If you lose your job through no fault of your own, you might be able to get help with your mortgage payments. You could be eligible for assistance from the government, your mortgage servicer (working on behalf of the lender), or both.
Some programs provide money to pay your monthly mortgage payments. Others let you stop making payments altogether for a set amount of time or modify your loan agreement to lower your monthly payments permanently.
Homeowner Assistance Fund Programs
In early 2021, President Joe Biden signed the American Rescue Plan Act into law. This law created a Homeowner Assistance Fund, a federal program that gave $10 billion to the states to help households that are behind on their mortgages and other housing-related expenses due to COVID-19.
Homeowner Assistance Fund Help Available
The 50 states and the District of Columbia set up various programs with their allocated funding to distribute the money and assist distressed homeowners. While the programs vary considerably in the types of help offered and amounts provided, they generally furnish money to:
- pay overdue mortgage payments, including principal and interest, so you can avoid a foreclosure (you might also qualify for money to pay future mortgage payments)
- reinstate a mortgage loan following a forbearance (see below)
- cover other home-related costs such as homeowners' insurance, property taxes, flood insurance, and mortgage insurance
- pay for utilities, like electric, gas, home energy, and water, and
- pay homeowners' association fees or liens, condominium owners' association fees, special assessments, or common charges.
Are Homeowner Assistance Fund Programs Still Open?
While many Homeowner Assistance Fund programs have distributed all of their allotted funding and aren't accepting new applications, some programs are still open. To find out if assistance is still available where you live, check with your state's housing agency. Also, the National Council of State Housing Agencies provides links to each state's program.
Your state might also offer a mortgage relief program to help borrowers facing foreclosure. Be sure to check with your state's housing agency to find out if any programs are available.
Forbearance: Temporarily Stop or Reduce Your Payments
If you have a temporary hardship, like losing your job, you might be able to get a forbearance. With a forbearance, your lender agrees to reduce or suspend your monthly payments for a set period.
Standard In-House Forbearance Agreements
Each forbearance agreement is unique to the borrower and the servicer. The length and structure of your forbearance agreement is based on your particular situation, and your servicer might be willing to extend the forbearance period if your hardship continues. However, with any forbearance, you will eventually have to pay back any missed payments, get current on your loan, and return to making your full payments.
To get current on the loan, you’ll have to pay the overdue principal, interest, taxes, and insurance, all of which continue to add up during the forbearance period. You can bring your loan current with a lump sum or by making partial payments in addition to your normal monthly payments. Or you might qualify for a loan modification or a payment deferral.
As you might imagine, getting current after a financial hardship can be difficult, so you should be careful to weigh all of your options before entering into a forbearance agreement.
Special Forbearances for FHA-Insured Loans
If you’re unemployed and the Federal Housing Administration (FHA) insures your loan, you might qualify for a "Special Forbearance." This type of agreement is also tailored for each borrower, but it offers relief that typical forbearances don't.
A Special Forbearance may last one year, but there's no maximum term limit. It may also be followed by a payment schedule based on the homeowner’s ability to pay or another option that will cure the default, rather than reverting to the original payments.
A Special Forbearance period can be significantly longer than the typical in-house forbearance period, and the additional possibility of the post-forbearance payment plan means that you’ll likely have a good chance of landing on your feet.
Modifying Your Loan: Permanently Lower Your Payments
If getting temporary assistance with your payments isn't enough to solve your mortgage payment problems, a loan modification might be your best bet because it permanently changes the terms of your loan.
A modification can:
- lower your interest rate
- convert a variable interest rate to a fixed rate
- add overdue payments to the loan balance, and
- extend the loan term so that your monthly payments will be affordable.
How Does the Loan Modification Application Process Work?
Getting a loan modification can be a difficult process because you might have to give your servicer a great deal of documentation about your financial situation. And, if you don’t submit all of your documents in a timely manner, some documents could be too old by the time the servicer reviews your application and you’ll have to start the whole process from the beginning. (Fortunately, some lenders offer streamlined modification programs, requiring a limited amount of paperwork.)
If your servicer evaluates your finances and agrees to modify your loan, you’ll typically have to complete a three-month trial period. The purpose of the trial period is to show you can afford the new payments before you can actually get a permanent modification.
To get a modification, you’ll have to show that your household has a steady stream of income and you can make payments under a modified loan. This requirement might be difficult to meet if you're unemployed. But if other members of your household work, you could still qualify.
In-House Modifications
There are lots of different kinds of loan modifications. Some modifications are in-house (called "proprietary"), meaning that each lender or servicer uses its own criteria when deciding whether to modify the loan. Certain lenders and servicers are more borrower-friendly than others.
Fannie Mae and Freddie Mac Loan Modifications
Many mortgages in the U.S. are owned or backed (guaranteed) by Fannie Mae or Freddie Mac, which are government-sponsored enterprises. Mortgages these entities own can qualify for Flex Modifications.
A Flex Modification can reduce your monthly payments by up to 20%, extend the loan term to 40 years, and even include a principal forbearance. (A “principal forbearance” is a portion of the unpaid balance that’s set aside, doesn’t accrue interest, and is due in a balloon payment when the loan term ends.) Also, the application process can be more straightforward and easier for borrowers.
Other types of modifications are also available for borrowers with Fannie Mae or Freddie Mac loans.
FHA and VA Loan Modification Programs
Various kinds of modifications are also available to borrowers with FHA-insured and VA-guaranteed loans.
Getting Help
For more information on the programs mentioned in this article or for general questions about how to get help with your mortgage or foreclosure, consider talking to a foreclosure attorney.
If you can’t afford an attorney, you can arrange a free consultation with a HUD-approved housing counselor by contacting the U.S. Department of Housing and Urban Development (HUD)'s Housing Counseling Program.