RULES FOR QUALIFYING POST-FORBEARANCE
With millions of future borrowers in either mortgage or rental forbearance, many people are wondering how forbearances will impact a borrower’s ability to qualify for mortgage financing down the road (when they are out of forbearance).
Credit: The jury is still out on this, as borrowers with authorized forbearances were not supposed to see their credit adversely impacted.
But, as we note on our JVM Forbearance Resource Center page, some servicers are in fact reporting mortgages in forbearance as late payments.
And late mortgage payments can devastate credit histories and credit scores, making future mortgage qualifications much more difficult if not impossible until those late payments have “seasoned” for at least 12 months.
But, even if servicers don’t report late payments, borrowers in forbearance are still not out of the woods with respect to future qualifications.
BRINGING ENTIRE MORTGAGE CURRENT
Many mortgage banks and investors who buy mortgages are issuing guidelines now that state that applicants who had mortgages or rental payments in forbearance must make up ALL missed payments before they can qualify for FHA or Conforming (Fannie/Freddie) mortgage financing.
Lenders will demand a written verification form from either landlords or servicers that proves no remaining balances owing. Balances tacked on to the end of terms will not be allowed either.
For many, if not most jumbo lenders, any type of forbearance will simply constitute a hard “no” for qualification purposes until the forbearance has seasoned (from its end) for at least a year and even longer in many cases.
Many jumbo lenders demand a clean 12-month-payment-history (for rent or mortgages) before they will issue an approval, and any type of forbearance obviously makes it impossible to show that 12-month-history.
Borrowers will not be able to “hide” their forbearances either, as there will be clear indications on every credit report showing that the borrower is or was in forbearance – even if there are no late payments indicated.
NOT A FREE LUNCH
Borrowers in need of a forbearance b/c of the COVID-19 crisis should by all means obtain one.
But, borrowers who can afford to continue to make payments should remember that forbearances are not a free lunch and that they will have adverse impacts no matter what.
Founder/Broker | JVM Lending
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