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Qualifying For FHA Loan After Mortgage Forbearance

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Qualifying For FHA Loan After Mortgage Forbearance

This BLOG On Qualifying For FHA Loan After Mortgage Forbearance Was UPDATED On December 3rd, 2018

There are times throughout your life that an emergency happens which causes financial hardship.

  • Events like job loss, divorce, death in the family, and natural disasters like hurricanes happen unexpectedly
  • These events can affect income stream causing to be late on mortgage payments as well as other bills

Forbearance Versus Foreclosure

When a negative event happens in your life and you feel that your financial situation will change for the worse, please contact your mortgage lender and ask them for a temporary forbearance.

  • A forbearance is a temporary relief by lenders
  • Lenders will work with borrowers in suspending the borrower’s regular scheduled payment
  • Payments can be in forbearance until the borrower is back on his or her feet

Example of Forbearance

For example, when Hurricane Sandy struck the eastern border of the United States a few years ago.

JP Morgan Chase and other banks developed a natural relief program for homeowners where they offered a 90 day forbearance until the affected homeowners recovered.

  • Many victims of Hurricane Sandy were temporary out of work
  • This was because their employer were shut down due to the damage caused by the hurricane
  • Others had their homes severely damaged
  • Homeowners who lived in other states besides the east coast were affected
  • This was because their employment headquarters were located on the eastern states affected by Hurricane Sandy
  • JP Morgan Chase and other lenders were extremely understanding
  • They were generous in offering a forbearance to those affected homeowners
  • Mortgage payment history on borrowers credit report were not reported late

Requirements For Mortgage Forbearance

One of the requirements of being granted a forbearance is that the homeowner be current with their mortgage payments when requesting for a forbearance.

  • If you are behind on mortgage payments and request a forbearance, the forbearance request will not be granted
  • So if you anticipate any financial hardship and think you will be late with future mortgage payments, you need to contact your mortgage lender immediately
  • See what types of programs they have to offer
  • Lenders do not want your house
  • They want to work with homeowners and will do anything possible to work with them
  • Repayment plans can be adding the arrearage amount back to the loan amount or an extended payment plan
  • I strongly recommend to contact not just your lender and all of creditors as well prior to being late
  • They will appreciate it and will be more willing to work with you

Mortgage Forbearance Versus Loan Modification

A mortgage forbearance is when the lender gives the homeowner some time to get their finances together due to the following:

  • Loss of job
  • Medical reasons
  • Gap of employments
  • Divorce
  • Other extenuating circumstances

Mortgage forbearance normally are short term workouts on homeowner’s loans. Once the forbearance period is over, the homeowner can pay the amount in arrears all in one lump sum or make payments over a short period of time.

With loan modifications, the homeowner is not required to pay the amount in arrears. This is because they do not have the means to catch up on their arrearage.

Here is how loan modifications are done:

  • Lenders will want to see the homeowner’s financials and the reason why they fell behind
  • The lender will come up with a reduction of the homeowner’s monthly P.I.T.I. 
  • The reduction is normally done by the reduction of interest rates or extending the term of the home loan
  • There is normally a three month trial period
  • If the trial period is successful, the loan modification is finalized
  • The payments that are behind can either be forgiven
  • Or added to the back of the loan
  • Or spread out for a certain period of time with a loan modification

Qualifying For FHA Loan After Mortgage Forbearance And Loan Modification

Home buyers can qualify for a FHA Loan After Loan Modification one year after the loan modification and need to provide  the lender with 12 months of timely payments.

  • Home buyers can qualify for a FHA Loan with no waiting period after a mortgage forbearance
  • But most lenders want to see 12 months of timely payments
  • Borrowers can qualify for FHA Loan with prior mortgage late payments
  • But most lenders want to see timely mortgage payments in past 12 months
  • Many lenders will not accept borrowers who had a 120 day late payments on mortgage
    • This is because they consider this a pre-foreclosure even though foreclosure proceedings were not initiated
  • This is not a HUD Guidelines but a lender overlay
  • Borrowers can qualify with a 120 day mortgage late payments as long as it has been seasoned for 12 months

Borrowers who had 120 days late payments on their mortgage payment history but has been current the past 12 months and are denied a FHA Loan can qualify for mortgage. If borrowers are told that is a pre-foreclosure by lenders, they are wrong. Please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.

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