Forbearance… Beating a Dead Horse? Unfortunately Not.

Filed under: Forbearance

Forbearance is a topic I’ve mentioned a few times, but it’s an important subject right now – especially since it’s been hitting the news headlines.

Preface: I understand that there are many people out there who have no other option. If that is the case, then please take full advantage of your options. This isn’t a shaming message about getting a free ride on a mortgage. But know what you are getting in to.

Why Forbearance is an Issue

Here’s the problem: the way the messaging has come out about forbearance is that it is a free ride and there will be no impact on your credit.

The truth is that there is absolutely an impact on people asking for forbearance. While creditors are not reporting the late payment, it still has a consequence. The real problem is that mortgage companies are reporting on time, but putting a message in the notes that the account is in forbearance.

Those words on a credit report may or may not hurt your credit score. We’ve seen several clients who’ve experienced 30 to 40-point drops. But the most important thing that you need to keep in mind is that if the report has a note about forbearance, then it won’t bode well for you in the underwriting process if you are looking to get a mortgage.

Think about Your Future

Many people are looking to sell their homes to buy another. We’ve seen a few situations where people have their homes for sale, then they choose to go into forbearance to give themselves a little more time and money to fix up the house before selling. If the mortgage company adds a note that you went into forbearance, then it will be a problem when you are ready to buy the next house.

Another example is people who have other properties. For example, landlords who aren’t getting their rent right now. It seems like an obvious choice to go into forbearance on that property. But the problems arise when you go to refinance another property or your primary residence.

Forbearance might feel like a free ride, but you won’t be able to refi or get a mortgage with that note on your credit report. That being said, the rules are in flux and things are changing. It’s a big issue in the mortgage world right now, and hopefully they will get this stuff worked out.

Is Forbearance a Good Choice?

Please know: if forbearance is something that is necessary, then take advantage of it. On the other hand, if there is a way to make your mortgage payment and you will be doing any type of mortgage financing any time soon, then it’s best to make the payment.

As always, I’m here to answer questions. Also, I ask that you share this information because the messaging in the news is a little confusing and I want homeowners to know their options.

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