The Federal Housing Finance Agency (FHFA) recently told lenders to allow borrowers to forego their mortgage payments for a period of time, usually 3 months, with an additional 3 – 9 month extension if needed. These are forbearance programs.
In a forbearance, the borrower is allowed to miss payments for a certain amount of time and then at the end of that time, pay the missed payments. There is no forgiveness of the missed payments.
Normally, if you have a forbearance for 3 months, at the beginning of month 4, your 3 months of payments are due, plus the fourth month. In the current situation, guidelines from the Government allow lenders to set up a repayment plan so that the missed payments are not all due at one time.
Even if you do pay the full amount, many lenders will see that you had a forbearance and will not allow you to refinance that loan to a lower rate or to get cash out. If you don’t pay as agreed, your credit will suffer dramatically.
If you must ask for forbearance make very sure you understand all of the lender’s requirements for paying back the missed payments and how the lender will report that to the credit bureaus.
Some realtors are tempting buyers with the idea they can buy a home, then skip their first payment and go into forbearance immediately — a free ride. What they don’t say, is that the buyer’s credit is immediately slammed, and that the buyer has a high probability of being foreclosed upon.
Please be aware of these factors and let your friends and colleagues know. This forbearance program is designed for those who have a real economic hardship, and while it might allow you to stay in your home, it could have devastating consequences for your credit and ability to borrow in the future.
It is complicated! If you have questions on this, please contact me.
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