The question I’m getting a lot lately is, “Where do you see the real estate market going in the short term because of the coronavirus pandemic?”
Mortgage forbearance is a hot topic right now.
With roughly 15 million Americans unemployed and many others furloughed, it’s understandable that a lot of people are struggling to pay their mortgage. When the government announced that mortgage forbearance would be an option for struggling homeowners, they forecasted that 2% of all mortgage holders would take this route. During the first week of May, the actual number was roughly 7%, and it’s still climbing. Hopefully, it subsides as economies across the country reopen.
What do you need to know about mortgage forbearance?
First, forbearance is neither forgiveness nor deferment; it’s a temporary relief of payment, but you’ll still owe that suspended amount eventually. If your mortgage is backed by Fannie Mae or Freddie Mac, the CARES Act assists you with your mortgage forbearance in that your lender can’t require a balloon payment. In other words, the amount you owe gets tacked on to the back end of your loan, or the amortization of your loan is restructured to include the payments you miss.
If your loan is backed by a private investor, they can do whatever they want, such as requiring a balloon payment in three or six months. For example, let’s say your lender requires a balloon payment in three months; you won’t have to pay anything during that time frame, but once those three months are up, you’ll have to pay the accumulated amount and the fourth month’s payment. If you can’t pay that total, there may be consequences.
In most cases, once you go into mortgage forbearance, you can’t get financing to buy another property for another 12 months.
It’s important to note that mortgage servicing companies make their money by, obviously, servicing loans. This means they don’t want homeowners refinancing out of their loans or selling their mortgages, and it’s also why they’re proactively reaching out to homeowners and advising them to take the mortgage forbearance route. Once you do this, your loan can’t be refinanced, and they probably won’t sell your mortgage.
Is mortgage forbearance the best option for you? In most cases, once you go into mortgage forbearance, you can’t get financing to buy another property for another 12 months. Lenders can decide not to report the forbearance to the credit bureaus, but if it ends up getting notated anywhere, that will affect your ability to buy another home for a whole year.
It’s because of this that a lot of homeowners who’ve taken the forbearance route are potentially digging themselves a hole they may not be able to climb out of, so consider these factors before making a decision.
If you have questions about this or any other real estate topic, don’t hesitate to reach out to me. I’d love to speak with you.