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What Is Forbearance?

forbearance, forbearance agreement, mortgage, mortgage payment, home, house, home loan, home loans, loan payment, loan servicer, divito dream makers, denver dream making, making dreams come true, arvada, denver, colorado, real estate, residential real estate, real estate team, remax, remax alliance, remax teamWe’ve heard the term – forbearance – thrown around in the news, which sounds great. It’s usually simply described as delaying your mortgage payments. But before you jump at applying for a forbearance agreement, we want to make sure you fully understand what it means.

First, off The Consumer Financial Protection Bureau defines forbearance as a temporary suspension of payment on a loan (like a credit card, student loan or mortgage). Now here are 7 important things to know about forbearance:

 

​1) It’s not granted to ALL homeowners

It must be applied for through the loan servicer and evaluated on a case-by-case basis. Homeowners may need to prove how COVID-19 impacted their ability to make mortgage payments. Also something to note – guidelines for federally-backed mortgages and privately-secured mortgages vary.

​2) Forbearance May be Granted for up to 180 days

Most servicers are offering forbearance agreements for 90 days initially, although the forbearance time period could be up to 180 days depending on hardship circumstances. Some homeowners could also be eligible for an extension of up to another 180-day period if necessary.

​3) Applying for Forbearance May Not Impact Credit

As long as mortgage payments are made within the outlined time of the forbearance period, there will be no negative impact on credit history. But, there could be further credit implications on credit score and history that are unforeseen at this time.

​4) It’s Temporary

At the end of the day, homeowners are still responsible for their mortgage payments. Forbearance is not forgiveness. Once the forbearance period is over, all payments are due.

​5) It may only be helpful in the short term

Because it’s temporary, it could be MORE financially challenging for borrowers in the long-term. Borrowers must work with their loan servicer to understand the option that best fits their needs.

6) ​How a Forbearance Agreement Works

Please note a forbearance agreement can vary by servicer, depending on if the loan is federally backed or not. But generally, the loan payment options may look like: 1) deferment, 2) reinstatement, 3) a repayment plan or 4) a loan modification. Contact your loan servicer for what works best for you.

7) Foreclosures are Temporarily Halted

Foreclosures for federally-backed loans – including eligible loans held by Fannie Mae, Freddie Mac, FHA, VA, and USDA – are temporarily halted. Homeowners must contact their loan servicer to discuss additional available options and the coordinating foreclosure halt time periods associated with them.

​* The Bottom Line *

If you are able to make your payments, keep making them as you have been. If you have any further questions, please don’t hesitate to give us a call!