Refinance After Forbearance
If you accepted mortgage forbearance in the past, it still may be possible to qualify for a new mortgage and refinance after forbearance. It may also be possible to purchase a new home today.
Some lenders may not approve your mortgage if you have had a forbearance in the past. This is all new for everyone and mortgage companies are still determining how to handle these situations. If you have been denied by another lender, then it still may be possible to get approved for a refinance after forbearance.
What is Mortgage Forbearance?
Mortgage forbearance is a provision under the CARES Act that will allow you to temporarily suspend or reduce your payments if you had financial hardship due to the pandemic. This applies to mortgages that are backed by the following:
- Fannie Mae
- Freddie Mac
Forbearance was initially granted for a time period of up to 180 days. However, in some instances, extensions of an additional 180 days was granted.
Qualifying for a Refinance After Forbearance
If you are applying for a mortgage after forbearance, you may find the requirements could be different depending upon which lender you speak to.
You may be required to do one of the following before getting approved for a new mortgage:
- Come out of forbearance and make at least one payment
- Come out of forbearance and make up to 3 on time payments
- Come out of forbearance and catch up on all of your missed payments
How do you know which of these will apply to you? It will depend upon whether you plan to refinance your current mortgage or sell your home and apply for a new mortgage to purchase your next home. It will also depend upon what type of mortgage you are applying for.
As an example, if you apply for an FHA refinance, the will require you to have caught up on all of your missed payments during forbearance. As a result, it is best to speak with a mortgage professional to get the correct answer for your specific situation.
You will be asked to meet the following conditions:
A. Many people lost their job during the pandemic. You must be back to work and provide pay stubs for the past 30 days. This means the usual 2 year work history requirement will be waived.
B. You will need to meet all of the requirements for the approval of your new mortgage. This includes but is not limited to your ability to document and meet the minimum income and asset requirements.
Can I Refinance After Forbearance?
You will have the ability to refinance your home if you are recently out of forbearance if you have made at least three on time mortgage payments. However, the requirements to refinance will vary based upon the type of loan you have an even based upon the lender who is currently holding your mortgage.
Most lenders will require you to be out of forbearance and have made at least 3 on time mortgage payments. You may hear from others that your prior unpaid balance needs to also be repaid. However, that is not always the case and will likely depend upon the lender you are speaking with.
If your current lender will not allow you to refinance, then give us a call or complete this refinance quote form and we will help you to refinance.
Home Equity Loan After Forbearance
Many homeowners were looking for a home equity loan after forbearance so they could use the funds to pay off other debt they accumulated during the forbearance period. The challenge is finding a lender who will approve the home equity loan while the prior mortgage is still outstanding.
Securing an approval for a home equity loan after forbearance may be more difficult than refinancing your current mortgage. We recommend looking into a cash out refinance instead. This will enable you to end the current mortgage that was impacted by the forbearance and start fresh with a new mortgage which would also include the additional funds you were looking to cash out.
Loan Modification After Forbearance
Entering into a mortgage forbearance program is essentially a loan modification. The lender has agreed to alter your terms in some way which may include adding the missed payments to the back end of your mortgage.
If you are looking for an additional type of modification, it is something you will need to speak to your current lender about. This may include a rate reduction, or even modifying the loan term from a 30 year to a 40 year fixed mortgage. Doing this would lower your monthly payments.
Fannie Mae Flex Modification
The Fannie Mae flex modification program is available to homeowners who have had permanent financial hardships with a certain impact on their ability to make future mortgage payments.
The homeowner will go through a trial period of modification. After the trial period, the mortgage will be modified to have a lower payment whether it be via an interest rate reduction or a term extension to 40 years.
Fannie Mae Forbearance Guidelines
The Fannie Mae Forbearance guidelines originally allowed mortgage forbearance (missed payments) for up to 180 days with the potential to extend the forbearance for up to a total of 18 months.
The mortgage servicer is not required to ask for a proof of hardship to grant the forbearance. This is an area of confusion for consumers as well as many in the industry.
Mortgage After Forbearance – Frequently Asked Questions
Does mortgage forbearance affect refinancing?
Mortgage forbearance does effect refinancing and you must be out of forbearance and have made at least 3 on time payments before a lender will allow you to refinance.
Should I accept mortgage forbearance?
Forbearance is something that should be avoided at all costs. On the surface, it seems like a way to just put off having to make mortgage payments. However, it will result in hardship when it comes to a future mortgage approval. If you are able to make your mortgage payments, then continue to do so without accepting forbearance.
What happens at the end of the forbearance?
The requirements when your forbearance ends will be decided by your lender. This is why you need to be absolutely sure of what this means for you and get it in writing. You will either owe all of the missed payments at the end of the forbearance period or you will have those payments added to the end of the mortgage.
Which lenders will approve my mortgage with a forbearance?
Most lenders will allow for you to get a mortgage after a forbearance, but their rules and stipulations may vary. If you had or are still in forbearance and would like to qualify for a mortgage, simply contact us so we can help.
Can I get foreclosed on of I accepted forbearance?
Lenders cannot foreclose on your home if you are still within the terms of your forbearance agreement. However, when forbearance ends you must begin making your payments again. If at that time you miss mortgage payments outside of the forbearance period, then the lender can foreclose on your home.
Other Helpful Articles
Homeowner Mortgage Forbearance – This article describes what your options are when your forbearance is ending.
How to Buy a Foreclosed Home – Experts predict there will be many foreclosures on the horizon with all of the people who accepted forbearance. This article described how to purchase one of those foreclosed homes in the future.