No one is exempt from financial hardship, whether it’s from unexpected medical bills, lost wages or money mismanagement. Each year, hundreds of thousands of American homeowners go through home foreclosure, an agonizing and particularly stressful time. Foreclosure, however, isn’t a picnic for the mortgage lender or servicer either. To limit the cost and the negative impact it has on business, a mortgage lender or servicer may allow a mortgage forbearance.
Here we go over what a mortgage forbearance means, how it works, and whether it’s a good long-term solution for your overall financial health.
What is Mortgage Forbearance?
A mortgage forbearance program aims to provide temporary relief from making the previously agreed-upon monthly mortgage payments. Such programs permit you to make lower mortgage payments for a specified period, or, in some cases, no payment whatsoever. This is to give your finances a chance to recoup a bit to dig yourself out of other debt.
However, keep in mind that this does not mean that you no longer have to pay the amount due, which was previously agreed upon when you signed up for the mortgage. Mortgage forbearance is not a waiver, grant or loan forgiveness. Eventually, the delinquent payments with interest must be paid, or you will default on your loan.
How Does Mortgage Forbearance Work?
In order to begin a mortgage forbearance program, you need to contact your lender to discuss your options. Tell them that you’re struggling to make payments as they currently stand, and they may offer other options such as restructuring the mortgage. Even your lenders don’t want you to go through foreclosure or bankruptcy because it takes a lot of their time, money and effort to collect in those situations. If you do qualify for mortgage forbearance, they will negotiate the following terms:
- Forbearance period
- Terms of repayment
- Whether your mortgage payments will be suspended or reduced
- The reduced payment amount
Eventually, once the forbearance period has ended, you will need to pay back the difference between your original payments and the reduced amount. This does not have to be done all at once and can be rolled into monthly payments.
How to Qualify For Mortgage Forbearance
Although the qualifications for mortgage forbearance programs are different depending on the lender, in almost all circumstances, it begins with an application.
While some lenders allow an online application, others require a hard-copy be sent as further verification that the information being provided is legitimate. (It’s also considered mail fraud if anyone submits false information through the mail).
Typically, borrowers are given a specific date that the application must be received by. This can greatly reduce the time you have to gather essential information, which can, in turn, affect your chances of being approved. Even if the forbearance request is due to something like a natural disaster, the borrower still usually has to submit the information within a predetermined time frame, even if that proves difficult.
Examples of generally requested info include:
- Most recent mortgage statements
- Statement of current monthly income
- Statement of all expenses and liabilities
- Bank Statements
- Pay Stubs (if applicable)
- Thorough explanation of financial hardship, including supporting documents
- Any other information deemed appropriate to approve or deny
While some borrowers do qualify after submitting the above information, many won’t meet the criteria. If you are denied, the lender now has all the information needed to know the insolvency of the borrower’s finances, which could have a detrimental effect on refinancing with them in the future. Unfortunately, that also means you’ve wasted time and effort on a dead end while other solutions could have been pursued
Appeal rights are available, if you are very adamant about getting approved for a forbearance program, but these appeals go to a different department, so you may be asked to further explain yourself just to be denied yet again. Either way, unless the original denial is considered an egregious error, it is unlikely to be overturned.
So, Does Mortgage Forbearance Hurt or Help?
While mortgage forbearance can provide some temporary relief to help you get your feet on the ground, you’ll still be stuck footing the bill in the end. Once the dust has settled, borrowers are often left with the consequences of a regretful decision.
Not only does mortgage forbearance delay the inevitable by still having to make up the payments and interest, but the missed payments also show on our credit report. However, keep in mind that during the coronavirus pandemic, such negative penalties have been minimized or canceled altogether through the CARES Act. Additionally, if approved, the forbearance will be reported to the credit reporting agencies. That hurts a homeowners’ credit profile and can affect refinancing in the future. It can even bear weight on the purchase of a new home.
A forbearance program does offer a brief pause in financial hardships, but it does not offer any solvency opportunities the way an equity program does.
Mortgage Forbearance vs. Equity Program
A better solution, and one that may help resolve any future impact on your credit score, is the home equity program offered by SKYDAN Equity Partners. We believe in offering peace of mind along with proven solutions that aren’t available in the traditional banking industry. Our home equity loan alternative provides exclusive benefits that are designed to give homeowners immediate relief from financial hardships.
In addition to catching up on past due mortgage payments with a lender, qualified homeowners can use the equity program for the following reasons:
- Delinquent Property Taxes
- Credit Card Debt
- Home Improvement or Repairs
- Medical Expenses