Many Americans are under financial stress due to Covid-19 and its effects on the economy. One piece of financial assistance the government has put in place to help homeowners is forbearance – the ability to temporarily suspend your mortgage payments (or car loans) during this unprecedented time. But, its complicated! And the rules have changed. So, we would like to share with you the latest information on this important topic. We have been schooled in these topics by Fred Marquez of Fairway Mortgage and appreciate his help in keeping our real estate team up to date.
What exactly is forbearance?
- Reduced or suspended Payments for 90-180 days with option to extend additional 180 days
- Forbearance is NOT payment forgiveness
- Best to pay as much as possible to minimize past due amounts
- Provided you are current on your payments prior to entering forbearance, negative credit bureau reporting and late fee assessment are suspended.
- Prior to the end of the forbearance period, hardship/financial status must be evaluated to determine next actions. Those next actions depend on the type of loan you have.
Conventional loans
The waiting period to be eligible for conventional financing on a new purchase is no longer 12 months. The waiting period was recently reduced to 3 months from successfully exiting the Forbearance plan. In many cases borrowers will be eligible for conventional financing for periods less than 3 months.
Government loans (VA, FHA and USDA)
Current government guidelines require consumers to have successfully exited Forbearance for a period of 12 months before being eligible for government financing on a new property.
Repayment Options:
Repayment options will need to be discussed between you and your lender.
- If your job is reinstated, can you repay your delinquent amounts and bring your loan current?
- Do you need to enter a re-payment plan to pay a portion of your delinquent amounts over a period of 12 months? (A repayment plan can protect your credit rating and waive late fees.)
- Do you need to review your financial situation with your lender to defer those delinquent payments and get back on track with current payments? (Those missed payments stay on your loan balance.)
- Do you need to modify your loan – refinance, extend your repayment period, etc. in order to stay in your house?
How does an auto loan forbearance affect my ability to finance a home?
Consumer auto loans in forbearance are being reported as delinquent on the credit report. This will impact the process of getting pre-approved for a loan. This is not a deal breaker, but delinquent auto loans must be brought back to current status.