What is Loan Forbearance and Is It Right for Me?
/Dan Hubrich of Mountain View Mortgage is back today to talk about mortgage loan forbearances. What are they and in this time of economic uncertainty, is a forbearance the right choice to make? It’s some great info on the pros and cons of this option.
You’ve probably heard a lot of people talking about mortgage forbearance and skipping payments so I wanted to chime in and let you know what’s happening. As everyone knows, the government passed the CARES act which is the $2 Trillion bailout to help with Covid-19. Part of that bill allows borrowers to call their mortgage servicer and place their mortgage in forbearance. Although this may sound like a good thing, in my opinion this should only be your last case scenario short of foreclosing. It says right on Fannie Mae’s website that this is “less harmful to your credit than a foreclosure”. It’s still not a good thing though.
A forbearance is not the same thing as a deferment. Deferred payments just allow you to press pause on your mortgage and then make those payments at the end of the loan. With a forbearance you will have to pay a large lump sum of all skipped payments in 3, 6, or 12 months for example. Well, if you can’t afford your mortgage now, it’s unlikely that you will be able to make 3, 6, or 12 times that payment a few months down the road from now. Lenders say they are willing to “modify” your loan if you can’t make up the back payments at that time. Again, not a good thing. When you have a loan modification on your credit, it generally takes 1-2 years of seasoning before you’ll qualify for a traditional mortgage again and it hurts your credit.
The CARES act states that lenders won’t be able to mark you as late if you do a forbearance (which is true) but they CAN still report the forbearance or loan modification which is also a negative event and can hurt your credit. If money is tight, I recommend calling me or another mortgage professional first before calling your loan servicer for a forbearance. You may be able to lower your rate, pull cash out, AND skip a couple of payments with no negative effects on your credit. If you absolutely do have to take advantage of the forbearance option, we can also help guide you through that process and help protect you as much as possible. Please reach out to me for additional info anytime. Thanks!