Mike Gracz The Mortgage Expert,
Publish On: September 22, 2020
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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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.
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
