HUD Forbearance Guidelines On FHA Loans During COVID-19 allows homeowners to get delays in making their mortgage payments if they are affected by the coronavirus outbreak. The housing market is booming despite the coronavirus outbreak. There is no shortage of homebuyers during times of economic unrest and turmoil due to the COVID-19 outbreak and scare. Homeowners can easily sell their homes.
Forbearance Is Not Mortgage Forgiveness
Most homeowners want to hang on to their homes. Home prices are skyrocketing with double-digit annual returns on homes. There is absolutely no sign of any housing market correction in the forecast. Unemployment rates have soared due to businesses being on lockdown and state and local government shutdowns. The government is striving to work on another 2008 housing crisis. HUD forbearance guidelines give homeowners of FHA loans a break in making payments until they are back on their feet financially. However, it is by no means free money. The mortgage payments are deferred and not forgiven.
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FHA Loan After Forbearance Versus Loan Modification
There is no waiting period to qualify for an FHA loan or any other government and/or conventional loan program if the arrearage of the missed payments during forbearance has been paid in full after the forbearance period. However, if there is a repayment agreement after the forbearance term, there is a three-month waiting period after the term of forbearance to be eligible to qualify for a government and/or conventional loan. This holds true for a home purchase and/or refinance transaction. There is a one-year waiting period after a loan modification to be eligible to qualify for an FHA loan. Mortgage companies require 12 months of timely payments on mortgage payments. Most lenders require homeowners to default on a mortgage payment before the loan modification will go into effect.
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Understanding The Difference Between Loan Modification Versus Mortgage Forbearance
Homeowners need to understand the difference between forbearance versus loan modification. A loan modification is a permanent loan restructuring and/or forgiveness. The loan can be extended and restructured to make the term length from 30 to 50 years to make the monthly payments affordable for the homeowner. The amount of arrearage can be added to the loan balance or can be forgiven by the lender. Each loan modification is structured on a case-by-case basis. Loan forbearance is when the mortgage servicer temporarily allows the homeowner to suspend making monthly payments for a certain period of time due to financial hardship. Normally the mortgage servicer will give homeowners a period of three months to suspend making mortgage payments and extend the term if more time is needed.
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Waiting Period Mortgage Guidelines After Forbearance
The coronavirus pandemic created havoc on the once thriving U.S. economy.
- Millions of Americans were forced out of work due to the millions of businesses being closed
- Just prior to the pandemic in March, the U.S. economy was booming
- Unemployment rate was under 3.5% which is the lowest unemployment rate ever in the history of the U.S.
- The Dow Jones Industrial Average surpassed the 29,000 mark in February 2020
- Values of 401k’s were up over 50% for most Americans due to the skyrocketing stock market under the Trump Administration
- Then the COVID-19 pandemic hit like a firestorm
- The economy closed overnight
- 39 million Americans have filed unemployment claims just in the past 8 weeks
- President Trump signed the $2.2 trillion coronavirus CARES Act stimulus package into law
- Included in the CARES Act was the right for unemployed homeowners to get forbearance for six months and extended up to one year
- However, many struggling homeowners were hesitant in taking up on the forbearance offer due to the consequences
- Will there be a waiting period to qualify for a mortgage if the borrower takes up on the forbearance offer?
- Can borrowers qualify for a mortgage after forbearance?
- Can you purchase a home after forbearance without a waiting period?
Many borrowers were getting conflicting answers about the Mortgage Guidelines After Forbearance.
Main Concerns On Mortgage Guidelines After Forbearance
Many homeowners want to take up on the forbearance offer of the CARES Act.
- However, homeowners are getting conflicting answers by lenders
- Some are being told there is a one year waiting period after forbearance to be able to qualify for a government and/or conventional loan
- Others are being told there is a one year waiting period after forbearance to qualify for a government loan and a four year waiting period to qualify on conventional loans
- There are mandatory waiting period to qualify for government and conventional loans after bankruptcy, foreclosure, deed in lieu of foreclosure, short sale, and a loan modification
- There is a one year waiting period to qualify for a government loan after a loan modification
- There is a four year to qualify for a mortgage after a loan modification
- However, a forbearance is different than a loan modification
In the next paragraph we will discuss the actual waiting period requirement to qualify for a mortgage after forbearance.
Waiting Period Guidelines For GSE Borrowers In Forbearance
GSE Borrowers In Forbearance can purchase and/or refinance after meeting the minimum waiting period requirements.
- Borrowers who had taken up the CARES Act forbearance offer may be eligible to purchase and/or refinance their current mortgage three months after their mortgage forbearance period ends and have made three timely payments after the forbearance
- Borrowers need to have been timely with their monthly repayment plan for three consecutive months with no late payments in order to be eligible to qualify for a government and/or conforming loan per Fannie Mae and Freddie Mac Agency Guidelines
- This new updated Mortgage Guidelines After Forbearance was announced by the Federal Housing Finance Agency
- The FHFA specifically states how mortgage lenders should treat in accepting borrowers after the forbearance period is over on federally-backed mortgages
According to data released by the Mortgage Bankers Associations, 8.16% percent of federally-backed mortgages went into forbearance as of May 10th, 2020. This number is an increase from 0.25% in March. Forbearance numbers is expected to increase in the days and weeks to come.
Refinancing During COVID-19 Outbreak
Most homeowners who owned their homes for a few years are sitting on a lot of equity in their homes. Home prices have skyrocketed the past few years. During tough economic times, dipping into your home equity is the easiest and fastest way to get cash with a cash-out refinance.
Cash-Out Refinancing During Coronavirus Pandemic
It is no secret that mortgage interest rates are near all-time lows. The COVID-19 coronavirus outbreak has sparked a refinance boom across the nation. It is estimated that there are trillions of dollars worth of mortgages that could save money by refinancing during this pandemic. With the FEDERAL RESERVE announcement that interest rates will remain low until at least the summer of 2021, this is a great opportunity for you and your family to save money on your housing payment. This is also a great time to utilize equity in your home to pay off consumer debt. In this blog, we will detail how to apply for an FHA refinance during the COVID-19 coronavirus outbreak, even if you have entered mortgage forbearance.
FHA Versus Conventional Loan Requirements On Cash-Out Refinancing
FHA cash-out refinance guidelines require a maximum of 80% LTV and a minimum credit score of 500 FICO on cash-out refinances. Fannie Mae and Freddie Mac require a minimum credit score requirement of 620 FICO and a maximum LTV of 80%. The benefit on conventional loans is homeowners do not require private mortgage insurance on conventional loans with loan to value of 80% LTV or less. Homeowners can do a 100% LTV on cash-out refinances on VA loans.
HUD Forbearance Guidelines On FHA Loans For Americans Affected By The Economic Impact Of The Coronavirus Outbreak
A key section of the CARES ACT states how Americans can furlough their mortgage payments into forbearance during these unprecedented times. Millions of Americans are out of work and unable to make their housing payments. The good news is, any American is able to put their payments on pause to get through these difficult months. Whether you are laid off from your job or not. Entering into forbearance does come at a price. If you do put your mortgage in forbearance, there are some hoops to go through if you are trying to refinance or buy a different property. Recently there have been updates to the FHA forbearance guidelines. We will discuss those below.
Paying Mortgage Payments While Still In Forbearance
Thousands of Americans entered FHA mortgage forbearance but continued to make their payments as scheduled. Any borrower who was granted a mortgage payment forbearance but continued to make their payments as agreed under the original loan terms is not considered late or delinquent. They shall be treated as if not in forbearance assuming they terminate their forbearance plan prior to closing on the next purchase or refinance loan.
HUD Forbearance Guidelines On FHA Loans During COVID-19 And How It Works
For a client who entered mortgage forbearance and skipped mortgage payments, the forbearance plan must be terminated and ONE of the following must occur. For purchase and cash-out refinance transactions (including simple refinances). The borrower has completed the forbearance plan and has made at least THREE consecutive monthly payments starting as soon as the forbearance plan is over. Additionally, SIX payments are required if a borrower modified their mortgage after entering into a forbearance program.
HUD Cash-Out Refinance Guidelines On FHA Loans
Rules for completing a cash-out refinance on FHA loans per FHA cash-out refinance guidelines:
- The borrower has completed the forbearance plan and made at least TWELVE consecutive monthly payments starting as soon as the forbearance plan is completed
- This is true for all cash-out refinances with FHA
You must have at least TWELVE consecutive mortgage payments to be eligible for a cash-out transaction, forbearance, or not.
HUD Forbearance Guidelines On FHA Loans During COVID-19 On Non-Credit Qualifying FHA Streamline Refinance Mortgage Guidelines
Non-credit qualifying FHA streamline refinances:
- The borrower must meet seasoning requirements and make at least SIX payments on the FHA or insured mortgage that is being refinanced
- The borrower has completed their forbearance plan and made at least THREE consecutive monthly payments starting as soon as the forbearance program is completed
- Just like a non-cash out refinance or a purchase transaction, if a borrower modified their mortgage after forbearance, SIX consecutive monthly payments are required
- What makes this different than a non-cash out refinance is, the new loan can include the unpaid principal balance plus up to 60 days of interest, late charges, escrow shortages, and two months’ annual mortgage insurance premium or MIP. Less upfront MIP refund (if any) plus new upfront MIP
- If the borrower’s forbearance results in greater than 60 days of interest due to the current loan the borrower needs to pay the difference at closing in cash
- There is no way around this
These must come from an FHA verified source of funds.
HUD Forbearance Guidelines On FHA Loans During COVID-19 On Credit Qualifying Streamline Refinances
Credit qualifying streamline refinances:
- The borrower must complete the forbearance plan and make at least THREE consecutive monthly payments starting as soon as the forbearance plan is completed
- Once again, if a borrower modified the mortgage after the forbearance, SIX consecutive monthly payments are required for qualifying for a credit qualifying FHA streamline
The borrower has completed the forbearance plan but has made less than THREE consecutive monthly payments within the month due or is still in forbearance at the time of case number assignment then the borrower must provide both of the following:
- Made all mortgage payments within the month due for the six months prior to forbearance AND;
- Had no more than ONE 30 day late payment for the previous six months
- The new loan may include the unpaid principal balance plus up to 60 days of interest, late charges, escrow storage, and two months of annual mortgage insurance premium or MIP. Less upfront mortgage refund plus any new upfront mortgage insurance premiums. If the borrower’s forbearance results in greater than 60 days of interest to you on the current loan, the borrower needs to pay the difference in cash at closing
Note. For all refinance transactions, at the time of closing, all mortgages securing the subject property must be current based on the original terms of the mortgage.
If you are not in the mortgage industry, the information above may sound confusing. We encourage you to reach out to Gustan Cho Associates directly. We are here seven days a week to help you with your mortgage needs. Gustan Cho Associates specialize in FHA financing. Right now is a great opportunity to take advantage of the low-rate mortgage market.
Is There a Waiting Period To Refinance After Covid-19 Forbearance For Homeowners
Nearly 2 million Americans are still under the CARES Act mortgage forbearance programs. The program remains available until September 30th of this year. Countless homeowners will need to arrange for making their mortgage payment for the first time in months. Many homeowners can benefit from refinancing their property in order to reduce their monthly payments. With the missed mortgage payments, they can make up for payments that were missed during the forbearance process.
Refinance After Covid-19 Forbearance: Primary Ways To Approach Ending Your Forbearance Period and Getting Your Mortgage Towards Being Paid Back
There are 4 primary ways to approach ending your forbearance period and getting your mortgage towards being paid back:
- reinstatement
- repayment
- deferral
- loan modification.
After 3 months of timely payments on any of these programs, the borrower will be eligible for a refinance. The reinstatement plan requires the borrower to pay a lump sum to catch up on all missed payments, this can mean paying back as much as eighteen months’ worth of regular payments. After making the sum payment, the borrower will make the same payment they made prior to forbearance. While reinstatement will bring the account to date the most efficiently it requires a large upfront investment to return to the previous monthly obligation.
Repayment Plan on Your Mortgage
The repayment plan requires the borrower to resume monthly payments with an added cost to make up for the missed payments over time. Repayment plans can increase a borrower’s monthly payment by more than 50% and last over a year. After the missed payments have been paid back then the monthly payment will return to the same as before forbearance. While electing to use the repayment plan can save homeowners from making a large upfront payment it does require a period of making an inflated payment before being able to return to your regular monthly obligation. Payment deferral allows homeowners to defer the payment of the missed payments to the maturity of the loan, sale of the property, or a refinance.
Deferred Amount Due on Your Loan
The deferred amount will not accrue interest. It will present a second lien on the property. If the borrower does not sell the property or refinance this will result in a balloon payment when the original loan term has ended. The deferral option is the easiest way for a homeowner to return to making their regular monthly payment without having to pay upfront or pay an increased obligation for an extended period.
By avoiding the pitfalls of the reinstatement and repayment plans the deferment plan does leave borrowers who retain the property to the maturity of the loan with a balloon payment.
Loan modification can be offered if you display a permanent hardship in making your regular monthly payment going forward. This will move the missed payments into the principal balance, and extend the term to as long as 40 years, and may include a rate reduction. A loan modification will be very useful for those who find themselves unemployed at the end of their forbearance period. Borrowers can avoid the pitfalls of each “loss mitigation” option by pursuing a rate and term refinance. After three timely monthly payments on any of these programs, a homeowner is eligible to refinance their property subject to typical lending guidelines.
Refinance After Covid-19 Forbearance: Consider Rate and Term Refinance During Today’s Historic Low Rates
A rate and term finance will reduce the borrower’s payment. It will extend the term that the principal must be paid over as well as potentially reducing the rate. The missed payments during forbearance will also be paid off by the loan. This is done by allowing homeowners to pay them back over the course of the full loan term rather than a single lump sum. Or as an additional expense on top of your regular monthly payment. Homeowners that exercised the opportunity to forward their mortgage during the COVID-19 protection period should consider refinancing their property in order to lower their monthly payment and pay back the payments they missed over that time.
Qualifying For A Home Mortgage With A Lender With No Overlays
Many lenders are still trying to wrap their heads around the mortgage market during the COVID-19 coronavirus outbreak. Most banks and lenders have added additional LENDER OVERLAYS to their mortgage products. The good news is, the Gustan Cho Associates have not. We do not have any lender overlays to get in our way for FHA financing. We also take pride in our loan officers being up to date on all of the guideline changes. The information discussed in this blog was recently released by HUD. For more information on your specific forbearance program please call Mike Gracz on (800) 900-8569. You may also email gcho@gustancho.com for help. We look forward to hearing from you. We are the experts when it comes to FHA mortgage financing. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.
This article was UPDATED on December 8th, 2021
