Refinancing After Mortgage Forbearance

Erik Sandstrom

Mortgage Expert - Call 1-619-379-8999
Staff member
Loan Safe Mortgage
Many people have encountered hardships during the pandemic, including homeowners. From lost jobs to tenants not paying rent I thought it would be wise to educate everyone on how to successfully complete a refinance after receiving a mortgage forbearance or forgiveness. As we have seen in the past from back in 2008-2012 the government steps in and helps people stay in their homes but it can hinder someone’s ability to take advantage of the lowest rates in history.

What is a forbearance? In this case a forbearance is when the mortgage servicer delays collecting either the full or a partial amount of the mortgage payment and puts the past due on the back of the loan. When you have paid off the mortgage (whether it be refinancing, selling or paying off the balance), the remaining forbearance amount will become due.

How do I refinance if I am in forbearance? (Conventional Guidelines ONLY, FHA, VA and USDA have their own guidelines). There are 3 different ways you can do it and if you have any questions about any of the methods mentioned below please don’t hesitate to reach out here: [email protected] or (619) 379-8999.

Option 1: Repayment or Deferral Plan – Once the forbearance is complete, borrowers must make 3 consecutive payments on time. Once the 4th payment is made, we can proceed to fund a new loan. You can however start the refinance process before you make all payments consecutively. This direction would be the most common direction I’ve seen taken.

Option 2: Reinstatement Plan – This direction is where the homeowner would take all of the past due payments and pay them back in a lump sum. Once the lump sum payment has been made, we are able to proceed with a new loan.

Option 3: Modification Plan – We are all very familiar with this here at LoanSafe. If the mortgage servicer grants a loan modification, typically you will need to make 3 payments on the modified amount before the full modification is granted. You can refinance once you successfully complete the trial period plan.

Fannie Mae has also come out with a plan to help homeowners that wouldn’t otherwise be able to get help. If you have a reduction in income and are having difficulty making the current mortgage payment due to a high interest rate, Fannie Mae is allowing debt-to-income ratios up to 65% if you have a loan currently backed by Fannie Mae. I have not seen any guidance come out for Freddie Mac as of yet, but I wouldn’t be surprised if they also follow suit.