Can You Sell Your House While in Forbearance?

Navigating a home sale can be complex, and adding mortgage forbearance into the equation introduces additional considerations. Homeowners often wonder if selling their property is an option while participating in a forbearance program. It is generally possible to sell a house during forbearance, but the process requires careful attention to the specific terms of the forbearance agreement and clear communication with the mortgage servicer.

Preparing for Sale with Forbearance

Before selling a home in forbearance, homeowners must understand their financial standing. Forbearance allows temporary suspension or reduction of mortgage payments, but it does not erase the obligation to repay these missed amounts. The deferred payments, along with any accrued interest, are still owed and typically increase the total loan balance. This accumulated amount must eventually be repaid, which will impact the net proceeds from a home sale.

Homeowners should review their forbearance agreement documents to identify the specific terms of their arrangement. Mortgage servicers offer various repayment options for the deferred amounts, including a lump-sum payment, a repayment plan, or a payment deferral. A lump-sum payment means paying all missed amounts at once. A repayment plan adds a portion of the deferred balance to regular monthly payments over a set period. A payment deferral pushes missed payments to the end of the loan term, creating a balloon payment due at maturity, refinancing, or sale of the home.

Another option is a loan modification, which permanently changes the mortgage terms to make payments more affordable. This can involve extending the loan term or adjusting the interest rate, often incorporating missed payments into the new loan balance. It is crucial to contact the mortgage servicer to clarify the exact current total mortgage balance, including all accrued forbearance amounts. Obtaining this precise financial information is a necessary first step before listing the property.

Selling Your Home During Forbearance

Once homeowners understand their forbearance terms and total outstanding mortgage balance, they can proceed with selling their home. The general steps involved in selling a property, such as listing it with a real estate agent, marketing it to potential buyers, and receiving offers, remain largely the same. However, the presence of a forbearance agreement introduces specific additional steps that require careful coordination.

It is important to inform the mortgage servicer early in the sale process about the intent to sell the property. A payoff statement from the mortgage servicer is required for closing. This statement must detail the entire amount needed to satisfy the loan, including the original principal balance, accrued interest, and all deferred payments from the forbearance period. Without an accurate payoff statement, the closing process can face delays.

The homeowner, their real estate agent, and the title company or closing attorney must work closely with the mortgage servicer to ensure the full mortgage balance is accurately calculated and ready for payoff. This coordination helps prevent discrepancies that could arise if the loan servicer differs from the entity managing the forbearance agreement. The goal is to ensure that at closing, the funds from the sale are sufficient to cover the entire obligation, allowing for a smooth transfer of ownership.

Resolving Your Forbearance at Sale

At the point of sale, the proceeds from the home’s transaction are used to pay off the entire mortgage balance. This includes the original loan principal, any outstanding interest, and all accumulated amounts from the forbearance period. The closing process ensures that the mortgage is fully satisfied and the associated lien is released, transferring clear title to the new owner.

If the sale price exceeds the total amount owed on the mortgage, including the forbearance balance and closing costs, the homeowner receives the remaining equity. This allows the homeowner to exit the forbearance agreement and mortgage obligation, retaining any profit. Funds can then be used for future housing needs or other financial goals.

In situations where the sale price is less than the total amount owed, including the forbearance balance, the homeowner may face a potential deficiency. In such cases, a short sale might be considered, which involves the lender agreeing to accept a sale price less than the outstanding mortgage balance. A short sale is pursued to avoid foreclosure when a homeowner has insufficient equity and cannot cover the difference. However, a short sale requires the lender’s approval and does not always guarantee relief from remaining debt. The mortgage account is officially closed once the full amount is paid, whether through a traditional sale with sufficient equity or a lender-approved short sale.