What to Do If You Chose Forbearance?
Simply defined, forbearance is when a lender agrees to let a borrower postpone payments until a later date. While the payments are not eliminated, they are required to be paid at the end of the forbearance period, spread over time, or added at the end of the loan. While forbearance is intended to temporarily assist borrowers in true need of cash flow during the COVID-19 pandemic, it has also caused some problems.
What Went Wrong
Offered in the $2.2 trillion stimulus bill or CARES Act that Congress passed in March, forbearance had some unintended consequences for borrowers. This included not allowing borrowers to refinance their loan or buy a new home for a period of twelve months if they went into forbearance. Consequently, this prevented borrowers from taking advantage of recent record lows in interest rates.
How It Is Being Resolved
Recently, the Federal Housing Finance Agency announced that Fannie Mae and Freddie Mac will now allow borrowers who went into COVID-19 forbearance to refinance their loan or buy a new home with the support of the GSEs (government sponsored enterprise mortgages) as long as they’ve made three straight months of payments after their forbearance ends or if they have not missed a payment while in forbearance.
What Does This Mean for You?
Depending on your situation, you now have more options on the table to consider if you decide to pursue refinancing or buying. Additional details released from Fannie Mae provide specific guidance on how borrowers who either requested and/or accepted forbearance may be eligible for a refi or new mortgage. Here are 3 different scenarios to look at.
- “I missed payments and entered into a mitigation solution.” Borrowers that are currently on a repayment plan, payment deferral, or loan modification are eligible for a refinance or purchase after three timely payments.
- “I missed payments but repaid the full amount.” There is no waiting period. You can move forward immediately with a refi or purchase.
- “I requested forbearance but continued to stay on top of my mortgage payments.” You are not tied to a waiting period, and it is ok to proceed with a refi or purchase.
- “Can I sell my home during forbearance?” Yes, homeowners in forbearance can sell their homes. The foreborn amount would become payable upon sale of your property.
Have questions about forbearance or any general mortgage questions? Please reach out to any of our Loan Officers to get the answers and guidance you need!
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