Can You Sell a House in Forbearance?

Mortgage forbearance offers a temporary solution for homeowners facing financial difficulties. It allows individuals to pause or reduce their monthly mortgage payments for a specified period. It provides relief during hardship, like job loss or illness, without immediately jeopardizing homeownership. Selling a house in forbearance is generally possible. This can help homeowners address financial obligations and avoid foreclosure.

Understanding Your Forbearance Agreement

Understanding a mortgage forbearance agreement’s specific terms is important for homeowners considering selling. Forbearance is a temporary relief measure, where payments are postponed or reduced, but the missed amounts are not forgiven. The agreement outlines how these deferred payments are to be repaid, which can vary significantly. Common repayment methods include a lump sum payment at the end of the forbearance period, a short-term repayment plan where extra amounts are added to future mortgage payments, or a deferral where the missed payments are added to the end of the loan term.

The type of loan a homeowner has can influence repayment options and requirements. Loans backed by government agencies like the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA) have specific guidelines. FHA and VA servicers cannot require a lump sum repayment immediately after forbearance ends. Instead, they may offer options like a “partial claim” or “deferral,” where the deferred amount becomes a non-interest-bearing lien payable when the home is sold or the mortgage is paid off.

Review the agreement to understand interest accrual during forbearance. While payments are paused, interest continues to accumulate, increasing the total amount owed. Knowing the forbearance duration and repayment structure is necessary before deciding to sell. This ensures awareness of financial obligations.

Steps to Selling Your Home

Communicate with your mortgage lender or loan servicer when planning to sell in forbearance. Inform them of your intent to sell and inquire about requirements for handling the deferred forbearance amount at closing. Lenders provide an accurate payoff statement, which must include the total outstanding mortgage balance and any accrued deferred forbearance amounts.

Work with a real estate agent experienced in sales involving forbearance or financial distress. Such an agent helps navigate sale complexities, including pricing strategies and lender communication. They ensure necessary forbearance paperwork is managed. Informing the agent about forbearance status allows effective coordination with title professionals for a smooth closing.

Listing the home, receiving offers, and entering into a contract remains similar to a standard sale. However, forbearance status necessitates careful coordination to meet lender requirements. At the time of closing, the deferred forbearance amount will be added to the total payoff amount for the mortgage. These combined funds are then paid directly from the proceeds of the home sale.

Financial Outcomes of the Sale

Upon selling a home in forbearance, the entire outstanding mortgage balance, including the deferred forbearance amount, is paid off from sale proceeds. This occurs at closing. Any fees or interest that accrued during the forbearance period are included in this final payoff.

If the sale price covers the full mortgage balance, deferred forbearance amount, and all associated closing costs, the homeowner retains any remaining funds as equity. This resolves the mortgage obligation and allows the homeowner to access accumulated home equity. Selling the home can manage the financial situation and avoid further complications.

If sale proceeds are insufficient to cover the outstanding mortgage and deferred forbearance amount, the transaction may proceed as a “short sale.” A short sale requires specific lender approval, as the property sells for less than owed. In such cases, the homeowner may still be responsible for the deficiency unless a specific agreement is reached. While forbearance itself, if properly managed and paid off, does not negatively impact a credit score, a short sale can have adverse effects on credit for an extended period.