Forbearance/pause in mortgage payments and risks

[xenon3030]

I am setting up a business and I am bootstrapping for a few months. I require 1-2 months to raise funding and place myself on payroll again (I have funding on 401k but if I want to borrow, it would result severe penalty). I would like to discuss to my mortgage lender to consider a 2 month forbearance or pause. Afterward, I would repay them in full or move the mortgage payments to the end of the loan term.

I talked briefly to my lender and they said that, first I need to deactivate the mortgage autopayment (1st of month) and do not proceed to the payment (there is a grace period of around 15 days). Afterward, on 1st of the upcoming month, call to discuss about the options to see whether I can qualify.

Does anyone have prior experiences or recommedaitons about the possible options? Can it risk for a potential financial flagging or foreclosure in future?

[GZG]

it'll likely be reported to your credit report, even if it's not reported as a 30 day derogatory,

which is what your lender seems like they want you to do? (dunno the rules about mortgage derogatory reporting vs. grace period)

and you'll pretty much be done with anything Amex as they'll cite it as a pretty strong denial reason

a low rate, no fee cash advance card would probably be ideal here or just use Plastiq or something similar for one of your cards 

[GreatLife]

About 10 years ago I called our mortgage company to only inquire about options to lower the interest rate. Next thing I knew the loan servicing was handed off to Bayview. We were instructed to sign some documents and not make any mortgage payments (can't recall but I think it was for 60 or 90 days). Then we eventually got notice of a revised FORTY year mortgage with higher monthly payments than our former mortgage that only remained for 20 years! Turned out a preforclosure action had been filed at the county courthouse - and that filing forever remains attached to our property records. I immediately paid the entire past due amount and refinanced into a 15 year loan with another company. Every missed payment was added onto our credit reports until aging off. We were fortunate to meet the requirements for an immediate refinance - property equity, money in the bank, and no debt except the mortgage. Please read & understand every word if you go this route. Also.. unless something has changed since then, the property has to be your primary residence. Bayview tried to have us sign documents with a pre-checked box NOT our primary residence, but I noticed and corrected before signing. I really think they wanted late payments and a reason to deny forbearance, then would force us into a property foreclosure.

[xenon3030]

So, it seems that the risk of such request is very high. It might be better to pay the mortgage with any possible method and absorb some charges (pull from 401k, Plastiq, etc), instead of receiving permanent penalties.

[ShanetheMortgageMan]

I wouldn't recommend this.  If you don't make your payment and contact them on the 1st of the following month you'd be 30 days late and it'd be reported on credit, damaging your credit scores.  Once/if they agree to the forbearance (which can be considered a type of loan modification) the mortgage history will continue to report the most recent MOP (manner of payment) for every month until the forbearance period ends, so if you were 30 days behind at the time the loan modification is approved you'll have 30 day late payment report until the modification period ends.  You might also not get approved for the loan modification and would be in jeopardy of going 60, 90, etc. days late.  Lastly, even if you are approved for the loan modification, the terms might not be exactly what you were hoping for.  It's a big risk.

[MauiMan85297]

Back in the COVID era, when you contacted your lender and mentioned a hardship due to COVID they automatically put you on a 6 month forbearance and usually went on longer than that and by law this couldn't be considered late/impact credit.  Being that your lender is asking you to stop the auto payment and talk to them around/prior to the first of that next month they're not looking to help you until you can show a hardship which is being late.  The grace period (until the 15th) just means that you're internally late not credit late- 29 days late isn't really showing a hardship and to pony off what @ShanetheMortgageMan said, they're looking for you to go 60+ days late to show your hardship before putting you in FB or even do a loan mod.

[Realist]

Did the forbearance thing for about a week or two literally, as a precaution to an undecisive situation.  It never became an issue so we unwinded it.  This was during Covid, so there was naturally an easy track for everyone to take using this strategy, and yet, it still presented a tiny issue in future endevours.  Not difficult to remedy, just annoyances simply because it was initiated.   Today, I don't think this is the case any longer.  I would be heavily concerned about setting up anything that results in missed or delayed mortgage payments.  If you have to go that route, you must keep your lender in the loop, and agreements made.  

So you mentioned a 401k loan wasn't an option.  Why not?  Since you mention you have one, I bet I could make a case as to why it could offer the perfect solution.  That is, if you have enough of a balance within it.

[xenon3030]

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@Realist wrote:

So you mentioned a 401k loan wasn't an option.  Why not?  Since you mention you have one, I bet I could make a case as to why it could offer the perfect solution.  That is, if you have enough of a balance within it.

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It is only possible to borrow from the 401k of "current employer" without tax penalty. When the loan gets started, its monthly payment gets deducted automatically from the paycheck.

When I left my former employer, I rolled over all my 401k to an IRA account. So, if I want to borrow from the IRA account, there would be tax penalty.