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What You Need to Know About Mortgage Forbearance

What You Need to Know About Mortgage Forbearance

April 22nd, 2020 | Mortgage Advice, Credit

If you are one of the 22 million Americans who have filed for coronavirus-related unemployment in the past few weeks, you may also be wondering if you are going to be able to make your mortgage payments. If your income has vanished or been reduced due to COVID-19 shutdowns, you can appeal to your mortgage lender for payment forbearance. Before you do, there are several questions you need to ask to understand how it will affect your situation.

Is My Loan Covered by the CARES Act?

In the wake of the COVID-19 economic fallout, the U.S. government recently passed the CARES Act to provide mortgage borrowers and lenders with aid until everyone gets back to work. It allows anyone with government-backed loans (FHA, VA, USDA, Fannie Mae or Freddie Mac) to receive up to three months of suspended mortgage payments. (Those with Fannie or Freddie loans may be able to get up to 12 months of deferment.)  During the deferment period, mortgage interest will continue to accrue. Borrowers have up to 180 days to request a forbearance and are not required to prove their financial hardship. 

If you do not have a federally backed mortgage, you are not eligible for a CARES Act deferment but you can still talk with your lender about forbearance. Most lenders offer assistance of some kind.

Should I Ask for Forbearance If I Can Still Make My Payments?

There is certainly a temptation to defer everything when a crisis hits. However, if you have enough to make your current mortgage payment and if your employment and income situation is likely to pick up after business resumes, you should continue to pay your mortgage on time. Forbearance does not erase mortgage debt

How Will I Repay My Suspended Payments?

Forbearance does not mean your payments are canceled, just paused. Those payments will still come due at some point. Some plans will require the missed payments to be repaid in a lump sum while others will add them on to the end of the loan and still others will rework the monthly payment amount. Be sure you understand how you have to repay your deferred payments before you sign.

Would It Be Better to Get a Cash-out Refinance?

Once in a forbearance program, you may not be able to qualify for a refinance loan, eliminating one way to pay off your current loan. One alternative to forbearance is a cash-out refinance. Many Americans today have significant home equity that could be tapped for emergency payments. Plus, interest rates are near all-time lows, making refinance loans especially attractive.

Will My Credit Be Affected?

In general, a mortgage forbearance will be reported to the credit bureaus as late or missed payments and your credit score will fall. The CARES Act states that this current program will not harm credit scores, probably because borrowers are struggling because of widespread unemployment rather than because of poor financial habits. 

If you are unable to keep up with your mortgage payments right now because of the coronavirus, contact your lender immediately to apply for a home loan forbearance. If you qualify, it could give you some breathing room while we wait for the COVID-19 shutdown to end.

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Prime 1 Bancorp, Ltd is not affiliated with any government organization or bank nor do we act on behalf of the FHA or VA. This material is not from HUD or FHA and has not been approved by HUD or a government agency. We are not a Federally chartered or State Chartered Bank. We are an we are an Illinois Residential Mortgage Licensee by the Office of Banks and Real Estate License #MB.6761138, a Colorado Registered Mortgage Brokerage by Division of Real Estate, a Florida Residential Mortgage Brokerage Licensed by the Office of Financial Regulation License #MBR1930 dba Prime 1 Mortgage Inc, a California CFL Licensed Mortgage Brokerage by Department of Business Oversights 60DB055973 and a Texas SML Licensed Mortgage Brokerage by the Texas Department of Savings and Mortgage Lending. Prime 1 Bancorp, LTD Corporate Office is located at 2720 S. River Rd Suite 50, Des Plaines, IL 60018 our Toll Free Number is 888-205-3737. NMLS: 1434638

Loan product availability is subject to qualification of the borrower and loan approval after full review of the file. Not every applicant qualifies or is eligible for every loan program. Some loan products may not be available in all states. Loan approval, note rate and annual percentage rate are dependent on factors including, but not limited to, credit, collateral, income, assets and overall financial history. Not all applicants will be approved for a loan. All loan programs, terms and annual interest rates are subject to change without notice. NMLS: 1434638

Figure: 7 TAC §80.200(b)

"CONSUMERS WISHING TO FILE A COMPLAINT AGAINST A COMPANY OR A RESIDENTIAL MORTGAGE LOAN ORIGINATOR SHOULD COMPLETE AND SEND A COMPLAINT FORM TO THE TEXAS DEPARTMENT OF SAVINGS AND MORTGAGE LENDING, 2601 NORTH LAMAR, SUITE 201, AUSTIN, TEXAS 78705. COMPLAINT FORMS AND INSTRUCTIONS MAY BE OBTAINED FROM THE DEPARTMENT’S WEBSITE AT WWW.SML.TEXAS.GOV. A TOLL-FREE CONSUMER HOTLINE IS AVAILABLE AT 1-877-276-5550.

THE DEPARTMENT MAINTAINS A RECOVERY FUND TO MAKE PAYMENTS OF CERTAIN ACTUAL OUT OF POCKET DAMAGES SUSTAINED BY BORROWERS CAUSED BY ACTS OF LICENSED RESIDENTIALMORTGAGE LOAN ORIGINATORS. A WRITTEN APPLICATION FOR REIMBURSEMENT FROM THE RECOVERY FUND MUST BE FILED WITH AND INVESTIGATED BY THE DEPARTMENT PRIOR TO THE PAYMENT OF A CLAIM. FOR MORE INFORMATION ABOUT THE RECOVERY FUND, PLEASE CONSULT THE DEPARTMENT’S WEBSITE AT WWW.SML.TEXAS.GOV.