If you want you can sell your house while in forbearance. This can give you some funds for a new deposit, or it can clear the debt before you face foreclosure.
For people who are facing financial hardship, it can be difficult to keep up with the obligations of a mortgage repayment plan. Because of this, they might turn to mortgage forbearance.
This is a limited period where you can stop making repayments on your loan, without the risk of penalties from missed payments, like damaging your credit score. In many cases, the forbearance period will last for around 12 months. However, it’s important to note that this doesn’t mean that the loan has been forgiven.
During the forbearance period, there are a few options that you can explore to control the debt. This can include selling your home. You can do this with you house in forbearance. Here are some of the things that homeowners who want to sell need to know.
Factors to Consider Before You Sell Your Home
Though you can sell your house while in forbearance. In fact, some lenders might even encourage it, as it saves them the costs associated with a potential foreclosure. But it isn’t all good news. To decide if this is the right choice for you, here are some of the things that you should consider:
- Condition of the property. In many cases, you will need to spend a little money to get the house ready to sell. To make things simple, consider selling to an investor like Keystone Home Buyers and you won’t need to worry one bit about the condition of the home. We’ve seen it all.
- Length of the forbearance period. Forbearance is designed to give some time to recoup from financial hardship. If you are coming to the end of this period, and are still having money problems, you might want to consider selling, to pay back the loan.
- Amount of equity in the property. This will determine how much profit you’ll make from the sale. Don’t forget to factor in fees involved with the sale of the house, like closing costs.
- Property value. If you are thinking about selling, it’s best to consult a real estate agent. They’ll be able to give you a rough estimate of how much your home is worth.
You don’t have to decide whether to sell your house alone. You can talk over the decision with a financial advisor.
Selling For a Profit
When you are selling your home, this is the ideal scenario. It might be the best choice for owners who have built up a lot of equity. In this case, you will sell the home for more than it is worth.
You’ll then be able to pay back what you owe on your mortgage. The excess money will be yours, which you can use for a deposit on a new home.
Selling For a Loss
One of the most difficult issues you’ll have to confront when selling a home while in forbearance is that you still owe money on the property. Just because you no longer have to make mortgage payments doesn’t mean that the debt has vanished. Plus, the loan is still accruing interest. For example, you might sell your house for $175,000 while still owing $200,000 on the mortgage.
If you don’t earn enough from the sale to clear the mortgage repayment things can get complicated. There are a few options to explore. The first is a short sale. The second is a deed in lieu of sale. Both of these will clear the mortgage but will impact your credit score.
In this case, you will sell the house for less than what you paid on the mortgage. Before you can proceed, you’ll need to get the approval of the mortgage lender. In many cases, this will be viewed as an alternative to foreclosure.
Before you can make a short sale, there are a few things that the lender will want to check. For example, they’ll have to make sure that you sell the house for the current market value. Because of the expenses and complexity of the foreclosure process, many lenders will be open to a short sale.
If you get approval, you can make the sale. But you’ll need to be careful. In some states, there is a provision that allows the lender to require you to pay the difference between the sale price and mortgage balance. Because of this, you need to make sure that the lender waives the deficit.
Deed in Lieu of Sale
The other option to explore is a deed in lieu of sale. This is an arrangement between you and the lender. You will give them the deed to the house. They will take away your mortgage debt.
Usually, this is taken as a last resort, in order to avoid the foreclosure process. Some borrowers prefer this, as it allows them to reduce their embarrassment, as the deal can be kept behind closed doors.
Similar to the process taken for a short sale, you’ll need to seek the lender’s permission. Make sure that you make an agreement to waive the deficit.
Other Options to Consider
Sometimes, selling your home is the best option. You’ll be able to walk away and focus on restarting your life. But if you aren’t as happy about the situation, there are a few other options you can consider. These include:
- Modifying the Loan Agreement. Usually, this modification will allow the extension of the loan, while reducing your monthly mortgage payments.
- Refinancing. This lets you take out a new loan, with new terms to make managing repayments easier.
- Extending the forbearance period. Under the CARES Act, which was introduced during the Coronavirus pandemic, you can apply for 18 months of forbearance. This gives you plenty of time to address the hardship.
- Reinstatement. This is a useful option if facing foreclosure. You’ll be able to make the loan current, returning to making monthly repayments. The only issue is that this will require a lump sum payment.
Applying for a forbearance plan is a good option for people who are struggling to keep up with monthly payments on their home loans. It will give you a temporary break so you can recover. If you want you can sell your house while in forbearance. This can give you some funds for a new deposit, or it can clear the debt before you face foreclosure.