Dodging the Potholes on the Forbearance Foxtrot: Savvy Steps for Homeowners
Published October 18, 2023
As we wade through the aftermath of the Covid-19 epoch, many homeowners find themselves engaging in a delicate dance with financial adversity. This has consequently spotlighted the potentially ballet-saving pirouette known as mortgage forbearance. As with any ritzy choreography, however, it’s crucial to grasp every twirl and dip – or in this case, the complexities, virtues, and potential trip-hazards of this particular fiscal maneuvers before deciding to embrace it.
Approximately 1.6 million homeowners, who once sought the comforting embrace of Covid-19 relief through the government’s mortgage forbearance program, now find themselves preparing to take a bow and exit the stage. In fact, the first wave of 850,000 disembarked right away, continuing through the dramatic autumnal month of October.
Suddenly, these homeowners are faced with a financial Choose-Your-Own-Story. Continue with mortgage payments? Alter the narrative with a modified loan? Or opt for the climactic twist of selling their graceful homes in a hot housing market? Whatever the choice, it could serve as a silver lining to the inventory cloud that has been casting a shadow over keen home-shoppers, who’ve been facing the gauntlet due to fierce pricing and scarce availability.
So, as the next act of this economic drama unfolds, remember the importance of making an informed decision. After all, in this theatre of life, knowledge is indeed power.
Understanding Mortgage Forbearance
Let’s slide onto the dance floor and observe the intricate ballet of mortgage forbearance. Picture it as a gentleman’s agreement, a dance with your mortgage lender when life decides to transform into an unscripted scene from “Dancing with the Stars” with unusual rhythm changes (perhaps an occasional pandemic?), and you find yourself missing a few steps in your mortgage payment routine.
But don’t mistake forbearance for a magic dance that makes your debt disappear—it’s more like the cha-cha, one step forward, and two steps back. Snoozing on the payments today means they will tap dance back into your life, waiting to be addressed.
As you step off the dance floor of forbearance, the key choreography element is to pirouette away from foreclosure—a dance with financial disappointment. May it be modifying your mortgage, establishing a repayment plan or even selling your home in this hot market salsa, all these are more like a graceful waltz than a collision course with the sharp, offbeat rhythms of foreclosure, which is a harsh tango entwining emotional turmoil and fiscal mires.
Our reliable dance coach, Experian, warns that post-foreclosure homeowners may experience a substantial, even toe-crushing, dip in their credit scores. This financial misstep could tamper with your upcoming dances, whether they are to lease a new apartment, snap up a property, seek new credit or even land an attractive job. Therefore, it is crucial to dance wisely and avoid this undesirable finale.
COVID-19 Forbearance for FHA-Insured Mortgages What Happens When Forbearance Ends?
Let’s point the stage lights at the anticipated grand finale of the forbearance ballet— it is not an impromptu show-stopping lump-sum payment, but rather a carefully choreographed routine. If you opt to engage in the dance routine of loan modification with your lender, you’ll leap back into steady payments as the forbearance foxtrot winds down. However, stay on your toes — these performances often only favour dancers who can match the lofty jumps of unaffordability regarding their original payment. So, what happens when the forbearance performance ends? The stage lights direct to repaying the sums that decided to take a breather during forbearance. The selection of repayment choreographies will pirouette differently with your loan type. But be reassured, none of them necessitate a finale-stomping lump-sum payment as the forbearance ballet concludes.
Fannie Mae and Freddie Mac loans lay the dance floor for a repayment plan, allowing you to counterbalance your missed pirouettes over time with a consistent figure in your monthly mortgage payments. Alternatively, you could sway into a deferment, where you fall back into rhythm with your regular payments and push the missed dance steps to the final bow or when you sell or refinance your home. If your income has dipped throughout a longer term, be flexible and potentially modify the dance tempo, interest rate, or principal amount to get your mortgage payments back to steady footing.
As for the FHA/HUD loans, the Covid -19 recovery standalone partial claim skillfully drafts a routine for those who can resume their regular payments after the forbearance break. This strategy makes your debts understudies as a subordinate, interest-free lien, which steps onto the stage when you refinance or sell. If you find regular monthly payments unattainable after forbearance, your mortgage term can stretch into a leisurely waltz of 360 months, subtly diminishing the monthly payments. The COVID-19 Forbearance options for FHA’s Single-family insured mortgages and HECM Extensions will end on November 30, 2023.
USDA Loans allow the choreographing of a personalized payment routine, or you could delay the missed payments to the end, effectively lengthening the performance of the mortgage. Meanwhile, VA Loans suggest a deferment after forbearance, allowing borrowers to suspend their obligations to the end of the performance without needing to perform any complicated additional interest moves.
Finally, every melody of possible lump-sum payment can be harmonized into manageable monthly installments or perhaps a personal loan to keep the rhythm steady. Regardless of your loan type, remember: if the regular payments turn into an complex routine you can’t keep up with, the dance master— your lender— may yet revise the choreography with a loan modification, to ensure the entire dance is comfortably within your reach.
Navigating Your Forbearance Period
Taking the first delicate steps on your forbearance dance floor? Prepare for an encore of some positive notes. The prospect of pirouetting into an extension might not just be a fleeting sway of a dance scarf – but remember, it’s not a guaranteed part of the choreography. This movement requires you to engage eloquently with your loan choreographer, making your wishes for an encore clear. The same ballet applies if you’ve twirled through the last beat of your forbearance dance number.
The grand curtain fall to your forbearance performance reveals an array of dance steps to master. Maybe you desire to negotiate another encore, arrange a payment routine, adjust the rhythm of your loan, or step off stage with a triumphant home sale. But bear in mind, the house always leads – those accumulated outstanding dues will demand their time in the dance spotlight at the closing gathering.
Paths to Repayment and Loan Modifications
Your choice – a crescendo of a lump-sum finale, settling the skipped stanzas all at once, or perhaps a pas de deux with short-term repayments or loan modifications. Such alternatives allow you to embody a captivating pas de bourrée with an additional monthly payment dancing gracefully atop your customary mortgage minuet.
Your loan, your grande performance – Depending on its tailor-made terms, you might just be holding an exclusive backstage pass to a loan modification. This acts as a daring choreography reset for your mortgage, improvising variables like the tempo of your repayment span, adjusting the melody of your interest rate, or crafting a reprisal for your principal balance.
Let’s take a pirouette though – we’re no longer treading the dance floor of 2019 and 2020’s mortgage rates. Today’s rate ensemble, rising in a riveting révérence, is hitting heights that soar two and, quite possibly, three beats higher. Prepare for the spotlight to shift towards an encore of a significantly amplified mortgage payment.
Dancing to the tune of foreclosure is not the preferred waltz for your lender. Their aim is to choreograph a feasible solution, a harmonious dance between both parties. And so, you may wish to consider a grand exit through the sale of your home to gracefully sidestep foreclosure.
Initiatives like ‘Cash For Keys’ perform an elegant flexibility pas de deux, if shifting base complements your choreography. A short sale is not off your dance card just yet, as you and your lender could still step to this rhythm. Notably, if your home is twirling on a bounty of equity, bring a real estate agent into your dance troupe. The idea of selling your home and securing any leftover equity post arrears payback could be a harmonious samba to your financial senses, especially before the banks start performing their ‘Notices of Default’ ballet, which could bring about an offbeat jive marked with substantial fees.
Does the rhythm of Refinancing Your Loan resonate with your dance style? This composition involves reshaping your loan to a softer, fluid waltz. Yet, it’s crucial to acknowledge that this rhythm can be quite elusive, especially for those dancers already balancing on the precarious tightrope of financial acrobatics. Dancers under forbearance might not meet the qualifying pas de chat for refinancing. Factor in the symphony of today’s high rates – the lenders prefer a pas de deux with a higher rate, which could potentially double the pace of your monthly payment.
If the relentless tap of foreclosure is echoing and your choreographies are getting limited, selling your home might just be your final bow. This decision to exit the stage can weigh heavily, but it could well be your best performance move to protect your credit score and financial pas de bourrée. Collaborate with a real estate director or a financial dance master to orchestrate your next move in this grand ballet.
Ponder as well over a Deed in Lieu of Foreclosure, a grand pas de deux wherein you voluntarily swap roles – your home, back to the lender, deftly evading the raucous noise of foreclosure. While this keeps the credit score critique mostly positive, it might not perform the perfect pirouette if the dance of holding onto your home is the ballet your heart yearns for.
The finale of your forbearance ballet doesn’t necessitate a theatrical bow out of your home. Instead, when the challenge of meeting mortgage payments taps into your reality, cha-cha your way into discussions with your lender, exploring the suite of steps available for your dance. Forbearance is not the final number; it’s an interim dance break meant to twirl homeowners through a tough act. Being in step with your options and primed for a successful samba along this path can greatly aid in preserving your homeownership choreography. Though it may seem a daunting dance, remember, you’re not a solo performer, assistance is right offstage, and solutions are within your dance card.
In the dance-off with pandemic-related economic downturns, the appeal for a steady rhythm and simple choreography becomes more palpable, a dance that mortgage companies and regulators may not perform as seamlessly. Nonetheless, in their own intricate performance, they aspire to orchestrate a helpful routine for you.
Here are three dance steps to help your mortgage servicer lead you off the forbearance stage:
1. Your servicer will extend a hand for a synchronized performance a month before your forbearance tango winds down, consider this for both the initial routine or an encore. Strike up a prompt response for a harmonious dance.
2. Extensions to your forbearance rhumba serve as stepping stones, providing the leverage for a lift out of the financial upheaval. Embrace these, spinning another dance if it harmonizes with your current rhythm.
3. Master the choreography at your disposal, understanding the entire sequence of options open for your ballet. Consider conversing with a housing dance instructor if you yearn for a sympathetic rhythm to break down your routine further.