Dealing With a Mortgage After a Natural Disaster

A natural disaster may have damaged or destroyed your home, but you still must pay your mortgage. Katherine Welles/Shutterstock

Besides physical and emotional loss, a natural disaster causes financial loss. Ongoing debts must still be paid despite the cost and effort of rebuilding. One of those debts may be a mortgage.

But if your workplace has been destroyed, too, you might not have any income. Even with income, if the house is gone or uninhabitable, you'll have additional living expenses. What happens to your mortgage? Do you still have to make your loan repayments?

You Must Pay Your Mortgage

The natural disaster may have damaged or destroyed your home, but you still must pay your mortgage. So it’s important you contact your mortgage servicer.

The servicer is the entity to whom you pay your mortgage. It isn’t necessarily the financial institution where you received the loan. That’s because mortgages are often sold to various companies.

If you don’t pay your mortgage, you will be in default and be subjected to potential foreclosure. This will harm your credit score for years.

Forbearance Agreement Postpones Mortgage Payments

If paying your mortgage is impossible, ask your servicer for a forbearance agreement. A forbearance agreement allows you to make partial payments or stop making payments for a specific time.

You could be allowed to stop payments for up to six months. And if you qualify, that could be extended for an additional six months. Interest will still accrue, but you won’t be charged any late fees.

The lender will require you to catch up on missed payments once the forbearance period ends.

You may not be able to contact your servicer to obtain a forbearance. The mortgage servicer is expected to reach out to you. This is the case whether your loan is guaranteed by Fannie Mae or Freddie Mac, insured by the Federal Housing Administration, or guaranteed by the Department of Veterans Affairs.

A forbearance may be issued even if the servicer cannot reach you.

Suppose you are already in foreclosure, and Freddie Mac owns your loan. In that case, your servicer can suspend foreclosure by providing forbearance on your mortgage for up to 12 months.

What Happens When Forbearance Ends?

Once the forbearance period ends, your mortgage servicer will work with you to determine the most appropriate option for repayment.

You may be asked to do a repayment plan. This is when you pay more each month on top of your existing mortgage payment.

Another option is a payment deferral. You will be able to add the missed payments to the end of the mortgage term without penalties or additional interest. For those facing a long-term financial hardship but can make a reduced mortgage payment, a modification may be the best option.

Discuss these options with your mortgage company one month before the forbearance ends.

Government Aid Available

Although there are a couple of programs in place, there is limited government aid available for natural disaster victims. Unfortunately, neither of these programs will directly help pay your mortgage. However, they may act to fill the gap that inadequate insurance leaves.

SBA Disaster-Related Loans

The Small Business Association (SBA) is in charge of providing disaster-related loans to individuals and families.

It offers favorable interest rates to repair or replace primary residences. The SBA will let you borrow up to $500,000 to cover construction costs. Those who have lost personal property, such as furniture or appliances, can borrow up to $100,000. This is particularly helpful for renters who are not insured.

In some cases, the SBA can refinance all or part of a previous mortgage. This occurs if the applicant doesn’t have credit available elsewhere and has suffered substantial disaster damage.

An SBA loan payment is deferred for the first 12 months, and there is no interest accrual for the first 12 months.

Contact the SBA’s Disaster Assistance Customer Service Center at 1-800-659-2955.

Will FEMA Help With Your Mortgage?

Unfortunately, the Federal Emergency Management Agency (FEMA) will not help pay your mortgage. Instead, it offers grants to fill in the gaps between the SBA loans and insurance payouts. You can receive help with numerous items.

The maximum amount of assistance you can receive from FEMA is $42,500. However, your eligible award is based on the damage observed during the FEMA inspection. These grants can be used for expenses such as home repairs not covered by insurance, temporary rent, and disaster-caused child and medical care.

What You Should Do Following a Natural Disaster

Before you do anything, ensure your family is safe.

Contact your homeowners insurance company if your house has been damaged or destroyed. If you have separate policies for flood or earthquake, contact those companies if applicable.

You’ll want to register with FEMA online or in person at a disaster recovery center. You can also call 800-621-3362.

If you have a mortgage, ensure you notify your mortgage servicer. This is especially important if you are not in a position to pay the monthly mortgage.

Mortgage Doesn’t End With a Natural Disaster

It’s imperative to continue paying your monthly mortgage, even after a natural disaster strikes. However, if you cannot pay it temporarily, notify your mortgage servicer and ask for a forbearance.

Ensure you register with FEMA for assistance. You may be able to qualify for funds that could help you rebuild.

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