Forbearance Plans is One of the best ways to keep (not sell) a home when a homeowner has a temporary financial hardship, but don’t get too excited, banks and lenders often don’t play nice and it’s ultimately up to them.
A forbearance plan is an agreement made between a lender and the homeowner where the lender allows the homeowner to miss a couple of payments (or forgives a couple of already missed payments) and then requires the homeowner to make up the payments later – in most cases by making payment-and-a-half payments for several months in a row after the missed payments. The re-payment plan can be structured in several ways.
Note: Forbearance plans and loan modifications are both options provided by lenders to assist borrowers facing financial hardships. However, they differ in terms of their purpose and the specific changes they make to the original loan terms. See if a loan modification is a better option here.
Advantages and Disadvantages Forbearance Plans
The advantage of pursuing a forbearance plan is that it can avoid foreclosure and keep a homeowner in a home that they really can afford – if they can just be given time to catch up on their payments.
The disadvantage to a forbearance plan is that most people are either not eligible for these plans, or those that are, are not able to ever catch up once the payment-and-a-half payments period begin. They just cannot afford the new or continued payments.
Forbearance plans, if approved, usually delay foreclosure but often don’t permanently prevent it. Before exploring this option, make sure you talk to a real estate professional about all of your options! Regardless of your situation, income, or equity, if you would like to discuss all of your options for selling your home quickly to avoid foreclosure, contact Mike.
Common Questions About Forbearance Plans
Can anyone get a forbearance plan? Answer: No, in most cases the lender will have to review each homeowner’s individual circumstance to see if they are eligible. If you miss payments causing a hardship due to a temporary situation (such as a one-time rough spot like a temporary job loss that is now over), then you are more likely to be eligible and the program probably makes sense. If, however, your financial hardship is on-going (such as a loss of income that has not been replaced), a forbearance plan probably won’t be approved, and won’t do any good anyway. In these situations, other selling options are often better.
- What is a forbearance plan? Answer: A forbearance plan is a temporary arrangement that allows borrowers to temporarily pause or reduce their mortgage payments for a specific period due to financial hardship.
- How long will the forbearance period last? Answer: The forbearance period’s duration may vary depending on the lender and the borrower’s circumstances. It could range from a few months to a year.
- Will interest continue to accrue during the forbearance period? Answer: In most cases, interest will continue to accrue on the outstanding balance of the mortgage during the forbearance period. It’s essential to clarify how the accrued interest will be handled after the forbearance ends.
- How will missed payments be repaid? Answer: There are various options for repayment after the forbearance period. The lender may offer a lump sum payment to cover the missed payments, an extended loan term with increased monthly payments, or a loan modification to modify the terms of the mortgage.
- Will late fees or penalties be applied during the forbearance period? Answer: It’s important to clarify whether the lender will waive late fees or penalties for missed payments during the forbearance period.
- Will the forbearance affect my credit score? Answer: Typically, a forbearance plan should not directly impact your credit score. However, it’s important to confirm with the lender how they will report the forbearance to the credit bureaus to ensure accurate reporting.
- How will the forbearance impact my eligibility for future loans or refinancing? Answer: While a forbearance plan itself may not directly disqualify you from future loans or refinancing, it’s crucial to understand how it may be viewed by potential lenders and how it could affect your eligibility in the future.
- Can I request an extension or modification to the forbearance plan if needed? Answer: It’s important to discuss with the lender whether you have the option to extend the forbearance period or modify the terms if your financial hardship persists beyond the initial arrangement.
Remember that these answers are general and may vary depending on the specific lender and circumstances. It’s advisable to contact your lender directly and have a detailed conversation about the forbearance plan, ensuring you understand all the terms, repayment options, and potential consequences.