Should You Sell Your Home Once Your Mortgage Exits Forbearance?
Still in forbearance? You may have options once that protection comes to an end.
When the coronavirus pandemic first hit, millions of people lost their jobs within weeks, including homeowners with mortgages to cover. Thankfully, relief was made available in the form of forbearance -- an option that allows borrowers to hit pause on their home loan payments without being penalized for it, and without repercussions to their credit scores.
Forbearance isn't unique to the pandemic. During normal times, homeowners can request forbearance when they encounter a hardship and find themselves unable to pay their mortgages.
But normally, lenders can deny forbearance. During the pandemic, any borrower who's wanted to put a mortgage into forbearance has been entitled to it -- lenders did not get the option to say no.
And during this time, borrowers have been entitled to up to 18 months of forbearance, which means that those who paused their home loan payments at the start of the crisis may see that protection run out this fall. If that's your situation, you have some options. You could always just resume your regular mortgage payments, assuming that's financially doable for you. But here's another option to look at -- selling your home.
Should you sell post-forbearance?
If you can afford to make your monthly mortgage payments after forbearance ends and you wish to stay in your home, then selling it makes little sense. But if you're worried that paying your mortgage will be a struggle, then now may actually be a good time to sell.
Home values have skyrocketed on a national level due to high buyer demand and low supply. This means that your home may be worth a lot more money now than it was worth when the pandemic began. And so if you opt to sell your home, you could end up getting a high enough offer for you to pay off your mortgage and have cash left over to start fresh elsewhere -- perhaps in a less expensive home that better fits into your budget or aligns with your current financial situation.
Plus, even if you can afford to pay your mortgage again, if your home value has really risen, selling could give you an opportunity to shore up your finances.
Say you lost your job during the pandemic and had to deplete your savings to stay afloat. Let's also say your home was worth $295,000 before the pandemic, only now, you can command $345,000 for it. Finally, let's assume you have $250,000 left to pay on your mortgage. This means that if you sell today, you stand to enjoy a $95,000 profit, minus any real estate agent fees you incur ($345,000 − $250,000 = $95,000). That could allow you to replenish your savings and better recover from the pandemic.
Of course, some homeowners may exit forbearance and still be underwater on their mortgages -- meaning, they might still owe their lenders more money than their homes are worth. If that's the case, then selling isn't as feasible an option. (Though a lender may agree to a short sale, where a home gets sold, a lender gets paid the proceeds, and the remaining mortgage balance is written off, even though it's never repaid.)
But because home values are up so broadly, a lot of people who were underwater on their mortgages at the start of the pandemic may be in a very different situation now.
Explore your options
If you're worried about affording your home once your forbearance period ends, don't stress -- you may have more options than you'd think. If you can't swing your mortgage payments in full but want to stay in your home, you can talk to your lender about modifying the terms of your home loan. In fact, the Consumer Financial Protection Bureau is implementing a new set of guidelines that will make it more difficult to initiate foreclosure proceedings after forbearance, so don't assume you're destined to lose your home if you don't want to sell it.
On the other hand, if you're not really attached to your home and don't mind a change, selling it after forbearance could be a smart financial move -- and one that's financially viable, even if that wasn't the case before.
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