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What Every Homeowner Needs to Know About Forbearance and Refinancing

By Tanya Svoboda
June 2021

In March of 2020, the CARES Act was passed to protect mortgage borrowers from foreclosure and provide them with the option of forbearance. By June of 2020, there were over four million mortgages in forbearance. But in February of 2021, as the country’s economy stabilized and Americans got back to work, the number of homeowners in forbearance dropped to 2.6 million.

Millions of mortgage borrowers are coming out of forbearance as mortgage rates are hovering near record lows. Hoping to take advantage of these low rates and reduce their monthly payments, many of these homeowners are considering refinancing.

If you requested forbearance and stopped making payments, you’re not immediately eligible to refinance. So, to take advantage of low mortgage rates you’ll need to exit forbearance and begin making payments as soon as you comfortably can.

Different Loans Have Different Rules for Exiting Forbearance and Refinancing

You don’t have to wait for your forbearance period to end, you can exit earlier if your financial situation allows. “The best time to end forbearance is when the borrower is comfortable and able to make payments, including the additional money for repayments they owe,” Dongshin Kim, assistant professor of finance and real estate at Pepperdine Graziadio Business School notes.

Exiting forbearance is pretty straightforward – start making your monthly payments again. But exiting forbearance and entering into a refi is a bit trickier. You’ll need to discuss the specifics with your lender.

Conventional Loans

For homeowners who have borrowed money through conventional loans like those issued by Fannie Mae and Freddie Mac, common practice dictates that you’ll need to have made three on-time monthly payments before you can be considered eligible for a refi.

The Department for Housing and Urban Development (HUD) notes that if you were current on your mortgage when you requested forbearance through the CARES Act, you’ll return to current status when you exit forbearance. However, if you were delinquent on your payments when you entered forbearance through the CARES Act, you’ll maintain your delinquent status until you are up to date on your payments. You will not be able to refinance with a delinquent status.

Remember, you still owe your lender for the unpaid principal and interest you accrued while in forbearance. Those missed payments will be added to the amount of your payoff when you refinance.

FHA, VA, and USDA Loans

For most FHA, VA or USDA loans, you’ll need to make at least three consecutive on-time payments before you can refinance. However, some FHA and VA loans are more lenient.

An FHA Streamline Refinance is a great way for borrowers to take advantage of lower rates. This program is fairly simple to qualify for. Applicants must:

  • Have an existing FHA-backed mortgage
  • Have a history of on-time payments
  • Wait at least 210 days after buying the home or refinancing to use the FHA Streamline
  • Have a clear monetary benefit for the new loan

For homeowners who entered into forbearance under the CARES Act who are now in a more financially stable place, it might be time to talk to your lender about exiting forbearance. If you’re able to start making on-time payments now, you may be able to take advantage of the current low interest rates.


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