Can I get a new mortgage loan after a COVID related mortgage forbearance?
Yes, homeowners who have been granted forbearance from making full payments because of the COVID-19 crisis may still be able to refinance or buy a new home when the crisis ends.
When a borrower experiences significant reduction in income due to either a Presidentially Declared major disaster, or some other hardship including the COVID-19 National Emergency that may prevent them from making the required mortgage payment, servicers may offer the borrower a Mortgage Payment Forbearance Plan as one of the Home Retention Options to avoid foreclosure.
Forbearance Plans are arrangements between a Lender and Borrower that may allow for a period of reduced or suspended payments and may provide specific terms for repayment.
Lenders recognizes the adverse impacts of such extenuating circumstances on families ability to recover and resume meeting their financial obligations and that, upon successful completion of the Forbearance, there may be the need and the opportunity for the borrower to refinance the existing mortgage to a lower interest rate, thereby lowering the monthly mortgage payment, or to a shorter term.
Conventional Fannie Mae / Freddie Mac Loans
Homeowners who have been granted forbearance from making full payments on their Fannie Mae or Freddie Mac backed loans during the COVID-19 crisis may still be able to refinance or buy a new home when the crisis ends.
The Federal Housing Finance Agency (FHFA) has announced that Fannie Mae and Freddie Mac will permit people to obtain a new mortgage under the following conditions.
If you entered into a mortgage forbearance because of COVID-19 here are your options:
- You entered into a Covid-19 forbearance with your servicer (lender) BUT continued to make all your payments AND are current on your mortgage – the borrower is eligible for a new refinance loan or purchase loan immediately. Borrower must call their servicer and provide proof that the forbearance plan is removed
- You entered into a Covid-19 forbearance with your servicer (lender) AND chose not to make their payments– then you can contact your servicer and pay your mortgage current AND remove the forbearance plan. You would then immediately eligible for a refinance or purchase loan. Note you do NOT have to prove where the money came from to get current)
- You entered into a Covid-19 forbearance plan with your servicer (lender) AND chose NOT to make their payments. You have not yet paid back the missed payments, and will need time to pay back the missed payments. You will need to enter into some sort of pay back plan to pay back missed payments. You will have to make at least 3 consecutive monthly payment in your pay back plan, after which you would then be allowed to do a new refinance or purchase loan. You will need to provide proof of the payment plan and proof you've made at least three consecutive payments on the plan.
FHA Mortgage Loan Guidelines After Forbearance
Generally, a borrower who was granted Mortgage Payment Forbearance is eligible for a new FHA insured mortgage provided:
- The borrower continued to make regularly scheduled payments, AND the Forbearance Plan is terminated, or
- For Cash-Out refinances, the borrower has completed the Forbearance Plan and made at least 12 consecutive monthly payments post forbearance; or
- For Purchase and No Cash-Out refinances, the borrower has completed the Forbearance Plan and made at least three consecutive monthly payments post forbearance; or
- For Credit Qualifying Streamline refinance, the borrower has completed the Forbearance Plan and made less than three consecutive monthly payments post forbearance; and
- For all Streamline refinance transactions, the borrower has made at least six payments on the FHA-insured mortgage being refinanced (where the FHA insured Mortgage has been modified after forbearance, the Borrower must have made at least six payments under the Modification).
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