Recently, you might have come across the term 'forbearance' more frequently than ever before in your homeownership journey. It's worth understanding what it means, its implications, and eligibility criteria. Let's unravel the details.
Forbearance Defined: This term refers to an arrangement with your mortgage servicer or lender where they permit you to temporarily suspend or lower your mortgage payments for a specified period. It's crucial to understand that forbearance doesn't cancel your debt. You are obligated to repay any reduced or missed payments once your income situation stabilizes. Your forbearance options may differ based on your loan type, the specifications of your loan owner or investor, and your servicer.
Eligibility for Federally Backed Mortgages: To avail protections under the CARES Act, your mortgage must be federally owned or backed by one of the following agencies:
- U.S. Department of Housing and Urban Development (HUD)
- U.S. Department of Agriculture
- Federal Housing Administration (FHA)
- U.S. Department of Veterans Affairs (VA)
- Fannie Mae
- Freddie Mac
During the granted forbearance period, which could extend up to 180 days, you will not accrue late fees nor will delinquencies be reported to credit reporting agencies.
Eligibility for Non-Federally Backed Mortgages: If your mortgage isn't federally backed, it's advisable to connect with your servicer. Numerous financial regulators have urged financial institutions to collaborate with borrowers during these challenging times. While forbearance may not be an option, your servicer should assist in exploring other suitable alternatives based on your financial situation.
How to Request Forbearance: As per the CARES Act, homeowners facing financial hardship due to the COVID-19 pandemic can request forbearance for up to 180 days. If financial strains persist beyond the initial period, you may request an additional 180-day extension. To request a forbearance, homeowners should contact their lender or loan servicer.
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