Can I Sell My House While in Forbearance?

Selling a home while navigating mortgage forbearance is generally possible for homeowners experiencing financial challenges. By understanding the nature of forbearance and planning strategically, sellers can often successfully transition out of their current home.

Understanding Forbearance Agreements

Mortgage forbearance is a temporary agreement between a homeowner and their lender that allows for a pause or reduction in mortgage payments due to financial hardship. This arrangement provides temporary relief, preventing immediate foreclosure actions. Its purpose is to help homeowners regain financial stability without losing their property, but it is not loan forgiveness; the deferred payments will still need to be repaid.

During a forbearance period, interest continues to accrue on the outstanding loan balance, even if payments are paused. While the immediate payment obligation is reduced or suspended, the total amount owed on the mortgage increases over time. Homeowners must work with their loan servicer to determine the length of the forbearance and establish a plan for repaying the deferred amounts once the period ends.

Repayment options for deferred amounts can vary, including a lump-sum payment, a repayment plan that spreads the missed payments over a set period, or a loan modification that adjusts the mortgage terms. Forbearance is intended for temporary financial problems, such as job loss, illness, or natural disaster, and is not a long-term solution for ongoing financial difficulties.

Selling Your House During Forbearance

Homeowners can sell their house while the mortgage is in forbearance. The forbearance agreement does not prevent a sale, but it does not eliminate the obligation to repay the missed payments. The mortgage loan, including any deferred amounts, must be fully paid off at the time of closing.

Upon the sale of the property, the proceeds are used to satisfy the outstanding mortgage balance. This includes the principal, any accrued interest, and all deferred payments from the forbearance. Effectively, the sale brings the forbearance agreement to an end as the loan obligation is fulfilled.

It is necessary to involve the mortgage lender in the selling process because they hold a lien on the property. The lender will provide a payoff statement detailing the total amount required to clear the loan, which includes the deferred forbearance amounts. Transparent communication with the lender helps ensure a smooth transaction.

Financial Considerations When Selling

Selling a home while in forbearance requires a thorough understanding of the financial implications, particularly how the deferred payments affect net proceeds. The total amount owed on the mortgage, including all missed payments and accrued interest from the forbearance, will be settled from the sale proceeds.

Home equity plays a significant role in determining the financial outcome of selling a home in forbearance. Equity is calculated by subtracting the total mortgage debt, including any deferred forbearance amounts, from the home’s current market value. If a homeowner has positive equity, the sale proceeds should be sufficient to cover the mortgage and deferred payments, with any remaining funds going to the seller. If the home’s value is less than the total amount owed, a short sale might be a consideration, which requires lender approval and can impact credit.

Beyond the mortgage payoff, sellers also incur other typical closing costs that further reduce their net proceeds. These can include real estate agent commissions, transfer taxes, title insurance, escrow fees, and prorated property taxes.

Preparing to Sell Your Home

The first step when preparing to sell a home in forbearance is to contact the mortgage servicer. This communication is crucial for obtaining an accurate payoff statement, which will detail the exact total amount needed to satisfy the loan, including all deferred payments and any associated fees. Understanding this figure is fundamental to assessing the feasibility of the sale.

Next, homeowners should assess their home’s current market value to understand their equity position. This can be done by consulting with an experienced real estate agent. An experienced agent can provide valuable insights into local market conditions and help price the home competitively.

Gathering all relevant mortgage documents and forbearance agreements is important. Having these records readily available streamlines the process of communicating with the lender and the real estate agent. This preparation helps ensure that all parties involved have the necessary information for a smooth and efficient transaction.