Consequences of Buying and Selling a Home Under Forebearance

I want to talk about a topic that is really starting to come to the forefront in the seller world – it’s when a home seller is trying selling a home and buying another and the tools I have at my disposal to help you with this.

Right now, a lot of folks are taking advantage of the CARES Act with deferrals and forbearances. Unfortunately, there are some really big unintended consequences with those programs that no one is talking about. The biggest one is the fact that if you as a seller or if you’re an agent and you’re listing someone’s home and they are in this program, when they go to sell their house, that will be fine. But when they turn around to buy another house, they’re not going to get a home loan.

This is a really big issue that needs to be addressed before you as a homeowner or as a listing agent take a listing to make sure that the homeowner can actually buy a home after selling theirs. I have a Sellers Advantage Program, which is really great. We start working with the sellers before they put their homes on the market, get them preapproved, and make sure there’s nothing to stop them once they sell to buying the next home. The last thing anyone wants to do is to be under contract and then find out they can’t even sell their home because they won’t be able to buy a new home after all. This is going to be the case until we get guidance from Fannie and Freddie on how they’re going to handle these deferral payments. Right now there is no guidance and therefore we have no way to do a loan because we have no information on how to process this.

So until this gets fixed, if you are a seller or a person who is interested in selling and you are in deferral or forbearance, you need to sit tight until things kind of settle down and we get some more information. And if you’re a listing agent looking at listing homes for folks that may be in deferral or forbearance, and they haven’t mentioned this to you, this is something you need to know as well. You don’t want to put your home seller in a predicament where they don’t have a place to go.

If you have questions, let me know.

The 2020 CARES Act – Forbearance

Here’s an update of something that’s come out from the CARES Act, which the government just created to help assist homeowners who have income that’s been really adversely affected by the Corona virus. One of the components is something called a “forbearance” and it’s not just in the CARES Act. It’s also in the fact that a lot of servicers are trying to be proactive and help people. What a forbearance means, and it is very often misinterpreted, is that you are temporarily halting the payment structure. It’s not stopping it permanently. It’s not eradicating it. It’s just temporarily doing it. And forbearance means that your payments will be stopped for a specific amount of time and it’s whatever you have agreed upon with your servicer or, if you’re going directly for some reason to Fannie Mae or Freddie Mac.

When you go into forbearance, let’s say you do a three-month forbearance, and your first payment’s due in April, right? Your first payments are due in April, May and June. So, your actual payments now are all due in July. So, if your monthly payments were $2000, $2000, $2000 – that’s $6000. Then, July – the fourth month – is $8000. You now have to pay $8,000 in July. That’s a forbearance. That is not the same as a deferment, which I’ll go over in a different video. But this is really important: forbearance is really, really important that you understand it and understand what you’re getting into. Because at the end of that four months or whatever your agreed upon time is if you cannot pay that back, you go to loan modification. Loan modifications are credit impacting and they can significantly impact your ability to borrow or buy for a long time. And I just want to make sure that you are getting the information you need.

Um, the CFPB actually has a great blog on this. Because it’s a lump sum repayment, then you might have to modify your loan. This may have no benefit for you. At the end of the day, do you want to have to modify your loan if you can’t make the payments? You need to think this through and also read the paperwork that is sent to you very carefully to make sure that what you understood on the phone is really what you’re signing. The other thing is, please don’t stop making your loan payments until you’ve gotten a fully executed document agreeing to the fact that you are going to go forbearance. You can’t just willy-nilly stop making your payments. It doesn’t work that way and you should never do that because that will hurt you and that will have a credit impact and a very negative one.

So, depending on your situation, you may also be able to still qualify for a refinance. And if you can, you may need to do some debt consolidation or maybe just get cash out to give you a cushion for a short time, in case you’re afraid you may lose your job later on. I can help you with that and I can also answer whatever questions you may have on the forbearance deferral piece of it. A lot of this is a moving target and as more information comes out, I’ll be doing more updated videos.

If you have questions, let me know.