Refinancing After Forbearance; Credit Inquiries
Over 4 million borrowers went into mortgage payment “forbearance” during the COVID-19 crisis, and many are now starting to end their forbearance periods – and wondering if they can refinance.
Here are some of the guidelines.
AUTHORIZED FORBEARANCE – PAST BALANCES PAID
If borrowers with a formally authorized (by their servicer) forbearance formally end their forbearance and bring all past due payments current, they can refinance or get a new purchase money mortgage immediately.
AUTHORIZED FORBEARANCE – PAST BALANCES OWED
If borrowers with a formally authorized (by their servicer) forbearance formally end their forbearance but DO NOT bring past due payments current, they cannot refinance until they have made three timely payments after their forbearance ends.
If borrowers simply stopped making payments without getting a formal forbearance authorization, they will most likely have major credit issues and be unable to refinance for as long as a year (or more), depending on how many payments were missed.
CREDIT INQUIRIES – TOO MUCH CONCERN?
I repeat this relatively often but borrowers are often far too worried about credit inquiries.
Reminder #1: Multiple inquiries from numerous different mortgage lenders within a 30-day period are only counted as a single inquiry.
Reminder #2: Inquiries outside of the 30-day period have a negligible affect on borrowers with good credit (scores above 740).
Reminder #3: The effect from any inquiry diminishes quickly after 90 days.
Reminder #4: There are no hard and fast rules. The credit bureaus use extremely complex algorithms to weigh the effect of inquiries, so the effect varies from borrower to borrower.
It is really only borrowers with numerous inquiries and credit scores on the lower end of the range (in the 600s or lower) who should worry about inquiries.
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