make optional payments during this time.
The right to forbearance was one of the emergency measures (enacted by the CARES Act) introduced by the federal government to financially assist people during the start of the COVID-19 pandemic.
However, that assistance has now ended, and many homeowners are having to face up to the stark reality of having to make good on the back payments owed to lenders.
As of September 2021, according to BlackKnight, a U.S. mortgage data provider, around 1.5 million home loans were still in forbearance.
IMPORTANT: Forbearance is not the same as forgiveness.
You are still 100% responsible for making up and temporarily skipped or reduced payments.
Selling Your Home During Mortgage Forbearance
Even if your property is currently in mortgage forbearance, you can still sell your home if you choose to.
As we described above, during the beginning of the COVID-19 pandemic, millions of homeowners took advantage of their right to forbearance as a direct way to lessen the virus’ financial impact upon their household.
However, according to data from the Mortgage Bankers Association, only 7% of homeowners who exited forbearance in the period between June 2020, to October 2021, actually opted to pay off their loans by either refinancing their mortgage or selling their home.
If you are actively looking to sell your home whilst it is in forbearance, you need to consider all the following points first.
Obviously, people decide to sell their homes for different reasons, and just because your house is in forbearance, that doesn’t change. Just as if your house was not in forbearance, you may wish to sell your home because:
- You are worried about making your mortgage payments
- You may feel now is the time to sell your house to take advantage of rising house prices
- You may need to sell because your employment situation requires you to move to another area
Regardless of the reason, whether selling your home now (while it is in forbearance) is the right decision depends entirely on one thing: how much your home is worth – right now.
Here are the possible scenarios:
#1. Your Home is Worth More than What You Owe
If the value of your home exceeds what you owe, you should be able to sell your home while in forbearance without any issues, just as any interested homeowner would.
The primary difference over a normal house sale is the condition that you must pay the lender any missed or deferred payments from the sale proceeds.
The Option to Downsize Your Home
If you currently have decent equity in your property (the difference between the value of your home and the amount you owe to the lender) and are concerned about being able to afford your old mortgage payments, remember that downsizing your home is an option for you.
This would allow you to reduce your expenses to a level that is then affordable.
Importantly, as you fall behind on your current payments, your mortgage balance will grow and start to erode any equity you have in your home.
Therefore, before possibly going into preforeclosure (the period of time after you fall behind on your mortgage payments, and before a foreclosure officially starts), it is recommended that you sell your home.
In this instance, time is your enemy, and you’ll want to move quickly.
Better Off Home Buyers: Immediate Cash Purchase
If you are looking for advice or if you have already determined that selling your home may be your best option, contact Better Off Home Buyers to get a fast cash offer on your home before your situation gets any worse.
You could have your cash in only 7 days.
According to many mortgage industry experts, the rise in U.S. house prices in recent years means that most homeowners in forbearance now should have sufficient equity in their property to settle their forbearance debt and move if they so wish.
CoreLogic, a California housing data company, states that the average annual equity gain for every borrower is approximately $51,500, as of the end of Q2, 2021.
However, that does not apply to every homeowner…
#2. Your Home is Worth Less than What You Owe
Selling your home in forbearance becomes far more complex, where the homeowner owes more on the property than its actual worth.
If you are in this situation, and you are unable to pay the difference out-of-pocket between the mortgage balance and the home’s value, you can still sell.
However, you need to be fully aware that both the 2 options available to you to sell – through a “short sale” or “deed in lieu of foreclosure” – may both negatively impact your credit rating:
For selling your house for less than what you owe on the mortgage:
- If you don’t qualify for or cannot get a loan modification, you may be eligible for this option, but you must get your lender’s approval.
- You may also be required to pay the difference between the sale price and what you owe after the home sale is complete, depending on your location.
Deed in Lieu of Foreclosure
If you are unable to sell your home through a short sale:
- With a deed in lieu of foreclosure, the lender or investor becomes the owner of the property. Although this option can help you avert foreclosure, you may have to vacate immediately.
Other Options to Selling Your Home in Forbearance
If you are up-to-date on your mortgage (apart from the forbearance payments), and you don’t wish to sell your home, you have other options. However, your eligibility for these will depend on the type of loan you have. Here are your options:
- Refinance Your Mortgage: Replaces your current mortgage with a new one to lower your interest rate or monthly payments.
- The best option for someone whose circumstances have changed, and who can no longer afford their old monthly payment.
- Loan Modification: Restructures your loan, as a way of lowering payments and lengthening the total payment period.
- The alternative option for someone who can no longer afford their old monthly payment.
- Repayment Plan: Normally involves temporarily increasing your monthly payment (by adding installments of what you owe to your monthly payment for a limited period of time).
- A good option for someone who is in a better financial situation than when they applied for forbearance, and so has the ability to make these larger payments.
- Deferral or Partial Claim: This option maintains your current monthly payment just as it is, and moves the payments you missed to the end of your loan period or puts the amount owed into an additional loan on the property (you are then required to pay back this additional loan when you either sell the home or refinance).
- A suitable option for someone who is in a similar situation to the one they were in before the forbearance period, and who can afford to go back to their original monthly payment.
- Reinstatement (requires a lump sum payment): Only accept this option if you have the funds readily available to do so, as it requires paying back all you owe at once in a lump sum.
What Happens When Forbearance Ends?
At least 30 days prior to your forbearance period coming to an end, your lender should contact you. If you don’t hear from your lender by the 30-day mark, don’t delay – make sure you get in touch with your lender.
Your lender is legally obliged to let you know:
- When your forbearance plan is officially scheduled to end
- List and describe all of the available programs you qualify for, and
- Refer you to at least one option for housing counseling services.
After reviewing all your choices, if you decide to sell your home, the lender should give you the mortgage payoff amount, which is how much you currently owe now forbearance has ended to satisfy the terms of the loan as it currently stands.
Buying a House After Forbearance
After a period of time, having relied heavily on their mortgage forbearance to balance the household books, many people are now wondering what impact, if any, it may have on their future ability to take out a fresh mortgage.
Normally, taking out mortgage forbearance will have a directly negative effect on an individual’s credit rating, and it can prevent someone from getting approved for a new loan.
If a lender sees you were in forbearance, they may regard you as a high risk, and, because of this, you may well have to delay any property plans for the foreseeable future.
Pandemic-Driven Forbearance Should Have No Credit Rating Impact
However, if the forbearance came as a result of the COVID-19 pandemic’s economic impact, and you took out the temporary plan as part of the government’s emergency measure for homeowners, your credit rating will not suffer in the slightest.
As long as 3 consecutive payments* are made after the pandemic-driven forbearance has ended, you are eligible to look around for a new home loan.
Note: *This is why it will take 3 months to be approved for a new mortgage loan.
|Need Guidance? |
Talk to a Housing CounselorA HUD-approved housing counselor can help you weigh the pros and cons of selling your home.
You can find HUD-approved housing counselors by visiting the Consumer Financial Protection Bureau’s “Find a Housing Counselor” page.
Better Off Home Buyers
Whatever the situation you may find yourself in after your forbearance period has come to an end, it’s always smart to look at your options, and if you need to sell your house, to know exactly the best route for doing so, and to get the best return when you do.
At Better Off Home Buyers, we can make you an immediate cash offer for your house at a fair price, the whole process can take as little as 7 days, and you’ll receive the return on your house sale fully in cash.
When you add up the time you save by working with Better Off Home Buyers, the hassle-free experience, and the money you save on commissions, fees, and holding costs while you wait to sell your house through a real estate agent or by yourself, selling to a professional property investor could well be your best viable option.
Simply fill out the short form below or give us a call at 503-809-4855, and let’s see if we can work together to resolve your forbearance issue.
You could then receive a “no-obligation, no-pressure” cash offer for your property. Remember, our process is simple – you can even close on the date of your choice.
You could potentially save thousands of dollars in outstanding mortgage payments and incurred fees and loan interest by contacting us here at Better Off Home Buyers today.