Introduction

Mortgage deferment and forbearance are two options for homeowners that help in temporarily lowering their monthly mortgage payments. The major difference between these two options is whether the interest accrues and the time for repayment. Here, we will be talking about the difference between mortgage deferment and forbearance. There are multiple aspects when it comes to these methods like payments, interest, etc.  

What’s the Difference Between Mortgage Deferment and Forbearance?

• Payment Assistance– In a mortgage deferment, the mortgage borrowers can delay past payments during the forbearance period. They can furthermore repay them at the end of the loan’s tenure. Here, as your mortgage payments are deferred, you are required to pay your monthly payments on time. Furthermore, forbearance pauses or reduces payments for homeowners suffering from financial hardships for a certain amount of time. Although the borrower has the option to make payments during the forbearance period, it’s not obligatory. In some cases, lenders may require the borrower to provide regular updates on their financial transactions during the forbearance period.
  
  
• Interest Accrual- In an interest accrual, the mortgage payments that have been deferred to the end of the loan’s tenure don’t accrue additional interest. Whereas, in forbearance, the interest accrues each month as scheduled.
  
  
• Repayment – Concerning repayment, in forbearance, you may have to catch up on the past payments post the forbearance period ends. Although, this depends solely on the loan and forbearance terms. For example, if your monthly payment structure is $1500 and you apply for 6 months of forbearance. You’ll owe $9000 towards the end of forbearance. Furthermore, deferment allows you to delay missed payments in case you sell your house or refinance.

What’s the Right Choice for You?

A deferment can be an ideal choice for you if you’ve come to the end of the forbearance period. You may benefit from deferment if you have just ended a period of forbearance. Also, if you are able to resume monthly payments but cannot afford to make up the payments missed during forbearance. This applies even to a repayment plan. Moreover, if you do not wish to permanently modify the loan terms you may be able to opt for deferment.

On the other hand, forbearance can be the right choice for one who is experiencing a brief period of financial hardship. This can be inclusive of job loss, illness, or any kind of disability. Here, you will have to provide proof stating the reason for the crisis. 

Additional Information

COVID-19 may affect your ability to repay the outstanding payments. Although, under the CARES Act, you are able to request forbearance without providing documentation. If your loan is backed by either of the departments given below. You must have been requested an initial forbearance by September 30, 2021.

The departments are as follows-

• Department of Housing and Urban Development (HUD)
• Federal Housing Administration (FHA)
• United States Department of Agriculture (USDA)
• Department of Veterans Affairs (VA)

Furthermore, Fannie Mae and Freddie Mac do not impose a deadline for asking for an initial forbearance on your loan. Borrowers with federally backed mortgages won’t have to make a lump-sum payment at the end of the forbearance. Considering the COVID-19 adversity. Additionally, these borrowers will be eligible to defer the pending payments for up to 12 months. 

The Bottom Line

According to the information above the conclusion is that forbearance provides momentary relief to homeowners suffering from the financial crisis. Although, at the end of the forbearance payments the monthly payments must be given in full. In such instances, homeowners may consider having deferment to postpone the one-time amount until the end of the loan’s tenure. Moreover, if you want to avoid the hassles and sell your house you can contact Elite Properties. We are a cash buying company which means we can help you sell your house fast for cash. Call us today at 718-977-5462 and sell your house in any condition and location.

Buying a house in foreclosure may save you a lot of money, but it’s not the only thing that these properties offer. Foreclosures can be an ideal option for investors who are looking to fix properties and sell them for better profits. Although, it’s vital to know that foreclosures come with drawbacks. If you’re considering buying a foreclosed property make sure to do thorough research. Scroll down to read our blog on ‘A Guide to Buying a House in Foreclosure.’

Types of Foreclosure Sale

There are five types of Foreclosure sales: 

1. Pre-Foreclosure

Property is in pre-foreclosure when the mortgage lender has notified the borrowers they are in default, but before the property is offered for sale at auction. If a homeowner can sell during this time, they may be able to avoid an actual foreclosure proceeding and its negative effect on their credit history and future prospects.

Pre-foreclosures are typically listed in county and city courthouse buildings. In addition, many online resources list properties that are in the pre-foreclosure phase.

2. Short Sales

A short sale happens when a lender agrees to accept less money for a property than what is still owed on its mortgage. Borrowers don’t necessarily have to be in default for a lender to agree to a short sale, but usually, the borrower does need to show some kind of financial hardship that would likely lead to default, like the loss of a job.

3. Sheriff’s Sale Auctions

A sheriff’s sale auction is held after the lender has given the borrower notice of default and a grace period to catch up on mortgage payments has passed. The purpose of the auction is to help lender recoup their losses quickly from a loan that is in default.

4. Bank-Owned Properties

If a property doesn’t sell at auction, it goes back to the bank and becomes an REO. Banks usually have a department that manages these properties. You can find these properties online on websites like Elite Properties.

5. Government-Owned Properties

If a home is purchased with a loan that is backed by the federal government, such as an FHA or VA loan, and then goes into foreclosure, the government will seize the property and hire a broker to sell it.

Buyers interested in purchasing a government-owned property must work with a registered broker. The U.S. Department of Housing and Urban Development (HUD) has a list of registered brokers on its website.

Causes for a Foreclosure

There are multiple reasons why homeowners fall into foreclosure. One of the most common reasons for foreclosure is a job loss or unemployment. Other reasons why people fall behind on mortgage payments include debts, marital issues, or illnesses. Also, homeowners during a foreclosure may fall into a low-to-moderate-income category that may cause trouble within the job.

As everything has its pros and cons, buying a foreclosure home is not left behind. Below are some pros and cons to consider when it comes to buying a foreclosed property.

Pros of Buying A Foreclosure House

1. Low Prices

The most prominent pro of buying a foreclosure home is its price. As the homes are priced below their market value they can be an easy catch for investors or buyers. Furthermore, foreclosures can offer a ton of savings. Sourced from the balance, according to the real estate data aggregator ATTOM Data Solutions the worth of a foreclosed property over the past five years has ranged from $93,000 to $166,000. 

2. Quick Closing Process

Comparatively, the average foreclosure process typically closes in 30 days as it’s a quick process. Although, till October 2020 the process took an average amount of 54 days from start to finish.

3. Investment Opportunities

A foreclosed property is a way to earn a good profit. Rehabilitating a house by doing a few adjustments can help in establishing a lot of value and gaining immediate equity. If you’re an investor who wants to flip the property for bigger returns then buying a foreclosure house is an ideal investment choice. With the right upgrades and improvements, you can gain a lot of value for an average home.

Cons of Buying A Foreclosure House

1. Multiple Repairs

As a foreclosure property requires selling as-is, this often relates to the that the property will need serious improvements. These houses need a lot of upgrades as the previous owner fails to maintain the house due to pricey repairs. Hence, if you are someone moving into a foreclosure property you will probably need to spend a lot of money on basic fixture improvements.

2. You May Not Get To View Or Inspect The House Before Buying The House

Foreclosure houses are sold on an as-is basis hence, there is hardly any chance for buyers to view the property. Additionally, you may not even get the chance to professionally inspect the property before submitting your bid. As these are some important points they can be deal breakers for many potential buyers. Also, you don’t have any access to the property before buying it. This means you can’t enter the property, and only look at the exteriors which are the windows and walls.

3. Competitive Market

Buying a foreclosure property comes with vying, there are several people looking to buy a property for cheap. The inventory can go out quickly as soon as the property is listed. Also, due to the pandemic where everything is online and people willingly avoid human interaction, the inventory goes out faster. The mortgage relief efforts during 2020 limited the amount of foreclosed homes hitting the market which created more competition.

4. It May Require a Huge Amount Of Cash

Keeping rehab costs aside, a buyer may require some upfront cash while buying a foreclosure home at an auction. Usually, at such events, buyers may have to bid in cash. Although, if you’re not bidding at such events for a foreclosure property and have good credit you may still bag financing.  

Monetary assistance for homebuyers

USDA Loan Program – 

There are two programs that the United States Department of Agriculture offers in order to help those with low or very low income who live in rural areas. The first program is called the Section 502 Direct Loan Program and the second is known as the 504. Both programs work to help these individuals obtain safe and decent homes.

The Section 502 program helps low-income or very low-income citizens pay for loans used to buy a modest residence in a rural area.

The Section 504 Single Family Repair program offers loans to very low-income people in rural areas who cannot get bank financing. Elderly people may be eligible for outright grants.

Veterans Administration Loan Program

The federal Veterans Administration has a mortgage guarantee program that is open to current service members, veterans, and surviving spouses. According to Military.com, the loans can be used to buy repossessed properties, although a bit of advance preparation is needed.

This program provides benefits that include zero down-payment loans, reduced closing costs, and a waiver of the mortgage insurance requirement to those who qualify.

Purchasing a Foreclosed Home

If you’re looking to purchase a property from a bank, it’s important to remember that you’ll need to be firm when it comes to negotiating prices. It never hurts to start low, especially if the bank has had the property for an extended period of time. In general, it’s a good idea to make an initial offer that’s at least 20% lower than the market price. However, this number could be higher depending on the location of the property, as areas with a high number of foreclosures often result in more favorable prices for buyers.

If you’re able to pay for the property and any necessary renovations completely with cash, you’re lucky. That’s why some buyers choose to team up with investors who can help finance the purchase and renovation, and in return, take a share of any profits when the home is eventually sold.

Bottom Line

When you consider buying a house in foreclosure it can result in potential savings. Although, it surely comes with a bunch of risks to deal with. Furthermore, if you think the home selling process will take a toll on your head, you may sell your house for cash. You can get in touch with Elite Properties. We are a cash buying company helping people to buy or sell houses. We buy houses as-is and offer hard cash in return. Call us today at 718-977-5462 to know more.