Can You Sell Your Home While in Forbearance?

Mortgage forbearance offers a temporary reprieve for homeowners facing financial hardship, allowing them to pause or reduce their mortgage payments. Many homeowners in this situation wonder if selling their home is a viable option. It is possible to sell a home while in forbearance, though the process involves specific financial and procedural considerations. This article explains selling your home during forbearance.

Understanding Forbearance and Its Financial Impact

Forbearance defers mortgage payments, meaning payments are postponed, not forgiven. The homeowner remains obligated to repay all missed amounts. Lenders offer various ways to handle this deferred amount at the end of the forbearance period. One common method is requiring a lump sum repayment, where all missed payments become due at once. However, for many government-backed loans, lenders cannot require a lump sum payment.

Alternatively, a repayment plan might be established, allowing the homeowner to pay back the deferred amount over a set period by adding it to their regular monthly payments. Another option involves deferring the amount to the end of the loan term, where missed payments are added to the principal balance and become due when the loan matures, the home is sold, or refinanced. Loan modification is also possible, which can involve adjusting the loan terms, potentially lowering the monthly payment and adding the missed amounts to the total principal.

This deferred balance directly increases the total outstanding mortgage amount, which impacts the homeowner’s equity. Home equity is the difference between the home’s market value and the total amount owed on the mortgage. A larger outstanding debt due to deferred payments reduces the available equity, which can affect the net proceeds received from a sale.

Preparing Your Home for Sale While in Forbearance

Before listing your home for sale, gather specific financial information and assess your situation. The first step involves contacting your mortgage lender or loan servicer. This communication is crucial for understanding the exact terms of your forbearance agreement and how it impacts your mortgage balance.

You will need to obtain a current payoff statement from your lender. This statement should detail the total amount required to pay off the loan, including the original principal balance, any accrued interest, and the specific deferred forbearance amount. It is important to confirm with your lender how this deferred amount will be handled at closing, as some lenders may have specific requirements for selling while in forbearance.

Accurately assessing your home equity is also a preparatory step. This involves subtracting the total outstanding mortgage debt, which includes the deferred forbearance amount, from the estimated market value of your home. A real estate agent can assist in evaluating potential sale prices based on current market conditions.

Navigating the Sale and Closing Process

Once financial preparations are complete, the next phase involves listing the home and navigating the sale and closing process. The homeowner will work with a real estate agent to market the property and secure a buyer.

At the time of closing, the title company or closing agent plays a central role. They will obtain a final payoff amount directly from your mortgage lender. This final payoff figure will encompass the remaining principal balance of your original mortgage, any accrued interest, and all deferred payments from the forbearance period. The sales proceeds are then used to pay off this combined total directly to the lender.

If the sale proceeds are sufficient to cover the entire outstanding debt, including the deferred forbearance amount and all closing costs, the homeowner receives any remaining funds. If the sale proceeds are less than the total amount owed, the homeowner may need to bring additional funds to closing to cover the deficit or explore alternative options like a short sale, which requires lender approval. The buyer is unaffected by the seller’s forbearance status, as the mortgage and its associated deferred amounts are settled as part of the transaction.