When you serve in the military, life can change on a dime. You might be settled into your home one moment, your housing allowance comfortably meeting the mortgage payments, then in the next you receive orders for a permanent change of station. If your PCS orders affect your housing allowance and you can no longer afford your mortgage, the federal government has your back. You still signed a contract with your lender, however, and that won't just go away.
Your lender may or may not give you a hiatus from making your mortgage payments when you receive PCS orders. By law, however, it must adjust your interest rate to give you a little bit of a break. The Servicemembers Civil Relief Act requires lenders to drop the rate to no more than 6 percent when you're serving on active military duty. The law applies to both regular mortgages and those insured by the government. You must make notify your lender in writing that you want to take advantage of this break, and include a copy of your PCS order. If your lender wants to give you a break from your payments entirely while you're on active duty, it can, but no law requires this. Although the 6 percent rate is mandatory, some lenders voluntarily go lower. For example, Bank of America charges only 4 percent to military personnel covered by the SCRA. This includes anyone on active duty with the Navy, Army, Air Force, Coast Guard, Marines, and certain members of the National Guard.
The federal Home Affordable Modification Program is not limited to service members. Depending on your circumstances, you might be eligible for this help. Certain lenders participate, so contact yours to find out if you can adjust your payments long term, for the life of your loan and not just while you're on active duty. Even if your lender doesn't participate in HAMP, some banks are willing to work with service members, reducing your principal balance if your home is underwater, or extending your loan for a longer period of time to reduce the payments.
A worst case scenario might occur if you're already behind with your mortgage payments when you receive your PCS orders. If this is the case and a 6 percent interest rate doesn't help you catch up, the SCRA has your back under these circumstances as well. Its terms mandate that your lender cannot begin foreclosure proceedings against you without first taking you to court, even if your home is located in a state that doesn't require a court proceeding for foreclosure. In court, you must establish that you can't make your payments because of the terms of your military service. The court must put the proceedings on hold for up to nine months while you're on active duty. This grace period applies to both government-backed and conventional loans, and it covers PCS and active duty orders initiated through December 31, 2014. The court also has the option of ordering a reduction in your mortgage payments in an effort to help you catch up.
If you bought your home before June 30, 2012, Freddie Mac and Fannie Mae have special service member provisions for deficiency judgments. A deficiency judgment occurs if your home is foreclosed on and your lender subsequently sells it for less than what you owe on the mortgage. These lenders will not pursue you for the difference if you're actively serving in the military.
- National Military Family Association: What Options Are Available for Military Homeowners?
- U.S. Department of Housing and Urban Development: Questions and Answers for Reservists, Guardsman and Other Military Personnel
- U.S. Department of Housing and Urban Development: Questions and Answers Regarding the Servicemembers Civil Relief Act of 2003
- CBS Money Watch: Loan Modification Help for Military Servicemembers
- United States Department of Justice: Servicemembers Civil Relief Act (SCRA) Questions and Answers for Servicemembers (PDF)
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