The Mortgage Brothers Show
How to Purchase or Refinance While You’re in COVID Forbearance
One of the questions that are happening frequently in this COVID-19 environment is about “what happens if you have a mortgage and it is in forbearance?” In response to these financial hardships, the federal government has announced plans that offer relief to many homeowners who aren’t able to keep up with their mortgage payments. In this episode, we’ll share how forbearance influences conventional mortgages.
What if you want to purchase a new home, or refinance your existing mortgage while in forbearance?
We’ve had a couple of borrowers that have mentioned it upfront, and fortunately, we’ve had these answers for them. Other borrowers haven’t mentioned it upfront, and we get towards the very end of closing, and all of a sudden we do a credit supplement. We update our credit report. We notice, hey your mortgage balance went up more than just the normal amount of interest. It almost went up like two or three payments. What happened?
Their lender gave them permission to go into forbearance, and they took advantage of it. Why not? They call us, hopefully ahead of time that they are in forbearance. What do they need to do in order to do financing? Because they can’t get financing until certain requirements are made. There are two different situations we’re going to talk about, one being becoming reinstated after forbearance and the second being you’ve suffered hardship and cannot pay for reinstatement but instead need a payment plan
Becoming reinstated after the forbearance
You can decide, “You know what, that was great that we skipped those payments, but let’s go ahead and pay them now.” So you call the servicer, you find out what you owe over those three months, and you write a check, and you get reinstated, and your balance is brought to a current reinstated position. If you are in that bucket, then you can proceed with a new mortgage, no problem. There is a minor little asterisk that if you get reinstated after the loan application is taken, we might have to source those funds on where did you get that money to get reinstated? But, as long as you are reinstated prior to the application, then there shouldn’t be any sourcing.
Financial hardship and mortgage forbearance
The other situation is that you simply took the forbearance because you were in financial hardship. If you don’t have money to pay for it the first month or the second month, then why would you have enough money to pay for it in the end? You’re not able to reinstate, and you simply go to your servicer and you select one of the repayment plans. The lender ends up getting interest on it, but whether they push it towards the end, or you make higher monthly payments in the middle, that, we don’t have a good example for right now. But there are going to be repayment plans that you can sign up for.
Repayment plans and refinancing your existing mortgage
Assuming that you agree to their repayment plan, and you want to refinance, and you are just in the middle of forbearance or coming out of it. There’s actually a trial period that they want borrowers to go through which is you ask for forbearance for a reason likely, and the repayment plan that you agreed to. Lenders want to make sure that you are successful in making that new repayment plan.
The trial period is going to be over a month or two, then as long as you can successfully make that payment, which will likely be higher. They want to make sure that you are able to make that payment successfully. Once you’re able to complete that successful trial period, then you need to make three on-time mortgage payments. Once you do, and you’re able to satisfy the three on-time mortgage payments after, then you are able to go into a refinance.
Repayment plans or becoming reinstated?
It’s looking like with two months trial payments, and three months of on-time mortgage payments, that we’ll see five months of payments needed to get out of forbearance. Overall it sounds like it’s going to take a long time for people who are in repayment to get to where they can refinance or purchase. Going through the repayment thing is going to be a challenge for a lot of people. If you have the ability to do the lump sum to get reinstated, it is so worth it to just get paid up and current on your mortgage loan.