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Although entering mortgage forbearance may seem intimidating to homeowners experiencing unforeseen hardship, it is actually intended to be a lifeline in those precise circumstances. Knowing the fundamentals of this type of mortgage relief could help ease some of the anxiety. Here, we’ll cover essential forbearance questions.
What is mortgage forbearance?
In order to deal with a short-term crisis, such as a job loss, illness, or other financial setback, mortgage forbearance enables borrowers to postpone or reduce their mortgage payments. This can assist struggling borrowers prevent falling behind on their payments and prevent foreclosure.
Before you stop making payments, it’s imperative to speak with your lender or servicer, regardless of the reason you require forbearance. Learn the type of loan you have and the forbearance terms from your lender or servicer. Making payments no longer before you’ve been granted forbearance formally could result in you falling behind on your mortgage and have a detrimental effect on your credit history.
How COVID-19 affected mortgage forbearance
Numerous borrowers now have more options for mortgage forbearance thanks to COVID-19 and its economic effects. The federal government’s initial pandemic relief plan, known as the CARES Act, included assistance for homeowners with government-backed mortgages, such as those for VA, USDA, and FHA loans as well as Fannie Mae and Freddie Mac mortgages. These protections have since expired.
Mortgage forbearance vs. loan modification
For those who are having financial difficulties, mortgage forbearance is a temporary solution. In contrast, a loan modification permanently modifies the terms of the original mortgage. A modification does not excuse you from making payments; rather, it aids in reducing them to a level that is more manageable, whether through a reduction in the amount owed overall, a reduction in the interest rate, an extension of the repayment period, or a combination of these. To get a modification approved, you might need to show proof of hardship.
You have a few choices if your mortgage forbearance period is about to expire:
Pros and cons of mortgage forbearance
- Is this a full payment deferral or do I have to pay interest or escrow advances during this time?
- Is the loan maturity date being extended?
- Will the lender recoup the deferred via a balloon payment at loan maturity, a postponed maturity date, or another catch-up strategy?
You cannot simply stop making payments because a mortgage forbearance is not automatic; otherwise, your credit score will suffer, and you risk defaulting on your mortgage or losing your home. Keep in touch with your mortgage lender or servicer to go over your options, whether you’re looking to forbear payments for the first time, need an extension, or are nearing the end of your deferred payment period.
Can I buy a new house after forbearance?
Generally speaking, if you’ve finished your forbearance plan, you might be qualified to refinance or buy a home in the following three to six months.
Does forbearance affect you negatively?
Mortgage forbearance does not appear on your credit report as a negative activity; even though you are no longer making payments, your lender or servicer will still list you as current on your loan.
Does student loan forbearance affect getting a new mortgage?
If you’re trying to get approved for a home mortgage loan, student loan forbearance is not the best option. You must use 1% of the student loan balance when determining your debt to income ratio if your student loans are forbeared or deferred.
Can I get an FHA loan after forbearance?
A borrower who was given permission to defer mortgage payments “is eligible for a new FHA insured mortgage” when one of the following circumstances occurs, per the FHA official website: The borrower continued to make regularly scheduled payments, and the mortgage Forbearance Plan has been terminated.