Wish you could buy a new home or refinance while mortgage rates are low—but you are, or recently were, on a forbearance plan? In the past, homeowners typically had to wait at least a year after their forbearance ended to take out a new mortgage, but that’s changed. Thanks to new rules created during the pandemic, you may be eligible sooner than you think.
Temporary guidelines have gone into effect for mortgage enterprises Fannie Mae and Freddie Mac, as well as revised guidelines for FHA, VA, and USDA loans. Under these guidelines, you may be able to buy or refinance a home immediately, or in as few as 3–6 months, depending on your lender’s requirements and despite your pandemic-related forbearance.
Who’s eligible during forbearance?
If you’re on a forbearance plan, you may be eligible for a new home loan backed by Fannie or Freddie as soon as today, as long as your account was current prior to loan application. If you’ve missed payments during forbearance, you may still qualify, as long as you bring your loan current before your forbearance period ends.
You may also be eligible for a FHA loan if you’ve continued to make your mortgage payments during your forbearance and you opt to terminate your forbearance plan.
Who’s eligible after forbearance?
Generally speaking, if you’ve completed your forbearance plan, you may be eligible to refinance or purchase a home within 3–6 months. According to guidance published by Fannie Mae, Freddie Mac, as well as FHA, and VA, homeowners who’ve entered into a long-term solution (e.g., a repayment plan or loan modification) following forbearance are eligible for a new home loan after making 3–6 consecutive payments. One exception to this rule is if you apply for a cash-out refinance with the FHA. To qualify, you’ll need to make at least 12 consecutive payments since completing the long-term solution.
Loans that were brought current with an FHA Partial Claim must pay off the Partial Claim with the new refinance, the exception to this would be for FHA Streamline refinances.
In most cases, you will need to document your income when you apply for your new loan, although if you have an FHA or VA loan, you may qualify for a “streamline refinance,” which may not require that step. (For more information on streamline refinances, see our blog “5 Refinancing Challenges: Solved.”)
How much could you save?
Whether you’re considering purchasing a home or refinancing, taking advantage of today’s historically low mortgage rates through a new home loan could yield significant savings. In terms of refinancing alone, Freddie Mac found that “homeowners who refinanced their 30-year fixed-rate mortgage in 2020,” when mortgage rates hit multiple record lows, will save more than $2,800 each year on average. They also reported that the “typical refinance” lowered a borrower’s mortgage rate by more than 1%.
For a closer look at what refinancing may save you, try our refinancing calculator. And to see how today’s mortgage rates could affect a home purchase loan, try our mortgage payment calculator. Given the historically low interest rates, you may find significant savings whether you opt to buy a home or refinance.
How can you get started?
To learn more about your options, talk to one of our Mortgage Professionals today at 833-457-0557. And for more on what may be ahead, check out our step-by-step guides on buying a home or refinancing.