DEFINITION OF FORBEARANCE
What Does Forbearance Agreement Mean?
It is a written document between a delinquent homeowner and a lender which lays forth a plan to reinstate a loan in default for more than 3 months and to avoid home foreclosure.
With the definition out of the way, let's look more closely at the option as it related to homeowners undergoing foreclosure.
A for bearance is used to assist homeowners in default through temporary financial difficulties only, such as unemployment or health issues. To initiate a forbearance document, the borrower must be in default usually 1-3 months, but this delinquency time frame acceptable for a the agreement may vary from lender to lender. If the lender considers the borrower for a for bearance, a complete assessment of the reason for the default will be the next step to determine if the for bearance will be granted. The borrower must be in a situation that he or she can recover from in a few months.
If approved, the lender will contact the homeowner to discuss payment arrangements. A common arrangement is the removal of interest from the monthly payment to lower the mortgage cost. The interest is either spread over the life of the loan or tacked onto the final installments.
A lender may also allow the homeowner to skip a payment or two by moving these skipped payments to the end of the loan. Bi-weekly payments are another option offered by lenders to spread out the cost of the mortgage over a 30-day period to make it more affordable.
All these changes are temporary and after this period is over, the homeowner must continue to make the usual monthly mortgage payments.
It's difficult to predict which solution a lender will be willing to offer because these agreements are based on individual cases and circumstances.
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