We had a refinance set up and ready to submit to underwriting. This homeowner was set to lower his mortgage payment by $524 a month. Pretty hefty savings, for sure.
Then he called and asked me to put that refinance on hold, as on the conference call that morning he was informed he was furloughed. So it is on hold as he searches for the next position.
A common occurrence these days, for sure. Knowing that does not make it any easier when it happens to you.
It should be interesting, in a twisted sort of way, to see how the unemployment numbers come out on Friday. It will be a huge number, for sure.
And as a relief many lenders are offering a forbearance period on the mortgage for anyone affected by the virus and economic shutdown. So, if you find yourself in that position, should you take the forbearance?
Not if you can help it.
And the reason I say that is it is deferring the inevitable payments. Sort of like picking up some new furniture and being offered 90 days with no payments. All well and good, but the payment will need to be made, at some point.
Same with a mortgage. And the problem with many forbearance agreements is that you make no mortgage payment for 3 or 6 months…then the entire amount is due, 4 or 7 months, in one payment when the forbearance period ends.
Some mortgage servicers will spread those payments out of several months or a year. But those are several months with elevated mortgage payments when you are back to work. And, still others will do a loan modification, tacking the skipped payments onto the end of the loan, and stretching the term of the loan out longer.
That happened to a client whose home loan I helped set up. Then a hurricane powered through and caused some damage to his home. He was offered a 3 month mortgage forbearance as storm relief, and he gladly accepted.
Problem way, when he went to pick up and make payments again, the mortgage servicer counted him 90 days late and reported it as such to the credit bureaus. He fought it, and eventually it was corrected on his report and they modified his mortgage. But, what a hassle. He swore off accepted a forbearance every again. I don’t blame him. That’s a huge hassle.
I realize that some people will be in a tight spot and will have no option but to accept the forbearance. Finances just will not support otherwise.
Just be careful to not get in a bind. A lot of homeowners have a very large amount of equity in their homes. I would hate to see someone put that at risk because they cannot make the large balloon payment when the forbearance period ends.
Other Ways to Weather This Financial Storm
If you find yourself among the furloughed, the first thing is to cut any and all expenses that you can. Keep the powder dry, in case it lasts longer than you would have first imagined. And we all have those expenses that, really, can be cut.
A great idea is to call your utility companies and see if they have any assistance that they can offer. You never know until you try.
The upside: All of us are cutting out eating out (curbside is a big aid to the struggling restaurants), and driving as much. So, the silver lining of added savings.
Whereas I recommend making a mortgage forbearance a last resort, to protect your equity in your home, you might see if a credit card company or student loan servicer can help.
The Side Hustle
During downturns in the economy some of the greatest businesses are born. Did you know that Tollhouse Cookies was started in 1933?
If you have ever thought of starting your own gig, your side hustle; now might be the time. After the last recession, an entrepreneur started a dog-walking service that expanded into Rover.com which in 2016 was valued at $300 million.
So now could be a time to start something. The great thing about an economic downturn is that a lot of businesses need to start lean, the proverbial startup in the garage.
And that’s why I really love the community that has been built around software that I recommend to start your online business, called Clickfunnels. So if you want to reach an audience online, and not raise venture capital to do so, you really should read the Dotcom Secrets book. It goes into the strategy of attracting customers to your offer and generating traffic to your site. Oh, and the book is free! You just have to pay a little for shipping & handling, of course.
The strategies in the book work well for any business. I hope you check it out.
Breathe
Finally, take time to just breathe and be grateful for all that we do have. This will pass. And you may be in a better place, with a new skill set, when it does.
I have gotten in the habit of writing three things that I am grateful for every morning, early, while sipping coffee. It really sets the tone for the day. I would suggest it as well.
The best to you and your family during this trying, but fruitful time.
