In light of the Coronavirus pandemic, many mortgage and student loan lenders have been promoting their forbearance programs, allowing people to take advantage of no payments on their loans for a defined period of time.
While forbearance allows people to delay making payments, doing so may have consequences when applying for a loan to refinance or purchase a new house. Also, depending on your lender, full payment with interest, for the missed payments may be due when you exit forbearance.
Todd Shreeve, Senior Loan Officer with Movement Mortgage, recently shared a story about a couple who was looking to sell their home and buy a new one.
The couple was busy getting their home ready to sell and hadn’t done anything in terms of getting prequalified for their next home as they had great credit, good income, etc. At least that’s what they thought.
At the insistence of Todd and their REALTOR®, they went ahead and started the prequalification process. Todd discovered a mortgage forbearance flag on their credit report, which would prevent them from applying for a loan for at least 12 months. Come to find out, they had contacted their current home’s lender to inquire about a forbearance and what that entailed, but never actually skipped any payments, but an overzealous loan assistant placed the flag on their credit record for merely inquiring.
In any event, since they hadn’t missed any payments, they called their lender and were able to get the flag removed. If they had missed a payment, then they would’ve been in forbearance and it would’ve been a year before they could buy another property.
The lesson learned is that if you’re interested in moving from one home to another, it’s a good idea to start the prequalification process, regardless of how good you think your credit is. And also, be diligent when speaking with existing loan holders, as they may make assumptions based on the current economic climate due to the pandemic.