How To Get An FHA Loan After Forbearance

Certified Mortgage Advisor
NMLS 1701021
Published 
September 15, 2020

FHA loan after forbearance

Now, we're going to talk about how do you get an FHA loan after you're currently in forbearance. So if you want to get a new FHA loan, but your current loan is in forbearance because of COVID, there are a few things that you need to watch out for to actually be able to make sure you can get that new FHA loan, and it might trip you up if you don't know these guidelines.

The Main Guidelines

First of all, Let's talk about the main category here. So for all types of transactions, purchases, cash outs, rates, and term refinances, what FHA guidelines say is they say the borrower has to continue to make regularly scheduled payments in the forbearance plan is terminated prior to a new loan closing.

If this is met, the borrower is treated as if they're not in forbearance. So basically if you're in a forbearance plan and you've been making those payments anyway, then technically FHA says, Hey, we'll treat you like, you're not in forbearance and you can go purchase or refi no problem at all.

Regularly scheduled payments

Now the confusing thing about this is FHA doesn't have a ton of clarification about what they mean by regularly scheduled payments.

Refi - Prove your payments

So for refinancing what you need to do is prove the payments have been made and out of. Now, this is where they haven't clarified. Did the payments need to be made on the months that they were supposed to be made or can they be made as one lump sum payment?

What it looks like is FHA is saying, as long as you pay the total number of payments skipped before the refinance, then you can refinance.

An example

So let's run through an example really quickly. Let's say you've been in a forbearance plan and you've skipped three months of mortgage payments, but now you want to refinance your mortgage. What this is saying is you're going to have to make up those three payments before you can refinance on your loan. Now, this is going to depend on who's currently holding your loan and the servicer that you're using.

So ask them for clarification, because FHA guidelines are a little gray on this, but most lenders are interpreting it as you need to be able to get caught up on the best payments that you made to be able to refi.

Purchase

With a purchase, it's a little bit. Because of the satisfaction of your mortgage, meaning when your current mortgage is paid off, they're counting that as the payment for those payments. So in that same example, let's say your current loan you've been in forbearance for three months. So you've skipped the repayments. If you go to sell that home, you need to factor in that there are three months worth of payments that need to be paid as well.

So if your current outstanding loan balance is, let's say a hundred thousand dollars and your mortgage payment is for easy math, let's say $1,000 per month. You missed $3,000 worth of payments. So you need to pay back $103,000 instead of a hundred thousand dollars from the sale of your home.

If the above cannot be met

So then they give an additional guidance that says, "if the above can not be met". Then there's further guidance. So if this is you, if you meet these criteria, you can go ahead and purchase or refinance with an FHA loan. No problem.

Cash out refinance

So let's first talk about a cash out refinance. FHA says the borrower has completed the forbearance plan and made at least 12 consecutive monthly payments within the month do post forbearance. So this one can be really rough. They're basically saying here, if you could not meet the criteria before you need to show that you've made 12 consecutive payments after that forbearance plan that's putting you a year behind. If you're doing a cash out.

Non cash-out refinance

If you're doing a purchase in non cash out refinances, FHA says, the borrower has completed the forbearance plan and made at least three consecutive monthly payments within the month so forbearance. Six months of payments are required where the mortgage was modified after forbearance to be eligible for a no cash out refinance.

Make 3 payments before you can refi or purchase

So again, this is basically saying, Hey, if you didn't qualify with the main guidelines, then you need to make three payments before you can refinance or purchase with an FHA loan. This is huge to watch out for because if you don't pay attention to this and you want to go purchase a home, you're going to get stuck because you didn't meet the first criteria.

Non-credit qualifying streamline refinance

So this means you're doing an FHA streamline refinance where they don't do a credit check. They don't do an appraisal. And they don't. Income verification. Here it says the borrower has completed the forbearance plan and made at least three consecutive monthly payments. It's exactly the same as the purchase.

Credit Streamline

For a credit, qualifying streamline refinance. This is where you're doing an FHA streamline refinance, but they're going to do an appraisal. They're going to pull credit and they're going to verify income.

3 Consecutive monthly payments

So it's pretty much the same as the others. You need to complete three consecutive, monthly payments.

What if you made less than 3 consecutive payments?

But then they also say, or the borrower has completed the forbearance plan, but has made less than three consecutive monthly payments within the month to do, or is still in forbearance, but made all mortgage payments within the month to do for the six months prior to forbearance and had no more than one 30 days late payment for the previous six months.

They will look at your history

So they're saying here with a credit qualifying streamline refinance or if they're going to pull credit and income and do an appraisal when you're doing a streamline refinance with an FHA loan if you've made less than three payments on that after your forbearance plan, then they're going to look back at your history.

Have you made the last six months' payments on time? Great. Have you not missed more than one payment over 30 days? Great. Then they'll let you move forward as if you're not in a forbearance plan.

#CalmMoment

Let's talk for a second. Really quickly. Have a CalmMoment. Covetous cost so much frustration and the forbearance plans are fantastic for people who are struggling. It's leading a lot of that financial pressure and that emotional burden that's coming with those mortgage payments, but it's also adding a new layer of complexity and difficulty as well because we're trying to navigate. All of these guidelines are changing, moving forward.

Best strategy

So really the best strategy for you here is I want you to slow down because if you're in the spot where you're reading this whole thing, you're probably saying, Hey, I have a loan I'm in forbearance and I'm either wanting to purchase or I'm wanting to refinance.

Take your time, make a solid decision

If you're wanting to refinance, that's something that you can take a little bit more time doing, right? The problem is in this market is with, since interest rates are low, you're going to have tons of people yelling at you saying you need to refinance now before rates go up and it's possible that rates could go up and they could go down, but know that it's better to make a solid decision moving forward based on a blaze of confidence, insecurity, urgency, and feeling rushed.

Don't make quick decisions

If you're making a purchase as well. Try to slow down a little bit because this market is crazy. It's easy to get swept up in the emotion because you're seeing all these homes going pending hours after they're listed on the market and they can make you feel like, there's no way we're going to get this house. We have to keep writing offers and we're doing things that we don't like to do.

Talk with your loan officer

So take a moment to slow down. Then I want you to talk with your loan officer or whoever's currently servicing your mortgage. Who do you pay your payments to talk with them about. I'm wanting to get a new FHA loan. Can you talk with me through my options and let them explain your exact situation with these circumstances as well.

Talk with a loan officer
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Only for educational usage. All calculations should be verified independently. Win The House You Love LLC is not a lender, does not issue loan qualifications, and does not extend credit of any kind. This is not an offer to lend and should not be used to make decisions on home offers, purchasing decisions, nor loan selections. Not guaranteed to provide accurate results, imply lending terms, qualification amounts, nor real estate advice. Seek counsel from a licensed real estate agent, loan originator, financial planner, accountant, and/or attorney for real estate and/or financial advice. Read the full disclaimer here.