The world was put to its knees for a time ever since the COVID-19 pandemic hit. The resulting economic crisis has left many homeowners reeling. A great number of homeowners started going into mortgage forbearance plans to lessen their financial burdens. Even the federal government included a mortgage forbearance plan in the CARES act for federally backed mortgages, giving homeowners the ability to pause or reduce their house mortgage payments.
Now that people are slowly trying to recover and their forbearance plans are going to expire soon, is it possible to refinance your mortgage loan while you’re still in forbearance? Let’s explore how refinancing works after your mortgage forbearance agreement ends.
Can You Refinance a Mortgage in Forbearance?
In some cases, unfortunately, it’s not possible. However, it varies from lender to lender and the type of mortgage you have. If you fell behind on any payments before the forbearance started, that could also be a factor. One notable exception applies to those who applied for federally backed home mortgage loans. They are automatically qualified as long as they’re current with their payments. Once the forbearance program ends, the refinance process will involve the following:
Review Your Options with Your Lender
Your loan servicer can help you determine whether refinancing is an option right after a forbearance plan. They can also give you advice if it makes the most sense for you, especially given closing costs and other fees. If your finances are still tight, they may be able to revise your repayment plan or reduce your monthly payment on your current loan.
Determine the Type of Refinancing
If you’ve confirmed with your mortgage lender that you can refinance as soon as your forbearance ends, consider it as an opportunity to refinance into a loan with a lower interest rate. It could both lower your monthly payments and overall interest costs. Just bear in mind that there will be upfront costs associated with the new loan, and it will also reset its time frame.
Check Your Credit
Being in a forbearance program doesn’t make your credit score untouchable. It still has the potential to lower your credit score. Make sure to check your FICO score every year with each of the three credit bureaus. The better your credit, the better your refinance loan terms will be in general. It’s possible to delay the refinancing after your forbearance so you can further improve your credit score and put yourself in a better position to apply for a refinance.
Provide the Required Documentation
Once you’ve decided to refinance and have secured your credit score, the following steps are similar to applying for a new loan. As always, there’s a lot of paperwork involved, including two months of pay stubs and bank statements, as well as two years of tax returns. Your mortgage lender may also require a list of assets and liabilities.
Refinancing is a great opportunity for many people who just got out of a forbearance plan. However, it’s not always the best solution for everyone. It’s always best to do some research and consult your lender about the best course of action given the current state of the economy, your financial standing, and what available options are open to you.
If you’re interested in refinancing or buying a new home, Hawkins Home Loans is here to help. We believe the right loan makes all the difference in the world. Our team will make sure you find the right deal for you before you apply for a mortgage loan. When looking for a mortgage lender you can trust, go to Hawkins Home Loans. Contact us today to schedule an appointment.