Homeowners Relief Program Guide
Forbearance puts a temporary halt on your mortgage payments. Discover how to apply for forbearances and other homeowner relief programs.
Depending on the lender for your mortgage, you may be eligible for a relief program, known as a forbearance. With a forbearance, your mortgage lender agrees to either pause or reduce your mortgage payment for a limited period of time. A forbearance is normally issued after a financial emergency. For example, if you get seriously injured and are unable to work, you can apply for a forbearance while you attempt to get disability or unemployment benefits.
With most loans, there are no penalties or additional interest if you are eligible for a forbearance. If you are granted a forbearance, you still owe whatever payments are missed, unless specified by your lender. In 2020, millions of homeowners became eligible for a relief program through the CARES Act, which was passed to address financial issues caused by Covid-19. Previously, any government backed mortgage was eligible for Covid relief, but as of writing only homeowners with Fannie Mae or Freddie Mac are still eligible for a forbearance.
General Homeowner Relief Options
Even if you are not eligible for a forbearance through the CARES act, you can apply for a traditional relief program through your lender. The majority of lenders are more likely to accept an application because of Covid-19. While it may seem like your lender would fight you on a forbearance, this is rarely the case. Lenders are patient and understand it takes time to see a return of investment on their initial loan. This is especially true for mortgages, with most borrowers requesting a 30-year mortgage. If your lender knows you cannot currently pay but believes you will be able to in the future, it is easier to give you a chance to financially recover instead of wasting resources trying to get you to pay each month.
Applying for a Forbearance
The exact process to apply for a forbearance may change based on your lender. The first step is to contact your lender. In most cases, you are only required to explain why you are experiencing a financial hardship. In certain circumstances, you may be asked to provide additional documentation. For example, if you are requesting a forbearance because you are too sick to work, your lender may ask for a doctor’s note confirming your condition.
You can request up to 180 days on your initial forbearance. If you are applying for a Covid forbearance through the CARES act, you may request an additional 180-to-360-day extension once the initial forbearance ends.
If you are approved for a forbearance, you can end it early at any point and return to your normal payment plan. Once you state your intention to end the forbearance, you and your lender must discuss how you will pay back the missing amount. While your forbearance is in effect, it is illegal for your lender to charge you any sort of penalties or interest. Additionally, lenders cannot report you as missing payments to a credit bureau, so your credit score is not negatively affected by starting a relief program.
Refinancing your Mortgage
If you are still struggling with payments after your forbearance, the next option is to refinance your mortgage. When you refinance your mortgage, you take out a new loan to pay off your previous mortgage. Because you already paid off of a portion of your mortgage, you do not have to borrow as much with the new loan, allowing you to get more favorable rates. This not only gives you breathing room to financially stabilize, but it allows you to save money with lower monthly payments and interest rates.
Some lenders may charge you a refinancing fee. This is because making any changes to your mortgage is complex and may involve paying bank or title insurance fees or even having your home reappraised. If your existing mortgage has a prepayment penalty fee, you must settle this payment before refinancing your mortgage. Financial experts recommend budgeting for around $3,000 in possible refinancing fees.
Homeowner Assistance Fund (HAF)
HAF was created to prevent homeowners from defaulting on mortgage payments and avoiding foreclosure. HAF funds are technically available to all homeowners, but priority is given based on the severity of your hardship. HAF funds are provided directly to state housing departments from the U.S. Department of Treasury. You can contact your public housing agency (PHA) for more information.
Reverse Mortgage for Seniors
If you are over the age of 62 and are financially struggling, one of the ways to cut down your expenses and increase your income is through a reverse mortgage. With a reverse mortgage, you take out a portion of your home equity, which is paid to you in monthly payments. How much you can take is the difference between what you owe on your mortgage and the current value of your home.
As long as it is your primary residence, you do not have to pay back any of the income from your reverse mortgage. If you decide to move or sell your home, you are responsible for paying back the entirety of what you received from your reverse mortgage. Reverse mortgages are available from both state and private lenders. Depending on where you live, there may also be nonprofit groups that assist with reverse mortgages for seniors.