Are you worried about your housing situation as a result of COVID-19? That is understandable, since it is more difficult to meet your monthly rent or mortgage payment if you have experienced a reduction in income or other financial stressors. Whether you rent or own a home, you don’t want to risk your housing. Here are some suggestions to help make ends meet, including a look at some protections designed to keep Americans in their homes.
Protections and Strategies for Renters
If you are renting, you may be concerned that your landlord will evict you for not paying rent. However, this is not so straightforward in the midst of a national emergency! The CARES Act included a moratorium on evictions for “covered property.” This moratorium is in effect for 120 days, which means tenants in a covered property cannot be evicted for failure to pay until July 25 at the earliest. According to the National Housing Law Project, a “covered property” is one that “(1) participates in a “covered housing program” as defined by the Violence Against Women Act (VAWA) (as amended through the 2013 reauthorization); (2) participates in the “rural housing voucher program under section 542 of the Housing Act of 1949”; (3) has a federally backed mortgage loan; or (4) has a federally backed multifamily mortgage loan.”
This legalese can be a bit confusing to decipher, so let’s break it down. If your housing is subsidized by the government, then you are in a covered property. If not, then whether you are covered will depend upon whether your landlord has a federally backed mortgage loan. If you live in one of these covered properties, you will be covered for the 120-day moratorium period. It is estimated that this moratorium covers about 25 percent of rental units.
If you live in a rental that is not covered (because you do not live in subsidized housing and your landlord does not have a federally backed mortgage loan), then you may still find temporary relief under state orders. Many states have issued broad moratoriums on all evictions for at least a brief period of time. The National Consumer Law Center has put together a list here, though be sure to check with your state for the latest information. Also, consider negotiating with your landlord. Many landlords may be willing to make arrangements with tenants in this unprecedented situation. They may allow you to make a payment plan to pay missed rent over the rest of your lease term, or enter some other arrangement.
Remember that we have so far just discussed the eviction moratoriums. These do not waive the requirement that you pay rent. Instead, a moratorium just means that, when applicable, you cannot be evicted for failing to pay rent. The rent will still be due eventually. Therefore, if you can afford rent you should strongly consider paying it to avoid getting behind later.
If you are having a hard time making the payment, then you need to create an emergency budget. This will help you prioritize your most important, “survival” expenses, like your rent. It will also reveal if your rent is too expensive, in which case you can look into other options. These might include moving to a cheaper apartment when your lease is up or bringing in a roommate. If these are not possible you will need to communicate with your landlord to find a creative solution, while also trying to free up some more money in your budget.
Protections and Strategies for Homeowners
If you own your home, the CARES Act may have provided some relief for you, too. As the CFPB explains, the CARES Act created two major forms of relief for homeowners with federally backed mortgages. First, it puts a moratorium on foreclosures for 60 days from March 18. Second, it provides a forbearance of up to 180 days and an extension of up to 180 more days.
The forbearance option is likely the most useful for most homeowners. There are a few things to keep in mind if you pursue this option. First, you have to contact your loan servicer to receive this benefit; forbearance will not happen automatically. As you can imagine, servicers are swamped with these requests right now. So, you should only seek forbearance if you absolutely need it, and you should be prepared for long wait times when you reach out to your servicer.
Also, remember that the CARES Act provides this benefit to homeowners with federally backed mortgages. This includes conventional loans backed by Fannie Mae and Freddie Mac, FHA loans, VA loans, and USDA loans. So, you will need to know what type of mortgage you have. Nerdwallet has put together a guide to verifying your mortgage type. If you do not have a federally backed mortgage, all hope is not lost. Many servicers are still offering forbearance to homeowners even when it is not required by law. You will want to contact your servicer to learn more about the accommodations they can offer.
If you enter forbearance, the most important thing to understand is how and when you will repay the missed payments. There has been significant confusion on this point, as some servicers are adding the missed payments to the end of the loan period (which would be most favorable to borrowers), and others are demanding a lump sum at the end of the forbearance period (less favorable). Be sure to understand the expectation before entering into an agreement. If a lump sum is due after the forbearance period, then you will need a plan to save for that lump sum, which may be difficult if you are already in a pinch. On the other hand, having the missed payments tacked on to the end of your loan would give you a long time to plan for those payments.
Like with renters who are in a pinch, you will want to have an emergency budget in place if you pursue forbearance. This will help you trim some unnecessary expenses so that you can meet your basic needs and save for a lump sum if your servicer requires it.
Remember that if you are not in a dire financial emergency, you will want to continue paying your housing costs. Skipping payments, even with approval from the government, your landlord, or your servicer, is really just deferring payment to a later date. This could create a future hardship, so it is better to make payments now if you can. That said, your situation may require that you miss rent or mortgage payments for a few months. Make sure you understand whether you are covered by the CARES Act. You will also want to communicate clearly with your landlord or servicer about the arrangements and expectations. And lastly, make sure you have a plan to catch up on what you owe.