In the wake of COVID-19, millions of homeowners have gone into mortgage forbearance.
That’s a staggering number, and the statistic underscores how much the pandemic has impacted the ability to make monthly payments.
Forbearance means you pause or reduce your mortgage payment for a limited period of time. You will have to repay the deferred amount in the future. Forbearance does not equal forgiveness.
Every loan servicer has their own rules and guidelines. For example, homeowners may have to pay a lump some at the end of the forbearance period. It’s critical you read the fine print and obtain everything in writing so there are no misunderstandings.
Speaking of fine print, we see new updates almost daily on forbearances and repayments from agencies like the Federal Housing Finance Agency (FHFA), Fannie Mae, Freddie Mac, Housing and Urban Development (HUD) and the mortgage servicers themselves.
For example, you may have access to flexible repayment options if you are in forbearance.
FHFA writes that the “payment deferral option allows borrowers, who are able to return to making their normal monthly mortgage payment, the ability to repay their missed payments at the time the home is sold, refinanced, or at maturity.”
That means you may not need to repay the amount you owe for months or even years.
For more information about what options may be available to you, contact your mortgage servicer directly.
Many homeowners also wonder, “Will forbearance impact my credit score?”
Forbearance likely won’t interfere with your credit score, but it may impact your ability to refinance or buy a home in the future. That’s because when you enter into forbearance, you tell the creditor you experienced financial hardship.
To buy or refinance as it stands in current agency (i.e Fannie Mae or Freddie Mac) mortgage guidelines, you will need to be current on your payments and have made 3 on-time monthly payments once forbearance comes to an end. The repayment plan will have to be worked out with your mortgage servicer.
The COVID-19 pandemic has also prompted an increase in mortgage documentation and requirements.
You now need to show continuity of employment and income (in other words, that you are still employed and receive a stable salary). In addition, you may be required to have more funds in reserve. The purpose is to show mortgage servicers you are prepared for the unexpected.
It is important to note that new updates impact the housing market every day. All of us — including loan servicers, loan officers and real estate professionals — do their best to understand the latest regulations and then operate within the new reality.
Yes, it’s still a great time to buy a home. But you need to be prepared with the proper documentation and ready to give your mortgage lender everything requested in a timely fashion.
Shikma Rubin is a loan officer at Tidewater Home Funding in Chesapeake (NMLS #1114873). She enjoys the chance to lead workshops and webinars on how to buy a home in 2020. Have mortgage questions? You can reach her at srubin@tidewaterhomefunding.com or 757-490-4726.