Is your mortgage forbearance about to end?
Mortgage forbearance provided a lifeline for millions of homeowners during the most difficult months of the pandemic.
But with the end date for many forbearance plans rapidly approaching, homeowners will have to decide how to move forward.
Do you need to extend your COVID forbearance plan for another 3–6 months? Or are you ready to exit – and if so, what are your options? Here’s what you should know.
In this article (Skip to…)
Mortgage forbearance end dates
Under the CARES Act, homeowners with conventional, FHA, VA, or USDA loans could request an initial home loan forbearance for up to six months. They could also request a six–month extension, for up to one year of total forbearance.
“Forbearance plans are based on when you requested them,” explains David Shapiro, president and CEO of EquiFi Corporation.
That means homeowners who entered forbearance plans early in the coronavirus pandemic are likely nearing their forbearance end dates.
- Say you have a conventional mortgage loan
- You initially requested forbearance on September 1, 2020
- At the end of your six–month forbearance period, you requested a six–month extension
- Your current forbearance plan would be set to expire on September 1, 2021
Remember that when you exit forbearance, you’ll need a plan to make up the payments you missed during that period. Here are your options.
Options after your forbearance plan ends
If you’re ready to resume payments at the end of the forbearance period, be prepared for what happens next.
“Forbearance is not loan forgiveness. Borrowers will still owe the principal and interest that they didn’t pay during the forbearance period,” notes says Dongshin Kim, assistant professor of finance and real estate at Pepperdine Graziadio Business School.
“Borrowers will need to make both the regular mortgage payments and also all the payments they missed while the loan was in forbearance.”
You will typically have several options for repayment once forbearance expires:
- Full repayment, which is a one-time lump sum payment. It’s possible to pay back all the missed payments at once. But lenders are NOT allowed to require this. “If you are unable to pay the lump sum, you have other options,” says Jackie Boies, senior director of housing services at Money Management International
- Make intermittent payments, meaning you repay the missed amout over 3–12 months on top of your regular monthly mortgage payments
- Lengthen your loan term and pay off the missed amount at the end of the extended loan term, via additional mortgage payments
- Payment deferral. This option lets you pay off the missed amount when the home is sold or refinanced, or at the end of the loan term
- Pursue a loan modification. “This helps borrowers who are at risk of default change their mortgage terms – usually including a lower interest rate, reduced length of the loan, or reduced monthly payment,” adds Boies
A new mortgage relief plan from the Biden Administration allows modification of eligible VA, FHA, and USDA loans, reducing monthly payments by 20–25 percent. The Federal Housing Finance Agency has similar options for conforming loans.
The right option for you depends on your current finances, employment status, and ability to resume mortgage payments.
When you contact your loan servicer, be sure to discuss every option in detail so you know exactly what to expect with the repayment plan you select.
Expect delays when contacting your mortgage servicer
The experts warn that you should anticipate a few possible snags and setbacks post–forbearance, especially when it’s time to contact your loan servicer.
“Borrowers should expect very long delays and may experience inconsistency in customer support representatives,” cautions Shapiro.
“Loan servicing organizations are not all properly staffed for the expected volume of forbearances, and they can’t train support agents fast enough to meet their needs.
Even if you can’t get through on the first few contact attempts, don’t give up.
“Be patient, but be persistent. Mortgage servicers have struggled to keep up with calls during the COVID crisis, but many have made online options easy and added staffing,” says Boies.
Keep a close eye on your credit report and score
If your mortgage has been in forbearance, check your credit report carefully.
CARES Act rules state that mortgages in forbearance should not be reported as having late or missed payments. And the forbearance plan should not harm your credit score.
But this is another area where mistakes can happen.
“Sometimes there can be mistakes and issues with credit scores that can pop up around forbearance,” Kim says.
Remember, lenders and servicers have never before had to deal with mortgage forbearances on this scale. So it’s up to the borrower to be extra–vigilant and make sure nothing slips through the cracks.
Check your loan statements every month and stay on top of your credit report to make sure your score hasn’t been negatively impacted by forbearance.
Can I end my forbearance plan early?
You don’t have to wait for your six– or 12–month forbearance period to come to an end. Instead, you can opt to exit forbearance earlier than expected.
Just be prepared to pay back the amount you weren’t able to pay while forbearance was in place, cautions Kim.
“The best time to end forbearance is when the borrower is comfortable and able to make payments, including the additional money for repayments they owe,” Kim adds.
If you’re ready to end forbearance, contact your loan servicer and request this.
“But be sure your financial foundation is strong enough, meaning you have some type of emergency fund to back up your ability to pay your mortgage,” suggests Shapiro.
And, make sure you understand your options for repaying the missed amounts so you’re ready to discuss them with your servicer.
Refinancing after mortgage forbearance
Refinancing after you exit forbearance could be a smart move.
If you’re able to lock in a lower interest rate and monthly payment, it could make resuming your mortgage payments that much easier.
That goes double for homeowners who decide to repay their missed loan amount by adding a little extra to each monthly payment.
Typically, you won’t be able to refinance right away. But you might be able to do so after you’ve been making payments for a few months.
For most major loan types – including conventional, FHA, and USDA loans – you need to have made at least 3 consecutive payments after exiting forbearance in order to be refinance–eligible.
As long as you meet basic loan requirements, you shouldn’t have to wait longer than 3 months to refinance
Refinance waiting periods on FHA loans may be less than 3 months for some borrowers who qualify for a Streamline Refinance.
The VA loan program is even more lenient.
The VA doesn’t impose a specific waiting period to refinance after forbearance. It only says VA lenders must verify that the borrower has recovered from their financial hardship.
Keep in mind, refinance requirements will vary by lender.
If your current mortgage lender wants to impose a longer waiting period to refinance, shop around for a different lender that can help you refi sooner.
As long as you meet basic credit, income, and debt requirements, you shouldn’t have to wait longer than 3 months after your forbearance plan ends to refinance
Can I get a forbearance extension?
Six or 12 months of forbearance may have provided you a welcome buffer period to get back on solid financial ground. But many Americans are still experiencing financial hardship due to the pandemic.
The good news? Recent changes by Fannie Mae, Freddie Mac, and the federal government have given homeowners additional opportunities to extend their forbearance plans.
- Homeowners with conventional loans can request two additional 3–month extensions, for 18 months total loan forbearance. To be eligible, you need to have been in a COVID–19 forbearance plan prior to February 28, 2021
- Homeowners with government-backed loans (FHA, VA, USDA) can request two additional 3–month extensions, for up to 18 months total forbearance
Keep in mind that your mortgage loan servicer – the company you make payments to – still gets to make the final decision on your forbearance extension.
Different servicers have different requirements to qualify for mortgage forbearance, so you need to check with yours about options.
As always, help is only available if you ask for it.
Your mortgage forbearance will NOT be automatically extended. If you need an extension, you must call your servicer and request one.
How to request an extension
“Loan servicers are supposed to reach out to borrowers 30 days before the forbearance plan is scheduled to end to help them understand what options they have for repayment,” says Kim.
But you shouldn’t necessarily wait for your lender or servicer to contact you about this option.
“If you need to continue your forbearance, contact your mortgage servicer well ahead of your forbearance end date,” recommends Boies.
“You need to prepare for relief to end now. Do not wait until you get your statement to ask a lender for help. Instead, contact them now, let them know your financial situation, and see how they can help.”
Can I start a new mortgage forbearance right now?
Many homeowners began their forbearance plans early in the pandemic. But what if your finances are just now beginning to run thin? Can you request a new forbearance plan in 2021?
For the time being, the answer is yes – as long as your loan servicer agrees to it.
- Conventional loans – There is currently no deadline for requesting initial forbearance
- FHA and USDA loans – You can still request an initial six month forbearance “through the end of the COVID–19 National Emergency”
- VA loans – The deadline to request an initial forbearance was September 30, 2021. Talk to your loan servicer about current mortgage relief options
Keep in mind, forbearance is typically a ‘last resort’ solution for homeowners who don’t have other relief options.
Your first step should be to check whether you’re eligible to refinance into a loan with a more affordable monthly payment. If you can refinance and keep making mortgage payments each month, that’s ideal.
However, homeowners who are currently unemployed likely won’t be able to refinance, as this almost always requires income and employment verification.
If you’re unable to refinance, a forbearance plan might be the best path to mortgage relief. Your loan servicer will help you understand your options.
Can I buy a new house after forbearance?
Having a mortgage forbearance in your past shouldn’t stop you from buying a new home in the future.
Historically, lenders have had stricter requirements about getting a home purchase loan after forbearance. But that was before COVID.
Now, lenders and mortgage agencies understand that the pandemic forced large swaths of homeowners into forbearance – many of whom are otherwise perfectly creditworthy.
As a result, they’ve loosened up requirements to qualify for a new home purchase with a COVID–related forbearance in your past.
Rules are similar to those for refinancing. If you want to buy a new home with a conventional, FHA, or USDA loan, you need to have made at least 3 consecutive payments on your current loan after exiting forbearance.
Again, the Department of Veterans Affairs is most lenient here. It says “lenders should not use a CARES Act forbearance as a reason to deny a Veteran a VA–guaranteed loan.”
Rather, VA borrowers will need to explain the reason for their COVID forbearance and prove that they’re now on solid financial footing.
Of course, borrowers hoping to buy a home after forbearance will also need to meet basic requirements for credit score, down payment, debt–to–income ratio, and ongoing income/employment.
But, provided you meet these guidelines, lenders can’t deny you a home purchase loan just because you had a COVID–related forbearance in the past.
What if you still can’t afford your mortgage payments after forbearance?
The worst–case scenario: Forbearance ends and you still can’t pay your monthly mortgage. What can you do?
“You’ll probably need to consider disposition options,” says Boies.
“This may include selling your home if you can no longer afford it. Foreclosure, short sale, and deed–in–lieu are other ways of disposing of a home you can’t afford.”
Boies warns, “These options may be damaging to your credit and should be reserved until you’ve exhausted all other solutions.”
The bottom line
If your mortgage forbearance plan is nearing its end date, you have options.
As long as your initial forbearance was under the CARES Act, your loan servicer cannot ask you to repay all the missed payments at once.
Make sure you explore your options and find a repayment plan you’re comfortable with.
Conventional, FHA, VA, and USDA loans are also offering forbearance extensions until at least mid–2021. So if you’re not ready to resume payments, ask your loan servicer whether you qualify for an extension.
And remember that forbearance is never automatic.
Whether you need an extension or you’re ready to start making payments again, you need to talk to your loan servicer and make sure it’s on board with the plan.
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.