Can I Sell My House While in Forbearance?

If your house is worth less than what you owe

If you owe more on your mortgage than your home’s current value, you have negative equity. Here are some options:

• Short sale: In a short sale, your lender agrees to let you sell the house for less than the remaining mortgage balance.
• Bring cash to the closing: Find or borrow the funds to cover the difference between the sale price and the mortgage balance to avoid a short sale.
• Deed in lieu of foreclosure: With this option, you voluntarily transfer ownership of the property to your lender to avoid foreclosure.
• Foreclosure: Most financial advisors will tell you that foreclosure should be considered a last resort, as it has significant long-term impacts on your credit.

Should I sell my house while in forbearance?

Deciding whether to sell your house while in forbearance depends on your financial situation, housing goals, and the current real estate market. If you’re struggling to catch up on payments or facing long-term financial challenges, selling could offer a way out of debt and help you avoid foreclosure. However, if you believe you can recover financially or your home’s value might increase soon, holding onto your property might be a better choice.

Carefully weigh the benefits and drawbacks below. Consider your equity position, the housing market conditions, and your future financial outlook. Transitioning to a new housing situation might offer relief, but it’s important to understand the potential trade-offs.

Benefits of selling a house while in forbearance

• You can avoid foreclosure: Selling your home can prevent the foreclosure process, protecting you from the significant financial and emotional toll that comes with losing your home.
• You can get out from under debt and move: By selling, you can pay off your mortgage, including missed payments, and potentially free yourself from a burdensome financial situation.
• You can find a more fitting housing situation: Selling might allow you to downsize or relocate to a home that better suits your current needs and financial situation.
• You can limit damage to your credit score: Selling before foreclosure can help maintain a healthier credit score, making it easier to qualify for future loans or rentals.
• You may have more control and more proceeds: By choosing to sell, you maintain control over the timing and terms of the sale. If your home has equity, you could walk away with proceed funds to help you transition to your next chapter.

Drawbacks of selling a house while in forbearance

• You’ll still need to pay missed payments: Even with a sale, any missed mortgage payments and associated fees must be covered, reducing your net proceeds.
• If underwater, you may not be able to sell: If your home’s value is less than your mortgage balance (underwater), selling might require lender approval for a short sale or coming up with cash to cover the gap.
• While trying to sell, your forbearance amount grows: During the selling process, the amount you owe in deferred payments continues to accumulate, potentially increasing your debt.
• Buyers may feel they have the upper hand: Knowledgeable buyers might perceive your situation as desperate, leading to lower offers or tougher negotiations.
• You may feel pressure to sell fast for less: The need to quickly resolve your financial situation could force you to accept a lower price than you might otherwise obtain.

It should also be noted that selling your home while in forbearance can make you ineligible for certain loan programs in the future, such as FHA or VA loans.

Forbearance and foreclosure resources

If you’re not yet in forbearance or foreclosure but facing financial hardship, here are some resources to help you explore additional options for keeping your home.

• HOPE Hotline: This HUD-approved national hotline and website offers 24/7 personalized housing counsel for homeowners. Call 888-995-4673 or visit  995hope.org.
• Borrower Help Center: This searchable site is maintained by Freddie Mac. You’ll have access to HUD-certified housing resources and counselors to assist you. Free phone assistance is also available by calling 877-300-4179 or through the regional Borrower Help Centers listed on the site.
• Consumer Financial Protection Bureau: Locate a HUD-certified housing counselor in your area by visiting consumerfinance.gov/find-a-housing-counselor. You’ll find advice on buying a home, renting, defaults, forbearances, foreclosures, and credit issues.

Steps to sell a house while in forbearance

Selling a house while in forbearance involves careful planning and clear communication with your lender. Here’s how to navigate the process:

Selling with an agent

1. Find a qualified real estate agent: Choose an agent experienced in handling sales involving forbearance or financial distress. They can guide you through the complexities and help you price your home competitively.

2. Communicate with your lender: Inform your lender about your intent to sell. They may have specific requirements or need to approve the sale if you’re in a short-sale situation.

3. Prepare your home for sale: Work with your agent to make necessary repairs and stage your home to attract buyers quickly.

4. Market your property: Your agent will list and market your home, targeting buyers who can close quickly, minimizing the time your debt continues to grow.

Selling with an all-cash offer

1. Find cash buyers: Seek out credible investors or established house-buying companies specializing in all-cash offers. These buyers typically purchase homes “as is,” reducing the need for repairs or negotiations. However, selling to a cash buyer means you’ll receive fewer proceeds than with an agent-assisted sale.

2. Review terms and sign an agreement: While cash buyers may offer less than market value, you’ll benefit from a faster, more streamlined sale process.

3. Close quickly: All-cash transactions often close within a week or two, helping you quickly resolve your forbearance status and avoid additional financial strain. Some house-buying groups can even close a deal in a matter of days.

Alternatives to selling a home while in forbearance

If selling isn’t the best option, consider these alternatives to manage your mortgage and financial situation:

• Extend your mortgage forbearance plan: If your financial hardship persists, request an extension from your lender to delay payments further and provide more time to recover.
• Set up a custom repayment plan: Work with your lender to design a repayment plan tailored to your current financial capabilities, spreading out missed payments over time.
• Request a loan modification: A loan modification adjusts the terms of your mortgage, potentially lowering your interest rate or extending the loan term to make payments more manageable.
• Refinance your mortgage: Refinancing can provide a lower interest rate or different loan terms, reducing monthly payments and helping you regain financial stability.
• Rent out your home: Turning your property into a rental can generate income to cover mortgage payments, allowing you to keep the home while addressing your financial challenges.
• Seek a deferral or partial claim: Some lenders offer deferral options, allowing missed payments to be added to the end of your loan or a partial claim that helps bring your loan current through a subordinate loan.
• Locate funds for reinstatement: If possible, gather funds to bring your mortgage up to date. This could come from a financial gift, selling another asset, or savings, helping you avoid selling the home entirely.

Partner with a top agent to sell while in forbearance

Selling a house while in forbearance can be a complex and anxious process, but a top real estate agent can help guide you every step of the way. From pricing your home correctly to navigating lender requirements, an experienced agent ensures a smoother transaction, helping you avoid foreclosure and move forward with confidence.

HomeLight can connect you with top-performing, trusted agents in your city. Our free tool analyzes over 27 million transactions and thousands of reviews to determine which agent is best for you based on your needs.

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