What is mortgage forbearance? | Should I sell my house? | Pros and cons | Alternatives | FAQs
Many homeowners ask: Can I sell my house while in forbearance? Although it’s never an easy choice, you can sell your house while in forbearance.
Since the start of the pandemic, about 8.5 million borrowers have paused their mortgage payments by requesting loan forbearances, according to The Federal Reserve Bank of Philadelphia.
If you’re in forbearance, selling your home might be an option to help you get back on solid financial footing.
Looking to sell your house while in forbearance? Clever Offers is a great place to start. Clever can match you with a top local realtor who will field fair offers from cash buyers in your area. Get cash offers from top local buyers now!
Keep reading to learn more about how selling a home while in forbearance works and whether it makes sense for you.
- You can legally sell your house while in forbearance, but you’ll still need to pay your lender the full amount you owe on the house.
- Selling your home while in forbearance may be a good financial option if you’re unable to make your monthly payment after the forbearance period and you want to avoid foreclosure.
- If selling your home isn’t an option, you can explore alternatives like mortgage refinance, loan modification, or loan deferral.
What is mortgage forbearance?
Forbearance lets you pause or reduce your monthly payments for a limited time when you experience financial hardship.
The CARES Act specifies that the following federally backed loans qualify for forbearance:
- Freddie Mac
- Fannie Mae
You must proactively apply for forbearance with your mortgage lender or loan servicer. If approved, your lender provides repayment terms and conditions, which vary by company.
Private mortgage companies may also offer forbearance, but the availability and terms vary by provider.
It’s important to remember that your loan isn’t forgiven after the forbearance period ends. You’re still on the hook to pay back missed payments and interest incurred during that time.
Forbearance differs from both deferment and foreclosure. In deferment, no interest accrues to your loan balance. Foreclosure occurs when you can’t make mortgage payments, resulting in the forfeiture of your home.
Can I sell my home while in forbearance?
There are no lender restrictions on selling your home when your mortgage is in forbearance.
Your mortgage lender wants to avoid foreclosure if possible, so they allow you to sell your house and cover the debt if it makes sense for your financial situation.
💰 Ready to sell? Get cash offers from buyers near you!
Should I sell while in forbearance?
Selling your home could be the right financial move if you can’t afford to make regular monthly payments after the forbearance period and you want to avoid foreclosure.
You can also sell your house to take advantage of cashing out home equity if your property has risen in value. Or you may decide to sell if you need to move.
If your home sells, you still owe your loan provider any payments and interest that accrued during forbearance. Mortgage lenders take what you owe from the proceeds of the sale.
If you owe more on your home than it’s worth, you may be able to sell your house in a short sale. You must receive approval from your mortgage company before proceeding with this type of sale.
In a short sale, the lender requires you to cover the difference between your home’s sale price and the mortgage loan balance. A short sale makes sense only if you have the cash to pay the difference.
» LEARN: Should I sell my house now or wait until 2023?
How to save money when selling in forbearance
Whether you can afford to sell is another part of the equation. The cost to sell a house varies by market, but it typically costs at least $26,000 in total fees (based on the average U.S. home value).
Realtor commission is the single largest expense of selling a home, costing sellers between 5% to 6% of the home’s final sale price.
Thankfully, commission rates are not a fixed expense and can be negotiated lower.
Clever Real Estate does the negotiating for you. Clever pre-negotiates a 1.5% listing fee with its network of top-rated local agents. Sellers save $7,000 in commission fees on average, according to the company.
💰 SAVE: Connect with Clever and see how much you could save!
Sell fast to a cash buyer
Instead of waiting a month or two to sell your home traditionally, you can sell your house fast to a cash buyer or an iBuyer.
iBuyers typically offer more money than home flippers and cash buyers, and these companies can close in as fast as seven days after you accept an offer.
Pros and cons of selling while in forbearance
✅ You get instant financial relief
When your house sells, you stop paying the mortgage and other associated costs, which helps relieve financial pressure. You can use this mortgage relief opportunity to find a new house or living arrangement that better suits your current financial situation.
✅ It may help you avoid foreclosure
If you can’t make mortgage payments when forbearance ends, selling your house lets you avoid foreclosure. It’s better to avoid foreclosure altogether than face the consequences of having a foreclosure on your credit history.
✅ You avoid late fees
Mortgage late fees have a considerable cost and can add up quickly. Selling your house while in a forbearance period lets you avoid these fees.
❌ You have to pay more money later
You still owe your loan provider for any mortgage payments and interest that accrued in the forbearance period. Your lender will expect you to pay once your home sells.
❌ It could hurt your credit
Your credit score can take a significant hit if you sell your home as a short sale. A bad credit score can limit your housing options in the future.
❌ Not everyone qualifies
If you owe more on your house than you can get from the sale, you need your lender’s approval to sell, and not everyone qualifies.
Alternatives to selling a house while in forbearance
Paying back the forbearance by selling your home isn’t your only option. Take a look at these alternatives.
You can refinance while in forbearance to lower your interest rate and reduce your monthly mortgage payment. Refinancing can significantly ease financial pressure and allow you to stay in your home. To qualify, you need to meet a lender’s credit and income requirements and have enough home equity.
Work with your lender to restructure the mortgage terms in your favor. A loan modification could change the loan’s interest rate or extend the number of years you have to repay it — or both. Not everyone qualifies for loan modification, so check with your lender.
If you’re approved for a loan deferral, no interest accumulates during the deferment period, and you can skip your monthly payments for a specific period. Inquire about loan deferral options with your mortgage company.
When your forbearance ends, you don’t have to pay back the mortgage payments and interest all at once. Work with your mortgage company to see what flexible repayment terms are available.
FAQs about selling a house in forbearance
Is mortgage forbearance a bad thing?
Mortgage forbearance isn't good or bad. Think of forbearance as a tool that helps you buy time to get through financial hardship. You can use the short-term financial relief to refinance your mortgage and lower your payments or sell your home.
If you decide to sell, learn how you can save thousands on realtor commissions by listing with an agent matching service like Clever Real Estate, or consider selling with an iBuyer for a faster, more convenient way to sell.
Can I buy another house after forbearance?
Forbearance shouldn’t impact your ability to purchase another house in the future. You may even be able to get a new mortgage loan while in a forbearance period, as long as you continue to make your current monthly payment.
Does forbearance hurt your credit score?
Your lender may report your forbearance on your credit report. But if you meet the lender’s terms in the forbearance agreement, your credit score likely won’t be affected.
What happens when mortgage forbearance ends?
When forbearance ends, you are responsible for paying back the missed or deferred payments and interest that accrued in the forbearance period.
While forbearance repayment terms differ depending on your mortgage company, you don’t have to pay back this amount as a lump sum.
Can I sell my house while in forbearance?
Yes, you can sell your home while in forbearance. But you still have to pay for the missed payments and interest you incurred on your mortgage loan during the forbearance period. Your lender will collect what you owe from the proceeds of the sale.
Selling might make sense financially if you can't make regular monthly mortgage payments after the forbearance period. This option helps you and your mortgage servicer avoid foreclosure.
Does mortgage forbearance affect future mortgage payments?
Mortgage forbearance could affect your future mortgage payments. After the forbearance period, you'll be on a repayment plan. This plan includes paying back the missing payments and fees you incurred during forbearance. You can wrap part of that amount into your current mortgage payments to help you pay off the mortgage balance.
How to Find a Realtor: The first step in selling your home is to find an experienced, professional realtor. We break down the top three ways to find a great listing agent and methods you should avoid.
How to Sell Your House (With or Without an Agent!) Do you want to learn more about the home sale process? Do you want to feel more prepared for your home sale? Check out our 12-step guide to selling a house.
Should I Sell My House Now or Wait? The decision on whether or not to sell your house is often a tough one. We break down the top reasons to consider selling now and reasons to wait until next year (or longer).
How to Sell a House Fast Without Losing Money: Our guide discusses the easiest ways to speed up the home-selling process, without sacrificing any of your home equity.
Top 3 iBuyer Companies: While iBuyers typically don’t offer as much money as traditional home buyers, they make up for it with speed and convenience. Learn more about how they work and how to get a fair offer on your home.
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