Can I Sell My House While in Forbearance and Buy Another?

Selling a Home During Forbearance

Selling a home while the mortgage is in forbearance is permissible, but it involves specific financial considerations. While forbearance provides temporary relief by allowing homeowners to pause or reduce mortgage payments, it does not erase the obligation to repay these amounts. The full original mortgage loan, including any deferred amounts from the forbearance period, must be settled at closing when the home is sold.

The method for handling the deferred forbearance amount varies and depends on the agreement with the mortgage servicer. One approach is a lump-sum payment of all missed payments at closing. Alternatively, a repayment plan spreads missed payments over a set period by adding them to future mortgage payments. Another option is a deferral or partial claim, moving missed payments to the end of the loan term or into a subordinate lien, due when the home is sold, refinanced, or matures.

A loan modification can also integrate the missed payments into the new loan terms, potentially altering interest rates or extending the loan period. Regardless of the repayment method, the entire outstanding mortgage balance, including forbearance amounts, must be paid off for the sale to finalize. It is important for homeowners to request a payoff statement from their lender to understand the exact amount required to release the mortgage lien.

Entering forbearance does not directly harm a credit score if the borrower adheres to the agreement. However, the circumstances that led to the forbearance, such as missed payments prior to the agreement, could impact credit. While noted on a credit report, forbearance is not negative information if the borrower complies with repayment terms. Selling the home and paying off the mortgage, even if it was in forbearance, can positively affect the credit report by showing the loan as paid off.

Early and consistent communication with the current mortgage servicer is important throughout this process. Homeowners should inform their servicer of their intent to sell and discuss how the forbearance amount will be addressed at closing. Understanding the specific terms of the forbearance agreement and available repayment options directly from the servicer helps ensure a smooth transaction. Maintaining a record of all communications, including dates, times, and representatives, is advisable.

Qualifying for a New Mortgage After Forbearance

Securing a new mortgage after a period of forbearance involves navigating specific eligibility criteria set by lenders and loan types. Lenders assess a borrower’s financial stability after forbearance, considering payment history, credit score, debt-to-income (DTI) ratio, employment stability, and financial reserves.

Eligibility for a new mortgage depends on the loan type (FHA, VA, Conventional), as each has distinct guidelines and waiting periods. Many lenders require on-time payments after exiting forbearance or completing a loan modification. For instance, some conventional loans (Fannie Mae or Freddie Mac) may require at least three months of consistent, on-time payments post-forbearance. If a loan modification was involved, a longer period, sometimes 12 months or more, might be necessary.

A strong credit score and timely payments after forbearance are important for new mortgage qualification. While forbearance may not negatively impact a credit score if terms were met, lenders examine financial behavior and stability following hardship. Any missed payments before or after the forbearance period could negatively affect the credit score, influencing interest rates and loan terms for a new mortgage. Lenders may also consider a forbearance notation on a credit report when evaluating future loan applications.

Lenders will scrutinize financial metrics to determine repayment capacity for a new loan. The debt-to-income ratio (monthly debt payments to gross monthly income) must fall within acceptable limits, such as 36% to 43% for conventional loans, varying by lender. Employment stability is another factor, with lenders seeking consistent income history, usually two years. Borrowers will also need sufficient funds for a down payment and closing costs, along with adequate financial reserves to cover several months of mortgage payments after closing.

The pre-approval process is an important step for a new mortgage post-forbearance, providing clear understanding of borrowing capacity and purchase readiness. During this process, documentation of income, assets, and previous forbearance resolution will be required. This includes pay stubs, tax returns, bank statements, and paperwork related to the forbearance agreement and its payoff. Seeking lenders experienced with post-forbearance scenarios can streamline the application process, as they are familiar with the nuances and requirements.

Coordinating the Sale and New Purchase

Managing the simultaneous sale of an existing home and purchase of a new one, especially after forbearance, requires coordination and planning. Timing is a primary consideration; homeowners explore options like simultaneous closing, temporary housing, or bridge loans. A simultaneous closing schedules both transactions on the same day, using old home sale proceeds to finance the new purchase. This approach minimizes the gap between homes but demands precise execution.

Temporary housing provides flexibility, allowing homeowners to sell their current residence and find a new home without immediate pressure. While offering breathing room, this introduces additional moving costs and potential inconvenience of multiple moves. Bridge loans offer short-term financing for a new home’s down payment before the old one sells, repaid from sale proceeds. These loans carry higher interest rates and additional fees, making them a more costly option.

Clear communication among all involved parties is important for a seamless transition. This includes real estate agents for both sale and purchase, mortgage lenders for existing and new loans, and closing attorneys or title companies. Keeping everyone informed about timelines, delays, and financial statuses helps address challenges. Real estate agents play a significant role in aligning closing dates and managing contingencies between the two transactions.

A financial plan is important to cover gaps between transactions, including down payments, closing costs, and temporary living expenses. Homeowners should account for all selling and buying costs, such as real estate commissions, appraisal fees, inspection costs, and title insurance. Unexpected expenses can arise, so maintaining a contingency fund is a prudent financial strategy.

Working with experienced real estate professionals and mortgage brokers with a proven track record in forbearance transactions can provide valuable guidance. These professionals can anticipate potential hurdles, negotiate favorable terms, and ensure all necessary documentation is in order. Their expertise helps navigate typical steps of a coordinated real estate transaction, from listing and showing the old home to securing an offer, appraisals, inspections, and final walkthroughs for the new property, culminating in a successful closing for both.