Updated: Jul 31, 2020
Is the coronavirus crisis impacting your home and rental property? Are you having second thoughts about investing in real estate due to the possibility of not being able to make the payment? You’re not alone—Americans nationwide are struggling.
Whether your tenants can’t afford rent or you are having difficulties paying your own mortgage, there are options available to keep both landlords and renters from falling into debt. Both governments and lenders have announced ways they’re helping mortgage holders affected by COVID-19.
But first, let’s define mortgage relief and understand how it works.
What is Mortgage Relief?
Mortgage relief is the suspension of payments on a mortgage loan, often due to financial hardship experienced by a loan holder. In most cases, this relief is temporary. The debt doesn't go away. Instead, the lender doesn't collect loan payments during what's called a forbearance period.
You still owe the skipped payments—just at a future date. The lender won’t report you to a credit bureau, but typically they will continue charging interest on your unpaid debt.
Let’s say you’re unable to make your upcoming $1,000 payment. You contact your lender and explain the situation, and they agree to let you skip your next three monthly payments, totaling $3,000. These three months are your forbearance period.
Your mortgage debt’s still earning interest during the forbearance period, but you don’t have to pay for three months. You won’t lose your property and your credit score won’t go down.
This helps borrowers by allowing them to skip payments during times when they may not be working or are seeing their income decrease. It’s a short-term solution to a cash crunch. While this is a great tool to have available, it’s important to remember it’s not “free” money. You DO have to pay it back. The idea being you’ll pay it back when it’s more convenient for you.
Do I have a mortgage lender or a mortgage servicer?
It’s important to know the difference between a lender and a servicer. The lender is the institution that loaned you money to buy your property. A servicer is a company your lender hires to manage, or service, your loan. For instance, your lender might be Fannie Mae, but your servicer might be Flagstar Bank. Typically, you pay the servicer directly.
However, not all loans have a servicer. If your loan does have a servicer, you’ll contact them to discuss mortgage help. If your lender services your loan, you’ll reach out to your lender for assistance.
How can you apply for a Mortgage Relief Program?
Every lender or servicer is different—but the most important thing to know is that you should contact your lender when you think you need help. Do not wait until your payment is due or until you miss a mortgage payment.
Keep in mind that it may take more than one day for your lender to start your forbearance period. You may miss a payment if you wait until your due date to contact your lender—and missing a mortgage payment outside of your forbearance period can hurt your credit score. If you’re not in forbearance, your lender will report a missed payment to the credit bureaus.
No one wants a missed payment appearing in their credit history. But that’s especially true for real estate investors, who face stricter requirements when applying for loans to buy an investment property.
Many investors see the possibility of a recession as an opportunity to buy more real estate. A missed payment on a current mortgage can have an adverse effect on your ability to borrow more money for additional properties! Be smart, be responsible, and plan ahead.