NATIONWIDE — If you are experiencing difficulty making on-time mortgage payments due to the coronavirus pandemic, forbearance may be something for you to consider.
We talked with Justin Davis, a mortgage loan originator with Nations Lending, about what you should know before you choose this route.
1. During the pandemic, with unemployment, forbearance, financial hardships, how concerning is it for banks and lenders?
It is concerning. This is the first time in this industry that we are dealing with something like this. People are losing jobs, people are missing payments, which is making it more risky to give loans. Therefore, lenders are increasing their lending requirements, such as Fanny Mae and Freddie Mac, they are requiring additional items to fund loans.
2. What are the pros for someone who is considering mortgage loan forbearance?
The only pro is skipping three payments and having three months' relief based on applying every 90 days. It is a short-term benefit with potential long-term ramifications.
3. Where do those three payments go?
Typically, banks are telling people they are getting tacked on to the back end of the loan. They come with no penalties, no late fees, and no hits to your credit.
The lender or bank will give you an opportunity to pay in full the end of the forbearance to catch up, or they will tack them on to the end of your loan.
4. What are the cons of going into forbearance?
They affect your ability to do new refinances or new purchases in the future. (Under) Fanny Mae guidelines, if you have missed two or more payments as part of a forbearance, you are ineligible to refinance or purchase a new home within the next 12 months.
A person has to have 12 on-time mortgage payments in the last year in order to purchase a new home.
5. Why is refinancing your home a viable option in this uncertain time?
Refinancing is a long-term, permanent fix.
If you have a higher interest rate and it makes sense to refinance, not only would you have an opportunity to skip up to two payments as part of your refinance, but you can also take a certain amount of cash out at closing. It could be $2,000 or more in some situations.
So you essentially with a refinance can skip two payments, take money out, have the same three-month relief you would get with the forbearance — without going delinquent on your mortgage, lowering your interest rate, lowering your payment, having a more of a long-term fix.
Sign up now for one of our newsletters that will show up in your inbox every weekday at 1 p.m. The newsletters highlight the most important stories of the day that you need to know for your area.