Does Forbearance Affect Getting a New Mortgage?

Mortgage forbearance serves as a temporary financial relief option, allowing homeowners to either pause or reduce their monthly mortgage payments for a set period. This arrangement is initiated when a borrower faces a short-term financial hardship, such as job loss, illness, or other unexpected circumstances that temporarily prevent them from meeting their full payment obligations. The primary purpose of forbearance is to help homeowners avoid delinquency and potential foreclosure, providing a buffer during difficult times. While providing immediate relief, it is important to understand how having been in forbearance can influence future mortgage applications.

Forbearance on Your Credit Report

Mortgage forbearance is typically reported to credit bureaus, but its impact on a credit score differs significantly from that of a missed payment. If a borrower adheres to the terms of their forbearance agreement, the loan account generally remains in good standing on the credit report. This means that while a notation indicating forbearance may appear, it is usually not reported as a late or missed payment, which helps prevent a direct negative impact on the credit score.

Credit reports may include specific codes or comments, such as “account in forbearance” or “payment deferral,” to reflect the temporary payment arrangement. These notations inform potential lenders that a payment accommodation was made.

It is important to distinguish this from missed payments that occur outside of a formal forbearance agreement. Missing payments without a pre-arranged agreement with the lender will result in a delinquency being reported, which can significantly lower a credit score and remain on the report for an extended period. The forbearance notation itself, if the agreement was followed, is generally not considered negative information that directly lowers a credit score, though it is visible to other creditors.

How Lenders View Forbearance

Mortgage lenders assess an applicant’s financial stability comprehensively, and past forbearance is a factor they consider, not just credit scores. Lenders require proof that the forbearance period has concluded and that the borrower has resumed consistent, on-time mortgage payments. The specific duration of required on-time payments after forbearance varies depending on the loan type and the individual lender’s guidelines.

For conventional loans, such as those backed by Fannie Mae or Freddie Mac, a borrower generally needs to demonstrate at least three consecutive months of on-time payments after the forbearance period has ended. If the borrower continued to make payments during forbearance, there may be no waiting period required. Lenders also review how the deferred payments were resolved, whether through a lump-sum payment, a repayment plan, or by adding the amount to the end of the loan term.

Government-backed loans, including FHA, VA, and USDA loans, have specific requirements.

• For FHA loans, borrowers typically need to complete the forbearance plan and make at least three consecutive monthly payments for a new purchase or no-cash-out refinance.
• A cash-out refinance on an FHA loan usually requires 12 consecutive on-time payments post-forbearance.
• VA loans generally require six consecutive on-time payments after forbearance if payments were paused, though there may be no waiting period if payments continued.
• USDA loans typically require at least three months of resumed payments for purchase and refinance transactions.

Steps to Take Before Applying

Preparing for a new mortgage application after completing a forbearance period involves several proactive steps to present a strong financial profile. It is important to review your credit report thoroughly for accuracy once the forbearance has concluded. This check helps confirm that the forbearance was reported correctly and that no unintended delinquencies appear. Any discrepancies should be addressed with the credit bureaus and your former mortgage servicer.

Gathering all documentation related to your forbearance agreement is another important preparatory action. This includes the original forbearance agreement, records of all communications with your servicer, and detailed proof of your payment history since the forbearance ended. Lenders will want to see a clear and consistent pattern of on-time payments for the required seasoning period, which can range from three to twelve months depending on the loan type.

Prospective applicants should also assess their overall financial standing before applying for a new mortgage. This involves ensuring income stability, reviewing current debt obligations, and understanding how these factors impact your debt-to-income ratio. Being prepared to clearly explain the circumstances that led to the forbearance and how your financial situation has stabilized will help assure potential lenders of your ability to manage new mortgage obligations.