Here is another quick update from the COVID-19 mortgage front. As of today, I can verify that many institutions have to take forbearance on their mortgage into account for current and future applications. Forbearance is an agreement between a lender and a borrower to temporarily suspend debt payments. Without getting into too much detail, if you went into forbearance, you will have challenges getting conventional and/or government financing for the subsequent 12 months. Some lenders may allow for portfolio loans, but this will need to be based on major compensating factors. With the coronavirus affecting mortgages, a relationship beyond a mortgage and a ton of compensating factors are needed to get consideration for these types of loans.
A Forbearance on Mortgage Now Can Equal Denial to Your Future Loans
There is not a ton of clarity about situations where homeowners entered into a forbearance agreement, but still made partial or even full payments on the loan. As of now, just entering into forbearance with your mortgage is enough to result in loan decline for future loans. I would like to hope that as the dust settles there may be some assistance with this scenario. However, there are a lot of people who may have taken loan forbearance to keep their liquid reserves at a certain point, but can make the balloon payment at the end. Generally, we do see the market adjust to good credit risks. So, you could see homeowners in this situation get some consideration, but I want to stress that this is my speculation with no guarantees.
How do you know if forbearance is the right choice?
So the takeaways:
- If you do not need forbearance, do not take it.
- If you need it, understand that it will have an impact.
- If you are in a loan right now and have requested forbearance, let your lender immediately.
- If you are in a situation like divorce where you expect to NEED to purchase or refinance in a fairly short window, be careful of taking options like forbearance because it my eliminate many of your opportunities to obtain financing.
- If you are investor looking to build your portfolio, taking forbearance could prevent you from executing your growth strategy.
- If you are truly in a situation where you need options like forbearance to survive, use it. A moratorium of your ability to refinance will be minor compared to not having food or the like.
If you have any questions with the divorce process in these uncertain times or need help in your financials, then reach out to our professionals.