We’ve reached an unprecedented moment in our history, one where uncertainty prevails and we’re not all sure where our next meal will come from, or whether we’ll be able to pay all our bills.
According to the Bureau of Labor Statistics, unemployment rates in the U.S. have reached heights only previously witnessed during the Great Depression. A layoff, furlough, or change in pay can make meeting financial obligations, from student loans to credit cards and mortgages, challenging.
To help combat these difficult times, some agencies have created programs to help ease the burden of certain monthly payments, including mortgages. Those who qualify might be eligible to take a break from paying certain bills, or they might receive some relief on monthly payments.
Not all mortgages qualify, and homeowners do have to meet the requirements to receive relief. Read on to learn more about how mortgage relief programs work, who is eligible for them, and how to get them.
What Are Mortgage Relief Programs?
Relief programs don’t magically make monthly mortgage payments disappear, but they might defer those payments for a set period, also known as forbearance. The CAREs Act, a historical trillion-dollar relief bill, has established relief measures for mortgage borrowers enrolled in federal loan programs. Additionally, some private mortgage lenders are providing relief programs for borrowers impacted by COVID-19.
Putting a mortgage into forbearance means homeowners will have to make up for the payments not made during that time—it is not a forgiveness program. Forbearance might be an option when a borrower has to deal with a hardship that affects their finances, such as a natural disaster, layoff, or now the coronavirus.
Federal Mortgage Relief Programs
Federal mortgage relief programs are geared toward homeowners who can’t pay some or all of their monthly mortgage payments. Relief programs offered by the federal government only pertain to loans backed by the following programs :
• FHA (Federal Housing Administration)
• HUD (Housing and Urban Development)
• VA (Veterans Affairs)
USDA (U.S. Department of Agriculture)
• Freddie Mac
• Fannie Mae
At times, it can be confusing to determine if a borrower holds a mortgage through a federal program. In that case, homeowners can determine if their mortgage is federally held through the Mortgage Electronic Registration Systems (MERs) site.
If a person applies for and is approved, federal mortgage relief forbearance may mean the homeowner:
• Won’t have late fees for the missed or skipped payments
• Legal action, such as foreclosure, is suspended
Applying for Federal Mortgage Relief
When a homeowner realizes they might have difficulty with their monthly mortgage payment, they could consider reaching out to their servicer. This might apply to multiple types of properties, including primary residences, secondary or vacation homes, and investment properties.
The Consumer Financial Protection Bureau recommends homeowners reach out to loan servicers over the phone. Homeowners might need to:
• Be prepared to wait to speak to a mortgage servicer, because so many homeowners are seeking relief at this time.
• Provide their mortgage’s account number.
• Explain how they’ve been affected by COVID-19.
• Consult their servicer’s resource site before placing the call. Fannie Mae and Freddie Mac have provided walkthroughs of what borrowers will be asked on a call when they reach out.
Once the application is complete, homeowners should get documentation of their forbearance agreement. In addition, they might want to be sure they understand what happens once the forbearance period ends.
Recommended: What is Mortgage Forbearance?
If a borrower has been approved for federal mortgage relief, they’ll be in an initial forbearance period for 180 days. That means they wouldn’t need to pay their mortgage during this time period.
However, that doesn’t mean a homeowner should ignore their mortgage entirely—they might want to keep track of the following while in forbearance:
• Automatic payments. Any automatic payments or transfers to mortgage accounts should be paused by the borrower during the forbearance period. It’s unlikely the payments will be paused automatically, so it might be best to double check.
• Credit score. Pausing payments shouldn’t affect credit score, but homeowners might want to keep an eye on their score in the event of an error.
• Savings account. Now might be a good time to set aside any extra income to pay for the mortgage once forbearance ends. Homeowners might not have enough income to meet the monthly demands of their mortgage, but every little bit could help.
• Any changes to income. If a borrower’s income is restored during forbearance, they might need to contact their lender. While it might mean ending the forbearance period early, it could also mean tackling the amount owed from forbearance sooner, possibly saving in the long term.
• Property taxes and insurance payments. If a homeowner’s insurance and taxes are paid through an escrow account, it should go into forbearance along with the mortgage. However, if the homeowner doesn’t have an escrow account, they may be on the hook for those payments. Borrowers could check with their servicer to confirm their escrow status.
As a borrower’s forbearance period draws to a close, they may have an option to extend it if their circumstances are still affected by the pandemic. If this is the case, homeowners would reach out to their lender to see if they qualify for an extension on forbearance. Typically, a borrower can apply for an additional 180-day extension. Some agencies, like Freddie Mac, are extending forbearance up to 12 months, but borrowers will need to continually apply for an extension to qualify.
If a homeowner’s income has been affected for the long term and they have a Freddie Mac- or Fannie Mae-held mortgage, they could also inquire about term modifications on their loan. Both agencies are treating those affected by COVID-19 similar to borrowers affected by a natural disaster. That means they’ll try to work with a borrower to change the terms of the loan if necessary. Both the VA and FHA also offer loan modification to their borrowers.
Repaying a borrower’s forbearance amount may vary based on the federal mortgage program they’re enrolled in. Generally, a homeowner can expect one of the following scenarios:
• Repaying the forbearance amount in one lump sum payment.
• An additional amount is added to the borrower’s monthly payment until the forbearance amount is repaid in full.
• The amount of the forbearance is added as additional payments at the end of the borrower’s loan or paid in a lump sum at the end of a borrower’s mortgage.
Each agency has its own intricacies when it comes to making up the cost of forbearance. Borrowers can find the latest update sorted by federal agency on the Consumer Financial Bureau’s website .
Recommended: Guide to Buying, Selling, and Updating Your Home
Non-Federal Mortgage Relief
Mortgages that are not backed by a federal agency are not eligible for CARES Act relief. However, if a homeowner thinks they might not be able to make their mortgage payments due to the impact of the COVID-19 pandemic, they might want to consider contacting their loan servicer immediately.
Private loan servicers have been encouraged by the federal government to work with homeowners to come up with alternatives for those affected by COVID-19. That could mean forbearance or modifying the terms of the loan.
Additionally, private mortgage holders might be eligible for relief on the state or local level.
Alternatives to Mortgage Relief Programs
If a homeowner’s monthly payments are just slightly out of their reach, or they aren’t eligible for any relief program, they could consider refinancing their mortgage.
The Federal Reserve’s interest rate changes might make refinancing a mortgage now more appealing than ever for homeowners. As of now, home mortgage rates have hit 3.3% on average , and some experts estimate we’ll see rates below 3% in the near future. Rates this low could mean a lower monthly payment on a borrower’s mortgage.
Before diving into the refinancing process, homeowners might want to consider the following when saving on mortgage:
• How much they owe on their current mortgage, as well as their interest rate and current monthly payment.
• Their credit report. Borrowers with stronger credit scores might get better offers and rates from lenders. However, a lower credit score could mean higher interest rates and less favorable terms. It might mean that a borrower should wait until their credit score is improved to begin the refinancing process.
• Costs associated with refinancing a mortgage. Borrowers could expect to pay between 3% and 6% of their loan’s principal value in closing costs to refinance their home. If a borrower is considering selling their home in the near future, it might not make sense to pay for refinancing. Even with a lower interest rate on the refinanced mortgage, they might not be saving in the long run.
• A fixed interest rate. If a borrower initially took out an adjustable-rate loan, they might consider refinancing to a fixed interest rate. For some homeowners, a fixed interest rate could provide a sense of stability when it comes to their monthly mortgage payments.
Recommended: What Is a Good Credit Score to Buy a House?
Refinancing a mortgage might not be the right move for every homeowner at this time, but for borrowers who might be ready to start the process, there’s SoFi®.
SoFi’s mortgage refinancing process is stress-free and offers competitive rates in addition to discounts on processing fees for SoFi members. SoFi’s mortgage loan officers are available to guide homeowners on what can sometimes be a confusing process.
These unprecedented times can be challenging for homeowners, especially when it comes to financial uncertainty. If homeowners find themselves unable to make their monthly mortgage payments, they could consider reaching out to one of the many relief programs offered by both federal and private lenders.
Asking for relief, forbearance, or working with their lender to renegotiate the terms of a mortgage might help give homeowners peace of mind, as well as help secure their financial future.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.
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