Can I Sell My House While in Forbearance? Everything You Need to Know

Key Takeaways

• You can sell your house during forbearance. However, you are still responsible for repaying your home loan.
• If the value of your home is greater than the amount you owe on the loan, you can sell your home and use the profits to cover the payments you missed while in forbearance.
• Refinance your mortgage: You may be able to get a lower mortgage rate or lower monthly payment if you refinance your mortgage.
• While foreclosure is involuntary for the former homeowner, forbearance is a voluntary agreement between the homeowner and the mortgage servicer.

For those facing financial hardship, mortgage forbearance can offer some much-needed relief. However, this relief is temporary. While looking for a more long-term solution, you may ask, “Can I sell my house while in forbearance?” 

Thankfully, the answer, whether you’re selling a house in San Diego or a condo in Cleveland, is yes. That said, there are many factors to consider before you decide to sell. Read along to find out when selling a house while in forbearance is a good idea and when to look for alternative options.

Can you sell your house while in forbearance?

Yes, you can sell your house during forbearance. However, you are still responsible for repaying your home loan, so it’s important to consider all your options for lowering your mortgage payment before listing your home for sale.

Consider your equity before selling a house while in forbearance

Your home’s equity is one of the most important factors to consider when considering selling your home while in forbearance. If you have equity, meaning the value of your home is greater than the amount you owe on the loan, you can sell your home and use the profits to cover the payments you missed while in forbearance. If you have an underwater mortgage, meaning you owe more on the loan than the home is worth, selling your home while in forbearance will be more difficult.

If you are underwater on your mortgage, there are two options to sell your home. Both options are preferable to the difficult foreclosure process but require approval from your lender to move forward.

• Short sale: You could ask permission from your lender to sell the house for a lower amount than you owe on the mortgage, known as a short sale. 
• Deed-in-lieu of foreclosure: You could also agree to a deed-in-lieu of foreclosure arrangement in which you agree to turn over your home ownership to the lender instead of going through foreclosure. 

Pros and cons of selling a house while in forbearance

Alternative options to selling your house while in forbearance

• Extend mortgage forbearance: If you are still in a rough spot financially after your forbearance period expires, you can reach out to your servicer to be reviewed for an extension.
• Refinance your mortgage: You may be able to get a lower mortgage rate or lower monthly payment if you refinance your mortgage.
• Loan modification: This is different from refinancing. A loan modification changes the details of your current mortgage, while a refinance creates an entirely new mortgage.
• Repayment plan: This is a plan you can work out with your lender to make up for the missed payments during forbearance. A repayment plan will involve a higher monthly payment for a certain period until you are caught up on your mortgage and can return to paying the standard rate.
• Deferral or partial claim: Instead of repaying your missed payments over time, a deferral allows you to pay them off in a lump sum at the end of your loan or when you sell or refinance. A partial claim also enables you to make up for missed payments at the end of the loan, but you must apply for an interest-free loan from HUD.
• Reinstatement: This is a payment to your lender for the total amount past due, bringing you back to your regularly scheduled mortgage payment plan.

Forbearance vs foreclosure

Mortgage forbearance is when a lender allows a homeowner facing financial hardship to pause or reduce their mortgage payments temporarily. Forbearance does not erase what you owe, and you will still be obligated to pay off your mortgage in full, but it does give you time to repair your financial footing. A typical forbearance plan lasts 3 to 6 months, during which you can rebuild your finances before returning to your regular mortgage payments.

Mortgage foreclosure is when a lender repossesses a property and evicts the former homeowner because they could not pay their mortgage payments. Your mortgage servicer is the entity you pay your monthly mortgage payments to and may or may not be the lender you originally got the loan from.

What to know about buying a house after forbearance

Most importantly, forbearance will not negatively impact your credit score. If you were financially secure and held a good credit score before experiencing hardship, you could come out of forbearance with a credit score that could allow you to qualify for another loan.

However, depending on the type of loan you had in forbearance, the timeline for applying for another loan may be delayed. For example, if you had an FHA loan under forbearance, you are not eligible for another loan to purchase a home until you have completed your forbearance payment plan and completed 3 consecutive monthly payments after the forbearance period. It is essential to do your research to determine what types of loans you will be eligible for after forbearance.

The bottom line of selling your house while you’re in forbearance

Selling a house while in forbearance can be a savvy financial decision, especially if you have a lot of equity built up in your house. But don’t worry if you’re not in a position to sell. Plenty of alternatives to selling can get you back on your feet and on the way to financial stability. If you’re ready to get your home on the market, connect with a real estate agent and list your home today!

Frequently asked questions: Selling a house in forbearance

Can I use a real estate agent, and will they understand my situation? 

Yes, you can and should use a real estate agent. Look for an agent experienced with distressed sales or foreclosure alternatives, as they’ll better understand the additional steps involved when selling during forbearance. They can help coordinate with your servicer and ensure all parties are informed throughout the process.

How long does it typically take to sell a house while in forbearance? 

The timeline can vary, but selling during forbearance may take longer than a typical sale due to additional coordination with your loan servicer. Plan for extra time to obtain payoff statements, coordinate with your servicer, and potentially navigate any additional requirements. Starting the process early is crucial, especially if your forbearance period is ending soon.

Will selling during forbearance affect my credit score? 

The sale itself won’t negatively impact your credit, and successfully paying off your mortgage through the sale proceeds should help your credit situation. However, if you were already behind on payments before entering forbearance, those missed payments may have already affected your credit score. Completing the sale and satisfying the mortgage obligation is generally better for your credit than other alternatives like foreclosure.

What documents will I need from my servicer to proceed with the sale? 

You’ll need a current payoff statement that includes all deferred payments, interest, and fees. Request an authorization to release payoff information to your title company or attorney. You may also need a letter confirming your forbearance status and any specific requirements for the sale. Get these documents early in the process as they can take time to obtain.

Can I negotiate with my servicer to reduce the amount I owe before selling? 

In some cases, servicers may be willing to negotiate, especially if you’re facing a potential short sale situation. This could include waiving certain fees or accepting a settlement amount. However, this typically requires demonstrating financial hardship and may involve a formal loss mitigation application process.

What happens if my forbearance period ends before I can complete the sale? 

If your forbearance expires during the selling process, contact your servicer immediately to discuss options. They may extend the forbearance, offer a loan modification, or work with you on other alternatives while the sale is pending. Don’t let the forbearance lapse without communication, as this could trigger foreclosure proceedings.

Are there tax implications when selling a house with deferred mortgage payments? 

Generally, paying off deferred mortgage payments at closing doesn’t create additional tax liability – you’re simply satisfying existing debt. However, if you negotiate any debt forgiveness with your servicer, that forgiven amount might be considered taxable income. Consult with a tax professional about your specific situation, especially if you’re doing a short sale.

Should I continue making payments during forbearance while trying to sell? 

This depends on your forbearance agreement terms. Some forbearance programs pause payments entirely, while others may require partial payments. Follow your specific agreement, but consider that making payments (if you can afford them) may give you more negotiating flexibility with your servicer and could improve your overall financial position.

How do I handle offers and counteroffers when the final payoff amount might change? 

Work with your real estate agent to include contingencies in purchase contracts that account for potential changes in your payoff amount due to accruing interest and fees. Request updated payoff statements regularly, and ensure your title company or closing attorney coordinates directly with your servicer to confirm final payoff amounts before closing.

If I receive multiple offers, can I choose the best one like in a normal sale? 

Yes, you can typically choose among offers just like any other sale, but consider factors beyond just price. Cash offers or those with shorter closing periods may be advantageous since they reduce the risk of your forbearance situation changing during a lengthy closing process. Your servicer isn’t typically involved in choosing which offer to accept.

Will potential buyers be concerned about purchasing a house from someone in forbearance? 

Most buyers won’t know about your forbearance status unless you disclose it, and it shouldn’t affect their ability to purchase the home. The forbearance is tied to your mortgage, not the property itself. However, ensure you can demonstrate a clear title transfer at closing. Working with an experienced real estate agent can help address any buyer concerns professionally and accurately.