As a reaction to the pandemic, many solutions were put in place to help US citizens that were subject to changes in finances. One such solution was to allow homeowners to apply for forbearance for their mortgage, pausing mortgage payments until they found more financial stability.
These forbearance programs help many people to keep their heads above water but since you are not making any mortgage payments while in forbearance, it renders you unable to refinance a mortgage during this period, except in very few circumstances.
So, what are those circumstances, and can you take advantage of them?
What is forbearance?
Forbearance enables you to suspend or reduce your mortgage payments for a defined period, which depends on your lender and your mortgage type. This provides you with temporary respite from your full mortgage payments, but you will still need to make the payments that were missed after your forbearance period.
Mortgage forbearance can be a good solution if you are unsure about your financial situation in the immediate future, such as unemployment or reduced income, but it may not be such a good idea if you are looking to refinance your mortgage or move home soon.
Can you refinance a mortgage in forbearance?
If you are in forbearance and want to refinance your mortgage you will need to end your forbearance period first, as the majority of the lenders in the US do not allow you to refinance while still in forbearance.
If your mortgage is backed by Fannie Mae or Freddie Mac, as most conventional mortgages are, you will be able to refinance your mortgage after your forbearance period once you have made 3 consecutive payments.
Forbearances authorized under the Coronavirus Aid, Relief and Economic Security (CARES) Act did not affect your credit score, however, forbearances outside of this Act will typically impact your credit score greatly.
If you went into forbearance during the CARES Act there is a chance that you will have the option to refinance during this period, but you will need to be able to maintain your payments, which essentially counteracts the need for forbearance.
It’s also possible to refinance during forbearance if you are doing a full documentation VA refinance and made 6 consecutive payments before you entered forbearance. (Your loan must also be older than 212 days.)
How do you refinance a mortgage in forbearance?
If you were not able to cover your payments while in forbearance, which is typically the reason for entering forbearance, you will need to end your forbearance period in order to refinance your mortgage. You will be allowed to refinance your mortgage 3 months after the end of your forbearance period when you have made 3 mortgage payments consecutively.
If you want to refinance your mortgage you will need to contact your lender to check what your options are and/or ask them to end your forbearance so that you can continue your monthly mortgage payments.
If you want to do this, you need to be sure that you will be able to keep up with payments and cover the payments you missed during forbearance until you are able to refinance.
Does forbearance affect my ability to refinance or get a new mortgage?
It can, and outside of exceptional circumstances, you’ll see your credit score fall when you go into forbearance. If you’re currently in forbearance and you want to refinance, you’ll need to check with your current lender to see what they’ll allow. In most circumstances, you’ll need to end your forbearance and start paying payments in full and wait the 3 months to complete 3 full payments. This will prove that your financial situation has changed.
If you’re not currently in forbearance and you’re wondering how forbearance may harm your future plans, consider if there’s a way to avoid it. In most circumstances, using forbearance to stay in your current home will damage your credit, and so you’ll find it more difficult to refinance or move into a new home in the future. Either talk to a mortgage broker to find out if you can refinance now, or consider selling your home quickly so you can pay off this mortgage and move on.
What can I do if I can’t refinance my mortgage?
If your current lender will not allow you to refinance your mortgage, you have a few other options:
Try a Different Lender
You can try applying for a mortgage with a different lender. Just because your current lender denied your application doesn’t mean that others will since underwriting guidelines can vary between lenders. It’s best to talk to a mortgage broker who can ensure you get the best deal.
Explore Other Loans
You can look into Federal Housing Authority (FHA) programs which could help you find a more affordable solution, such as a refinance loan or a cash-out loan.
Sell Your Home
If you are still having no luck with refinancing your mortgage, you can sell your home. While selling your home is not always the most desirable solution, it will get you out from under a loan that’s causing you more stress than it’s worth. Cash home-buying companies like us can buy your home quickly and allow you to pay off your mortgage so you can buy a new home with a new mortgage, or rent for a while until you’re in a better position to pay for a mortgage once more.
Sell Your Property and Free Yourself From Forbearance
There is no need to worry if refinancing doesn’t work out for you. Pavel Buys Houses offers to buy Massachusetts homes for cash, no matter what condition it is in, quickly and for a price you are happy with so that you can pay off your debts and find a more affordable living situation.
All you need to do is reach out to us with a few details about your property and we’ll get back to you with our best cash offer. If you accept, we’ll start the process and we can complete the sale in as little as 2 weeks if you’re ready to move that quickly. To learn more or to get your no-obligation cash offer for your home, click here.