If your company initiates layoffs because of the COVID-19 pandemic, you have options.
The first thing you should know is that President Trump recently enacted the CARES act which rewards federally-backed mortgage lenders who offer no-fault assistance to homeowners who lose their income as a result of the novel coronavirus. This help is available whether or not you have equity in your home, and the help can come in many forms. The following two are the most notable options:
As of March 18th, federally-backed lenders were directed to stop foreclosure proceedings for a minimum of 60 days. So, if you’re in a financial bind, you have a safe haven for at least two months. However, if your mortgage payments were already late as of December 31st, 2019, you will not be eligible for this protection.
Private lenders are not required to follow the restrictions set forth by the new CARES Act, but many are choosing to do so. Business Insider offers this comprehensive list of banks who are offering mortgage relief during the pandemic: https://www.businessinsider.com/personal-finance/banks-help-with-mortgage-payments-coronavirus-2020-4?op=1. If your bank doesn’t appear on the list, it’s worth visiting their website or giving them a call. As of this writing, the above list was updated on April 14th, so your bank may have decided to join the relief efforts after that date.
The second option is forebearance. Forebearance allows borrowers to pause or defer payments for up to 180 days and, in some cases, provides an extension for an additional 180 days with no negative impact on their credit score.
The tricky thing to remember with forebearance is this: it’s not a loan forgiveness program. You’ll still have to make up any payments you miss, and how the bank requires you to do that may not be as much help as it seems. Here’s how it will work:
Your bank may allow you to defer up to 90 days of mortgage payments. If you’re approved for deferral, a lump sum payment could become due as early as the end of the 90 day deferral period. Imagine deferring three months of payments at $3000 per month, then having to produce those funds on top of your next monthly installment in month four. That’s $12,000 you’ll have to produce immediately following a period where you couldn’t produce $3,000. That’s something to think about.
Final balloon payment
Another deferral option is to move your missed payments to the end of your loan. This type of program doesn’t extend your loan term, so you’ll have to make up the balance before your final payment is due. The bank will likely structure this as a balloon payment payable in the month your loan term ends or, if you sell your house, pull it from your sale proceeds on the date you close. Only you can decide if producing six to twelve months of deferred payments at once is something you want to do.
There may be other options that more closely meet your needs, so ask your lender what’s right for you.
Once the COVID situation starts to die down, unemployment—and its associated mortgage problems—will begin to bubble to the top of the national conversation. If you’re confident that you can land another job equal to or better than your last job, you’ll be farther ahead than most other people. In that case, the above options may be perfect for you.
But what if they’re not? Maybe you’re not confident you’ll be able to find equivalent work nearby. Or maybe you did find work, but at a substantially lower pay grade.
If you were forced to take a lower paying job after losing yours to COVID-19, and if you have equity in your home, you may be able to refinance to lower your monthly payment. But if it becomes necessary to look outside the Bay Area for the next chapter of your life, you may have to sell your home.
If the latter is the case, don’t worry! Even with social distancing and shelter in place orders firmly in place, it’s still possible to show your home and sell it to a qualified buyer. Here’s some great information on How to Sell Your Home During a Shelter in Place Order, and I’m always here to answer your questions or help you navigate the new way of buying and selling real estate in the Bay Area.
For professional help selling your home, call me.