President Biden has a new plan to help homeowners avoid foreclosure
The national moratorium on foreclosure is set to be lifted in a few days, and mortgage waiver options – which allow homeowners to suspend payments due to hardship – are also beginning to expire.
Fortunately for borrowers who are still in tough times, the federal government is taking action.
Homeowners with government-supported mortgages – FHA, USDA, or VA loans – can modify their home loans, according to a White House release. This should reduce your monthly principal and interest payments by at least 20 to 25%.
Read on to learn more about how this mortgage relief option works and who is eligible for help.
This is how the new mortgage relief plan works
"Homeowners with government-supported mortgages who have been negatively affected by the pandemic are now receiving increased support, especially if they are looking for work, retraining, struggling to catch up on tax and insurance arrears or are still in distress for any other reason," the administration said .
The exact loan modification options available vary slightly depending on the loan program. Here is a brief breakdown of what they will look like for FHA, USDA, and VA borrowers.
FHA loan relief
With FHA loans, homeowners can cut their monthly capital and interest costs by 25 percent. These changes also include an extension of the loan term up to 360 months at the current market rate.
USDA loan relief
USDA borrowers can cut their monthly payments by 20 percent. To achieve this reduction, service providers can offer interest rate cuts, term extensions or a so-called “mortgage repayment advance” that helps borrowers to cover overdue mortgage payments (if any).
VA loan relief
VA borrowers can also see a 20 percent reduction in mortgage payment. In some cases, however, larger cuts may be possible. Servicers can also extend VA loan terms up to 480 months, or a total of 40 years.
Spreading the repayment over an extended period of up to 40 years could help further reduce a borrower's monthly mortgage payments. However, you will likely pay more total interest over the life of the loan.
Other borrowers have help too
Further relief options are available for troubled homeowners with conventional or compliant loans.
For example, earlier this year the Federal Housing Finance Agency (FHFA) announced a "flex modification" program designed for borrowers with loans owned by Fannie Mae and Freddie Mac.
The program offers borrowers a 20 percent reduction in their monthly capital and interest costs as well as term extensions of up to 40 years. According to the White House, these FHFA options were the basis for the newly announced aid programs from the FHA, USDA and VA.
"This brings the options for homeowners with mortgages backed by HUD, USDA and VA closer to the options for homeowners with mortgages backed by Fannie Mae and Freddie Mac," the government said in a statement.
How do you get mortgage relief?
To apply for any of these mortgage relief programs, you need to contact your loan service provider. This is the company you are sending your mortgage payments to.
Your servicer will usually not be the same lender you originally applied for (especially if you have a Fannie Mae or Freddie Mac owned loan). Not sure if you fall into this category? Use Fannie Mae and Freddie Mac's credit search tools to check this out.
In addition, you still have time to apply for a mortgage deferral if you have not already done so.
FHA, VA, and USDA borrowers can sign up for a deferral plan until September 30, while those with Fannie and Freddie owned loans have longer (there is no set expiration date). In both cases, the deferral is available for a total of up to 18 months.
One final way to lower your mortgage rates and payments is through mortgage refinancing.
Homeowners who are unemployed or struggling financially may not be eligible for refinancing, in which case a loan modification may be the only option.
But for those who qualify, a refinance is usually the first plan of action. You can check your eligibility for refinancing below.
Confirm your new plan (July 27, 2021)