Mortgage Relief Options

If you struggle to keep up with your mortgage payments while affording your other expenses, you are not alone. In February 2022, 3.2% of homeowners paying a mortgage were in some stage of delinquency. Even if you have managed to keep up with your payments but are finding it increasingly difficult, you may have relief options to ease the burden, including forbearance and refinancing.

When To Consider Mortgage Relief

The best time to consider mortgage relief is before you fall behind on your loans. If you are delinquent, you may still have options, but they are fewer. It is also a good idea to think about the choices available to you before you spend through any savings you might have or find yourself needing to make difficult choices for how best to allocate scarce funds.

Common reasons people find themselves struggling to make mortgage payments include:

  • Loss or reduction of income

  • Divorce or separation

  • Serious illness or injury

  • New baby

  • Children starting college or trade schools

Your situation and current financial health determine which options to alleviate this stress are available to you.

Forbearance for Mortgage Loans

Mortgage forbearance gives you a temporary break from paying your house payment. If you know you will be back on your feet quickly, this may be a possibility. With forbearance, your lender pauses or reduces your costs for a set period. You continue to accrue interest during this time, but you won’t pay any additional interest or incur other fees.

It is important to note that forbearance impacts your credit score. However, it keeps you in your home and has a far less adverse credit impact than foreclosure. Lenders would also rather you go this route than miss payments and risk foreclosure. When you ask for a forbearance, your servicer may require you to provide the following information:

  • Income information, including unemployment benefits if applicable

  • Monthly household expenses

  • Reason for requesting forbearance

  • Length of forbearance you are requesting

It is possible to get up to 180 days, but most lenders are more amenable to shorter forbearance lengths.

You must understand the terms of the agreement. Your lender may defer your missed payments, tacking them onto the end of your loan, or require you to pay all missed payments when your forbearance ends. This type of mortgage relief is available for both conventional and government-backed loans.

Relief Options for Government-Backed Mortgages

If your home loan is government-backed, refinancing may provide relief for your house payments. Eligible mortgages include those backed by Freddie Mac, Fannie Mae, the Federal Housing Authority, the U.S. Department of Agriculture and the U.S. Department of Veterans Affairs.

Freddie Mac Refinancing Programs for Mortgage Relief

Freddie Mac has two relevant refinance programs for homeowners seeking mortgage relief. However, the company’s Enhanced Relief Refinance Mortgage is on hold indefinitely. If Freddie Mac backs your loan, you still have one option available to you. A no cash-out refinance mortgage allows you to get a new loan on your home that pays off your existing mortgage.

The new mortgage may have a lower interest rate than your current loan, which is one way it lowers your monthly payment. Additionally, if your loan payoff is less than your original mortgage, you will be financing a lower amount, reducing your payment even further when you choose the same loan product you currently have. This program also allows you to roll closing costs into your new mortgage.

Fannie Mae Refinancing Programs for Mortgage Relief

Fannie Mae has two refinancing options. HomeReady is a limited cash-out mortgage. These loans are an option if your current mortgage is Fannie Mae-backed. You can have a loan-to-value ratio of as high as 95-97%, and the program allows high-balance loans. A HomeReady loan gives you the option of getting the higher of 2% of the loan value or $2,000 in cash back, which may help you stay on top of your other expenses during a financial rough patch.

In 2021, the company began its RefiNow program, which is intended to help those who don’t typically qualify for refinance loans. Your existing loan must be backed by the company and at least a year old. You can only get a fixed-rate mortgage through the RefiNow program. Cashback is limited to $250, and high-balance loans are not allowed.

FHA Refinancing Program

The FHA Streamline Refinance option offers quick relief if your current mortgage is FHA-insured. This program allows you to obtain a new loan at a lower interest rate, generally without getting an appraisal. To qualify, you can’t be delinquent on your existing mortgage, and you must demonstrate that you financially benefit from the lower loan payments.

A second FHA option is the FHA Simple Refinance. You won’t get approved as quickly for one of these loans. Like the Streamline program, there is no cash-out option with this type of loan. You must also meet debt-to-income and credit requirements, but these are more forgiving than conventional loan requirements.

USDA and VA Refinancing Programs

If you have a USDA or VA mortgage, your refinancing option is similar to the FHA program. Both departments offer streamlined refinance (though the VA calls its program the Interest Rate Reduction Refinance Loan). However, there are some differences.

The USDA does not have debt-to-income requirements or a credit review, but you do have to show that you paid your current mortgage on time for the past 12 months. The VA requires that you provide your Certificate of Eligibility and pay the VA funding fee, which can be rolled into your loan.

Relief Options for Conventional Loans

If you hold a conventional loan, you can only refinance if you have at least 10% equity in your home, with some lenders requiring as much as 20%. The government doesn’t insure these loans, so lenders tend to have more stringent DTI and credit score requirements. However, it’s worth checking with lenders to see if you qualify.

Mortgage and Finance Information When You Need It

Sorting through all the mortgage and finance information available online can be overwhelming. At FHA Insider, we want to make it easier for you to find what you need when you need it. Check out our resources to find the answers to your mortgage questions.