Not being able to afford mortgage payments can be daunting and outright scary — especially if you aren’t sure when you’ll be able to make your next payment. Due to theoutbreak, about 2 million Americans are skipping their mortgage loan payments. This comes at a time when Goldman Sachs predicts unemployment will grow to 15% by midyear, forcing many more Americans to take drastic measures like forgoing their monthly mortgage payments and .
What happens if you can’t make this month’s mortgage payment? Or next month? If you stop making payments, what happens to your home? Here’s the breakdown of how COVID-19 is affecting your mortgage.
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What the CARES Act covers
In normal circumstances, not paying your mortgage means you’d be delinquent on your payments and face foreclosure on your home. But the Coronavirus Aid, Relief and Economic Security Act offers temporary relief to renters and homeowners alike. If you have a federally backed mortgage, you have a few ways your home is protected.
On March 18, the US Department of Housing and Urban Development issued a foreclosure moratorium. That means even if you miss a payment, your loan servicer can’t start foreclosure proceedings for 60 days following that March 18 announcement.
While you’re safe inside your home, you’re still on the hook for payments. Through the CARES Act, you have the option to request forbearance for 180 days. Forbearance is when your loan servicer or lender temporarily pauses or reduces your mortgage payments without hurting your credit score or initiating a foreclosure. After the time is up, you can ask for an additional 180 days if you need it. While fees and penalties won’t apply, interest will still accumulate and you’ll be responsible for it when the forbearance period ends.
To qualify for forbearance, your loan would need to be with one of the following lenders:
- Fannie Mae
- Freddie Mac
- Department of Housing and Urban Development, aka HUD
- Federal Housing Administration, aka FHA
- Department of Agriculture, i.e. USDA loans
- Department of Veterans Affairs, i.e. VA loans
Nearly half of the country’s mortgages are federally backed, which means you have a good chance of qualifying for CARES relief.
What if your mortgage isn’t federally backed?
If your mortgage isn’t covered by the CARES Act or you don’t have a federally backed mortgage, you’ll need to contact your lender right away. Explain:
- Your hardship. If you lost your job or can’t work because of the coronavirus outbreak, tell your lender (you’ll need to specifically use those terms). Share how your financial situation has changed.
- Your income. If you have any money coming in, whether the , or somewhere else, detail how much that is to your lender. Also detail your expenses, savings and other assets (if available) so your lender has an idea of your worth.
Ask your lender what your options are if you can’t afford to make payments. Even nongovernment lenders are working with people based on their circumstances. Many are also offering forbearance, but you might not get the same terms as those who have federally backed mortgages.
If you and your lender agree on forbearance, carefully read your paperwork. Sometimes, forbearance requires a lump-sum payment of your outstanding balance once the forbearance period ends. That means you’ll be on the hook for every outstanding month you haven’t paid, plus the regular payments when those start again.
You might qualify for a loan modification. This is when you can adjust the terms of your loan contract without refinancing. While refinancing is a new loan with a new interest rate and terms, it also comes with a new round of closing costs. A loan modification doesn’t have that.
Instead, you’d agree to something like a lower interest rate, longer repayment terms or even changing the type of loan you have. Most lenders don’t want to go through with a foreclosure process almost as much as you don’t, which means many are willing to work with you to avoid getting to that point.
A loan modification can happen before or after a forbearance period, but if you want to get one sooner, you may have to provide your lender with additional documents, like your financial hardship. If you’re already late making payments, you might already qualify for a loan modification.
If you don’t qualify for a loan modification or you don’t want one, you may want to ask about a revised repayment plan. Instead of having a lump-sum payment after forbearance ends, you could pay it back in modified payments without your credit score tanking or getting hit with penalties and fees.
Mortgage relief resources
If you can’t afford to make payments and your loan servicer isn’t offering much assistance, there are organizations and relief options to take advantage of.
- Try a housing counseling agency. Housing counseling agencies are free or low-cost options. These agencies review your individual circumstances and can sometimes negotiate new terms with your lender on your behalf. Find a housing counseling agency near you or reach out to HOPENOW — a housing nonprofit that helps homeowners get loan modifications.
- 211.org. You can call 2-1-1 anytime and it directs you to local resources based on where you live. Resources vary based on location so what’s available near you might not be an option for others somewhere else.
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