Lender Forbearance Agreement
Lender Forbearance Agreement: What You Need to Know
A forbearance agreement is an agreement between a borrower and a lender that temporarily postpones the mortgage payments. Forbearance agreements are often used as a proactive way for lenders to help homeowners avoid foreclosure. During a forbearance period, the lender agrees not to initiate foreclosure proceedings as long as the borrower follows the agreed-upon payment plan.
Lender forbearance agreements have become increasingly popular during the COVID-19 pandemic as unemployment rates have risen, and many homeowners are struggling to make their mortgage payments. The CARES Act, passed in March 2020, provides homeowners with federally-backed mortgages the right to request forbearance for up to 180 days, with the option to extend for an additional 180 days.
A lender forbearance agreement is an essential tool that can help you avoid foreclosure and stay in your home. Here are some things you need to know about this type of agreement:
1. Forbearance is not forgiveness.
When you enter into a forbearance agreement, you are not forgiven for the unpaid mortgage payments. You will need to repay the missed payments in the future. Depending on the terms of your agreement, the missed payments may be added to the end of your loan term, or you may be required to make larger payments for a set amount of time to catch up on the missed payments.
2. Forbearance can affect your credit score.
Entering into a forbearance agreement can have an impact on your credit score. While a forbearance agreement itself does not show up on your credit report, missed mortgage payments do. Late payments can have a significant negative impact on your credit score.
3. Forbearance is not automatic.
You must request forbearance from your loan servicer. If you are facing financial hardship and are unable to make your mortgage payments, reach out to your loan servicer as soon as possible to discuss your options. You will need to provide documentation of your financial hardship to qualify for forbearance.
4. You can still sell your home during forbearance.
If you enter into a forbearance agreement, you can still sell your home, but you will need to repay the missed mortgage payments at the time of closing. Keep in mind that if you are unable to sell your home for enough money to pay off the mortgage, you may still face foreclosure.
In conclusion, a lender forbearance agreement can be a useful tool for homeowners facing financial hardship. However, it is essential to understand that forbearance is not forgiveness, and missed mortgage payments can have a negative impact on your credit score. If you are struggling to make your mortgage payments, reach out to your loan servicer as soon as possible to discuss your options.