Financial burdens that steam from the coronavirus pandemic have millions of Americans up at night wondering how they are going to support themselves and their families. Over the last four weeks, 22 million Americans filed for unemployment, which is a staggering number to think about. Then there are others who still have their jobs but are facing a cut in their hours which is making it difficult to cover all their bills.
There’s been some relief with people starting to receive their $1,200 stimulus checks, forbearance on student loans, and more. But the cost of living is basically the same as it was. People are having to choose what bills get paid and which will have to wait.
Housing is usually the largest expense that a person must cover. 37 percent of the average American’s budget goes towards housing when the optimal amount is 30 percent or less. So what do you do if you can’t cover your monthly rent or mortgage payment?
You have to have a game plan to avoid the possibility of future problems. Here’s everything you need to know if you can’t make your mortgage or rent payment. It’s broken down by whether you’re a homeowner or renter, so it’s more specific to your situation.
Are You a Homeowner?
Homeowners borrow money to pay for their home over 15 to 30 years. They receive this money from a mortgage lender, bank, or credit union. If you own your home and are in a position where you can’t pay your mortgage, your first step is contacting them as soon as possible.
Get in Contact with Your Mortgage Lender
The right thing to do in this situation is to get in touch before you fall behind. Contact your loan servicer directly to start a conversation about what payment options they may have. Your mortgage holder may have special resources because of COVID-19 such as special waivers that you may be eligible for.
They are also under obligations according to your mortgage contract to work with you if you are experiencing financial hardship. A lender who isn’t willing to provide some alternatives could be reported to the Consumer Financial Protection Bureau or your state’s attorney general office.
Get In Contact with Your Bank or Credit Union to Seek Assistance
Many banks and credit unions are also offering hardship programs for borrowers who are having trouble due to the pandemic. Once again, the most important thing that you can do in this case is to talk to them before your mortgage is due.
There are coronavirus response pages on many bank and credit union websites that outline what programs they have available. If you need to know more, give them a call and discuss their programs in more detail. You will likely have to apply to take advantage of any program that they offer.
In cases where your bank or credit union doesn’t have a program that would work, look at other options. This could include looking into personal loan options which could allow you to make payments while you get back on your feet. Interest rates on loans are low and they might be able to work with you given your circumstance.
If You Have to, Put Your Loan in Forbearance
If you have exhausted all your options, then you may opt for a forbearance. This is a hardship option which allows you to delay your mortgage payments. Ask your bank or credit union what options that have which allow you to postpone your payments due to hardship circumstances.
Your mortgage loan will still accrue interest while your payments are delayed. This option is not ideal since that means you will end up owing more money over time since that interest continues to accumulate during this forbearance period. Your lender should be able to tell you the terms they can provide for your specific situation.
Are You a Renter?
Renters can get into a complicated situation if the right steps aren’t’ taken to minimize their negative repercussions of being unable to pay their rent. If you live with roommates who have lost their job, you’re still generally responsible for the full rental amount. If you built up a bad reputation up to this point of paying late or owing rent, you can find it difficult to find landlords willing to rent their property to you.
One thing that you shouldn’t do at all is to pay your rent with a check that you know will bounce. A check that bounces is the same as not paying rent at all. Late fee policies on rental agreements generally cover a bounced check. It may also be grounds for your tenancy to be terminated.
Bounced checks are charged generally between $10 and $20 by a bank. Your landlord may also have the legal right to charge you a reasonable amount for a bounced check.
If you take some responsible actions once you know that you will be late on your rent, it can work in your favor. Evicting a renter is time-consuming and costly so landlords can be forgiving even outside of the CORVID-19 situation about working with you.
Contact Your Landlord
Getting in touch with your landlord about your situation may seem intimidating at first. But they appreciate it when you communicate with them about what’s going on instead of leaving them in the dark.
Don’t ignore the problem and think that your landlord might not notice since they have other tenants to track. Your check covers their mortgage payment and a bank isn’t going to simply allow them to pay them late.
Give Your Landlord Notice
Letting your landlord know as soon as possible that you are going to be late will go a long way. Giving them as much lead time as possible will make them more willing to work with you.
Tenants that don’t make their payment without any word tend to cause more problems. It causes unnecessary time spent on tracking down the payment and stress that negatively affects the tenant-landlord relationship.
A landlord can move their money around to accommodate other expenses while waiting for the payment to be made. They may also offer to work with you on a payment plan.
Work Out a Payment Plan If Needed
Being up-front with your landlord will make them more likely to work out a payment plan that works for both of you. If you’ve been a good tenant up to this point, ask about making a partial or delayed rent payment. Here are some negotiation tips to prepare you for this conversation:
- Put in writing your request and give as much advance notice as possible
- Be sure to explain your situation and that this is only a temporary setback
- Pay as much of the rent as you can afford
- Emphasize that this problem shouldn’t happen again and your rent will be paid on time moving forward
- Provide written assurance of your plan to pay the rent by a specific date in full; Make certain that this promise is kept
Your landlord may charge you a late fee if they have a policy regarding late fees. Be prepared to pay it if it comes up. If you have been on time with your payments in the past, ask if they would consider waiving it this time.
If you run into a situation where your landlord is unwilling to work out a payment plan, consider other options like a short-term loan. Banks and credit unions may have loans that could offer a solution during this difficult time.
What is a Government Eviction Moratorium?
The federal government issued a 120-day moratorium on evictions that apply to property that was purchased with a federally backed mortgage loan or part of federally subsidized housing. This was part of the CARES Act which includes housing that’s financed by Freddie Mac, Fannie Mae, or the Federal Housing Administration.
This actually applies to roughly one in four rental units in the United States. The majority of rental properties are financed by private lenders such as banks. Tenants generally don’t know if their rental unit was purchased through a federally financed mortgage. A lease agreement doesn’t contain this information.
Fortunately, there are at least 34 states which have issued their own eviction moratoriums. These moratoriums range from altogether banning evictions during this time or only for tenants who have been diagnosed with COVID-19.
It is best to check your state on whether they are mandating a moratorium and what the specific details are. For example, you may only be eligible due to the coronavirus, you’re experiencing a financial issue and may need to write your landlord within a certain number of days before the rent is due with an explanation.
Does This Mean You Can Skip Your Payments?
Despite these various eviction moratoriums on the federal and state level, there’s no order that is taking away the responsibility of paying rent from tenants. This means that you will still have to pay your rent eventually.
You are protected against being evicted which prevents your landlord from proceeding with an eviction or suing you for nonpayment during this time. The responsibility of paying your rent at some point or to work out a payment plan rests on the renter. It’s important to note that it is expected that a renter repays what they owe in a reasonable amount of time.
Do Landlords Have Any Relief?
Most landlords have a mortgage on their rental properties and are required to make their monthly payments. They may have a difficult time keeping up with their bills when they have several tenants who have lost their jobs in this pandemic and are falling behind.
This is how COVID-19 could lead to a snowball effect in the rental market. The landlords who have federally backed loans may find some relief by getting a break on their payments while they have tenants who can’t pay.
Private lenders such as banks have been encouraged to suspend foreclosures on rental properties and mortgage payments. However, there is no legislation that is mandating that these lenders abide.
There are financial institutions that are flexible given the circumstances and offering financial assistance. Just as there are homeowners who can’t pay their mortgage because they lost their job, there are landlords who can’t pay theirs because their tenants are in the same situation.
The coronavirus pandemic has brought about a situation that no one could have predicted. While there is a lot of uncertainty about how it will affect us economically in the long-term, we have to focus on what’s in front of us now.
If you have been affected financially by COVID-19 and can’t pay your mortgage or rent, you’re not alone. People and businesses have been understanding about these challenges. Be as proactive as you can to notify your mortgage lender or landlord that you can’t pay for your housing this month. Together you can figure out a plan that’s a win-win for both parties.