Monthly mortgage payments can be a significant financial burden for some homeowners. If you’re struggling to keep up with your payments, you may be considering selling your home. However, if you’re currently in forbearance, you may be asking yourself: “ Is it possible to sell my house while in forbearance?“
In this article, we’ll discuss whether or not you should sell your house while in forbearance and what to consider before making a decision.
What is Forbearance?
A forbearance is an option for borrowers struggling to make their mortgage payments. It allows you to stop making payments temporarily or make smaller payments than you usually would. This can give you some breathing room if you’re facing financial hardship, such as a job loss due to the Covid-19 pandemic or medical bills.
About 2.2 million homeowners, or around 35% of the remaining borrowers who signed up for forbearance over the years during the coronavirus pandemic, are in forbearance. This comprises individuals with a low credit score, are unemployed, or have experienced a recent drop in income.
Why should you sell a home in forbearance?
A forbearance agreement can be a good option for some homeowners who have difficulty making their mortgage payments. It is usually a step toward foreclosure, providing some time to sell the home and avoid a formal foreclosure process.
In some cases, the mortgage company may agree to work with the homeowner on a loan modification to make the payments more affordable. Forbearance should ideally not hurt your credit scores as long as you make all of your payments on time and as agreed upon.
However, acting quickly or avoiding foreclosure is important since it can negatively impact your credit score. This, in return, can impact your ability to find housing in the future, as well as other lines of credit such as auto loans or credit cards.
Hence, before thinking: “I should sell my house while in forbearance,” it’s important to consider if you can successfully get out of forbearance or if you have equity in your home. You should also be aware of the potential risks, such as the possibility of owing more money to the mortgage lender than the sale price of your home.
Can you sell a house in forbearance?
Yes, but this depends on your equity. Equity is the portion of your home’s value that you own outright. Meaning it’s the appraised value of your home minus any outstanding mortgage debt or other liens you may have against it.
Do you have equity?
If you have a lot of equity, selling a home while in forbearance would be like any other home selling and is a good option. This is definitely a good option if you’re struggling to make your mortgage payments and are at risk of foreclosure.
With the proceeds from the sale, you could pay off your mortgage and then use the remaining money to buy a cheaper home or rent an apartment.
Are you underwater?
If the house is worth less than what you owe on your mortgage, you are “underwater.” In this case, selling the house and using the proceeds to pay off the mortgage might make more financial sense.
However, it may be difficult to find a buyer willing to pay what you owe, so you may have to sell the house for less than you owe. This can be a difficult decision, and you should speak with a financial advisor to see if this is the best option for you.
Steps Before Selling
If you’re underwater, selling is not the only way to deal with your mortgage. You have other options that can be seen as more favorable, but the best option after mortgage forbearance all comes down to your circumstances. Here are the options:
Refinance simply means taking out a new loan to pay off the old one. If you have good credit, you may be able to refinance your mortgage and get a lower interest rate. This will lower your monthly payments and help you pay off your mortgage faster.
If you can’t afford your current mortgage payments, you may be able to get a loan modification. A loan modification is when your lender agrees to change the terms of your loan, such as the interest rate or the length of the loan. This can make your payments more affordable and help you stay in your home.
A repayment plan is when you make fixed monthly payments to your lender over a set period to catch up on your missed payments. This can help you avoid foreclosure and help you keep your home.
Options for Selling a Home in Forbearance if You Are Underwater
If you have exhausted all your other options and still can’t make your mortgage payments, you may be considering selling a house while in forbearance. Although this isn’t ideal, it may be your best option if you are significantly underwater in your home. However, keep in mind that your options to sell are limited.
A short sale refers to the sale of a property where the proceeds from the sale are less than what is owed on the property. In a short sale, the lender agrees to release the borrower from their mortgage debt. A short sale is an alternative to foreclosure, and it may be an option if you can’t afford your mortgage payments and the value of your property has decreased.
Speak With An Investor
If you are considering selling a home while in forbearance, you may want to speak with an investor to see the offer for your home. Speaking with an investor can help you answer questions such as “what is a preemptive offer on a house?” or “can I sell my house while in forbearance?”.
You may also find that an investor is willing to work with you to come up with a creative solution that meets your needs.