Can I Sell My House While In Forbearance? Everything To Know

For those facing financial hardship, mortgage forbearance can offer some much-needed relief. However, this relief is temporary. While looking for a more long-term solution, you may ask, "Can I sell my house while in forbearance?" Thankfully the answer is yes, but there are many factors to consider before you decide to sell. Read along to find out when selling a house while in forbearance is a good idea and when to look for alternative options.

What Is Forbearance In Real Estate?

Mortgage forbearance is when a lender allows a homeowner facing financial hardship to pause or reduce their mortgage payments temporarily. If you are facing an economic shock and can't afford to pay your mortgage, forbearance may be a great option. Forbearance does not erase what you owe, and you will still be obligated to pay off your mortgage in full, but it does give you time to repair your financial footing. A typical forbearance plan lasts 3 to 6 months, during which you can rebuild your finances before returning to your regular mortgage payments.

It's important to note that forbearance is different from foreclosure. Mortgage foreclosure is when a lender repossesses a property and evicts the former homeowner because they could not pay their mortgage payments. While foreclosure is involuntary for the former homeowner, forbearance is a voluntary agreement between the homeowner and the mortgage servicer. Your mortgage servicer is the entity you pay your monthly mortgage payments to and may or may not be the lender you originally got the loan from.

Can You Sell Your House While In Forbearance?

Yes, you can sell your house during forbearance. However, you are still responsible for repaying your home loan, so it's important to consider all your options for lowering your mortgage payment before listing your home for sale.

It's important to note that in most cases, forbearances and workout options will have a negative impact on your credit. The exception to this tends to be when the source of your financial difficulties is a natural disaster. However, it should be noted that the negative impact is less than what you would see in a foreclosure. You also have the possibility of staying in your home or having a more graceful exit.

What To Consider Before Selling A House While In Forbearance

Your home's equity is one of the most important factors to consider when considering selling your home while in forbearance. If you have equity, meaning the value of your home is greater than the amount you owe on the loan, you can sell your home and use the profits to cover the payments you missed while in forbearance. If you have an underwater mortgage, meaning you owe more on the loan than the home is worth, selling your home while in forbearance will be more difficult.

There are several options to sell your home while it is underwater. You could ask permission from your lender to sell the house for a lower amount than you owe on the mortgage, known as a short sale. You could also agree to a deed-in-lieu of foreclosure arrangement in which you agree to turn over your home ownership to the lender instead of going through foreclosure. Both options are preferable to the difficult foreclosure process but require approval from your lender to move forward.

Pros And Cons Of Selling A House While In Forbearance

Keep these pros and cons in mind while deciding whether to sell:

Pros

• You can avoid foreclosure.
• You can use the profit to cover missed payments during the forbearance period.
• You can move to a housing situation that fits your budget.

Cons

• Selling does not get you out of paying your missed mortgage payments.
• You may not be permitted to sell if your home is underwater.
• The home selling process may take several months, during which you may have to continue forbearance and add to the amount you owe at the time of sale.

Alternative Options To Selling Your House While In Forbearance

• Extend mortgage forbearance: If you are still in a rough spot financially after your forbearance period expires, you can reach out to your servicer to be reviewed for an extension.
• Refinance your mortgage: you may be able to get a lower mortgage rate or lower monthly payment if you refinance your mortgage.
• Loan modification: this is different from refinancing. A loan modification changes the details of your current mortgage, while a refinance creates an entirely new mortgage.
• Repayment plan: This is a plan you can work out with your lender to make up for the missed payments during forbearance. A repayment plan will involve a higher monthly payment for a certain period until you are caught up on your mortgage and can return to paying the standard rate.
• Deferral or partial claim: instead of repaying your missed payments over time, a deferral allows you to pay it off in a lump sum at the end of your loan or when you sell or refinance. A partial claim also enables you to make up for missed payments at the end of the loan, but you must apply for an interest-free loan from HUD.
• Reinstatement: This is a payment to your lender for the total amount past due, bringing you back to your regularly scheduled mortgage payment plan.

What To Know About Buying A House After Forbearance

Most importantly, forbearance will not negatively impact your credit score. If you were financially secure and held a good credit score before experiencing hardship, you could come out of forbearance with a credit score that could allow you to qualify for another loan.

However, depending on the type of loan you had in forbearance, the timeline for applying for another loan may be delayed. For example, if you had an FHA loan under forbearance, you are not eligible for another loan to purchase a home until you have completed your forbearance payment plan and completed 3 consecutive monthly payments after the forbearance period. It is essential to do your research to determine what types of loans you will be eligible for after forbearance.

The Bottom Line

Selling a house while in forbearance can be a savvy financial decision, especially if you have a lot of equity built up in your house. But don't worry if you're not in a position to sell. Plenty of alternatives to selling can get you back on your feet and on the way to financial stability. If you're ready to get your home on the market, connect with an agent and list with Rocket Homes^SM today!