Mortgage forbearance allows a borrower to put a pause on their mortgage payments with their lender temporarily, if they are encountering a financial hardship. Eventually, the borrower will have to re-pay the deferred payments once they are out of the forbearance period.
Forbearance gives borrowers the ability to ask their lender for a break from their obligation to make their mortgage payments without any negative consequences to their credit scores or financial profile. Forbearance is generally granted to those who are unable to pay their mortgage due to a result of a major illness, natural disaster, or a significant event such as COVID-19.
A forbearance agreement does not forgive the missed mortgage payments but gives the borrower several options on repaying them later. This agreement can include terms such as the length of the forbearance period, the amount of payment required during the forbearance period, and how the borrower will repay the lender once the forbearance period ends.
The borrower can also request that a set amount of those payments be added to their current payment. The borrower may also have the option to add the total amount of missed payments to the end of the mortgage, which will result in a longer term.
How it Affects Credit Score
While in forbearance, consumer credit/FICO scores are not negatively impacted.
How It Affects Qualifying For A New Mortgage
After the forbearance period ends, the borrower may decide they want to refinance their mortgage or purchase another property. In order for this to happen, the borrower must reinstate their loan balance in full and they can not be in arrears on any payments from the forbearance. This means that all missed payments must be made current in order for a borrower to refinance.
If a borrower is contemplating financing a new mortgage, we recommend that they start the process to finance and they can catch up on the payments that were deferred. The borrower will be unable to close on the new loan until they are fully current on their existing mortgage loan.
In the midst of COVID-19, we understand that many borrowers have deemed forbearance as essential in order to not lose their home or just to survive financially.
Bluefire Mortgage Group does not penalize a borrower for taking a forbearance. If you are in need of a forbearance, or just got out of one, feel free to contact us at (760) 930-0569 to speak to one of our mortgage loan originators.