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The coronavirus pandemic has done a number on the U.S. economy, taking out jobs and driving millions of Americans into unemployment. Thankfully, there's been relief available not just for the jobless, but for homeowners grappling with income loss.
Borrowers who've struggled to make their mortgage payments during the pandemic have had the option to put their home loans into forbearance. With forbearance, you hit pause on your monthly loan payments, only you're not flagged as late or delinquent to the credit bureaus that establish your credit score.
Initially, borrowers only had the option to request forbearance through the end of 2020. But the Federal Housing Administration (FHA) just announced that it's offering a two-month extension not just on its foreclosure and eviction moratorium, but also on forbearance requests. This means FHA loan borrowers can ask to put their loans into forbearance through Feb. 28, 2021. Since borrowers are entitled to up to 360 days of forbearance, that means some homeowners may not have to make a mortgage payment at all in 2021.
Should you put your mortgage into forbearance?
The downside of mortgage forbearance is that your loan payments aren't forgiven. Rather, they're paused temporarily, and once your forbearance period ends, you'll need to catch up on the payments you missed. However, your lender may work with you so you can catch up without undue pressure. (In fact, right now, lenders can't demand a lump-sum payment on missed payments once forbearance ends.)
On the other hand, being late on even a single mortgage payment could have negative consequences for your credit score, so if you're worried you won't be able to keep up, forbearance is a good option to pursue. One misconception about forbearance is that during that time, you're not allowed to pay your lender anything. Not so. During forbearance, you're off the hook with regard to paying, but you are allowed to make payments should your financial circumstances improve. As such, there's little to lose right now if you opt for forbearance as added protection, and if you're able to make some mortgage payments during that time, you'll have fewer payments to catch up on after the fact.
What if your financial circumstances only worsen during your forbearance period, and you're unable to repay your mortgage once it ends? Well, at that point, you'll need to explore your options. If your home is worth enough to satisfy your outstanding mortgage balance, selling it and walking away clean could be a good move. If you're underwater on your mortgage at that point -- meaning, you owe more than what your home is worth -- then you can talk to your lender about a short sale. Another avenue may be to modify the terms of your mortgage so it's more affordable. Be sure to communicate your hardship to your lender -- you never know how flexible it might be.
Though there's a chance the FHA could extend its forbearance timeline again, if you've yet to request forbearance and are worried about keeping up with your payments, get moving. You have until the end of February to make that request, but it wouldn't hurt to ask for help sooner.