Even though the COVID-19 pandemic is waning in the U.S., millions of Americans continue to suffer financially from the effects. In fact, 2.3 million homeowners are still in mortgage forbearance plans, according to the Mortgage Bankers Association. Hopefully as the number of coronavirus cases dwindles, the economy will continue to recover and more and more of those borrowers will be able to resume their normal monthly payments.
If you find yourself currently in one of these forbearance plans, you may be wondering if and when you can refinance into a new mortgage. Interest rates remain near rock-bottom, providing plenty of savings for many borrowers. In most situations, you will not be allowed to refinance after your forbearance plan ends for 12 months, but the time may vary from lender to lender. It may also depend on what type of mortgage you have and whether you fell behind on any payments. One notable exception applies to those with federal loans who are current on their mortgages; they can qualify immediately for a refinance. Federal loan borrowers who are not current would have to wait three months and complete three consecutive payments on time.
After you finish your forbearance program, the refinance process will involve the following:
- Determine the Type of Refinance
Of course, now is a great time to refinance into a loan with a lower interest rate. It could both lower your monthly payments and overall interest costs. However, be aware there will likely be upfront costs and it will reset the timeframe of your mortgage.
Lower rates are not the only reason to refinance though. You might want to shorten your loan from a 30-year to a 15-year mortgage to pay it off before retirement. Or you may want to pull some cash out of your equity to consolidate high interest debt. Talking with your lender will help you determine the best refinance for your situation.
- Check your Credit
Being in a forbearance program has the potential to lower your credit score. You can check your FICO credit score for free once a year with each of the three main reporting bureaus: TransUnion, Experian, and Equifax. It's important to look for errors and get them removed to help your score as much as possible. The better your credit, the better your refinance loan terms will be in general. You may decide to wait a few months after your forbearance ends to boost your credit a little more.
- Provide the Required Documentation
Once you are ready to refinance, you will need to gather lots of documents for your lender. This will include things like two months of pay stubs, two months of bank statements, and two years of tax returns. You may also need to provide a list of assets and liabilities, a copy of your title insurance and your homeowner’s insurance policy.
Although it may take a little more time and research, it is definitely still possible to refinance after forbearance. If you have any questions, please give us a call today.