The COVID-19 pandemic caused millions of Americans to experience financial hardship. As a result, some homeowners haven’t been able to keep up with their mortgage payments. To provide some relief, the federal government included a mortgage forbearance plan in the CARES Act for federally backed mortgages. It gives homeowners the ability to pause or reduce their mortgage payments.
Although the number of loans in forbearance has dropped recently, 2.3 million homeowners remain in forbearance plans, according to the Mortgage Bankers Association. Borrowers who no longer need this protection may choose to refinance their mortgage after forbearance to take advantage of record low refi rates. These low mortgage rates have driven a surge in mortgage refinance activity over the past year, as well as more interest in taking out a personal loan, home equity loan, student loan and more.
If you’re ready to take advantage of lower rates or are even considering doing a mortgage refinance, visit Credible to get prequalified rates without impacting your credit score.
How long after forbearance can you refinance?
Federal mortgage forbearance currently expires on June 30, 2021. In February, President Joe Biden extended the forbearance for federal mortgages to help Americans who are still experiencing financial hardship due to COVID-19. The length of time it takes you to become eligible for a mortgage refinance after forbearance varies according to the lender, the type of mortgage loan and whether you continued making payments. While most lenders won’t let you refinance until 12 months after forbearance, you’ll qualify sooner with some lenders.
For example, last May, the Federal Housing Finance Agency issued guidance stating borrowers who were current on their mortgages could qualify immediately for a refinance. To qualify otherwise, you’d have to wait three months and make three payments in a row under your repayment plan.
How to refinance a mortgage after forbearance ends
If you want to refinance your mortgage after forbearance, the process is simple.
1. Talk to your lender
Before refinancing your mortgage, you should understand the pros and cons of doing so. For example, refinancing your loan can lower your monthly payment but it can also increase the amount of interest you pay if you extend the loan terms. Also, refinancing your loan might not make sense if you plan on moving soon.
Refinancing from a 30-year fixed mortgage to a 15-year fixed mortgage can help you pay off your mortgage faster. This option, however, usually comes with higher monthly payment.
Speaking with your lender can help you understand what your loan options are, how to get a lower payment and the costs associated with a mortgage refinance. If you have questions about your refinancing options, visit Credible to view a mortgage refinance calculator and get your mortgage questions answered.
2. Compare refinance rates
Different lenders have different refinance rates. To get the lowest rate you’re eligible for, you should prequalify with multiple lenders. When you prequalify, the lender will give you an estimate of what your refinance rate and terms could be.
3. Check your credit score and review your credit report
When a mortgage lender views your application, they will review your credit score to help determine what your refinance rate will be. The lower rates usually go to the borrowers with excellent credit scores — at least a 740, based on the FICO credit scoring model.
You can get a free copy of your report every 12 months from all three credit bureaus: Transunion, Experian and Equifax. One way to improve a bad credit score is to dispute and remove inaccurate or incomplete information from your credit report. Other ways to improve your bad credit score include not missing a mortgage payment and paying down your debt.
4. Gather the documentation the lender needs for refinance loans
When you refinance your mortgage after forbearance, you’re taking on a new loan. The lender will require you to submit documentation to confirm your income, employment history, liabilities, assets and insurance.
Here are some documents lenders may ask for to ensure you're ready to refinance:
- List of liabilities
- List of assets
- Two months of pay stubs
- Two years worth of tax returns, W2s and 1099s
- A copy of your homeowner’s insurance policy
- A copy of your title insurance
5. Close on your refinancing loan
If you’re approved for the new loan, the lender will send you some paperwork to sign. This is called the closing or settlement period. After you sign the paperwork, the lender will distribute the funds, and you’ll be responsible for repaying the loan as promised.
At closing, you should bring the following items:
- Government-issued Photo ID
- A copy of your homeowner’s insurance policy
- A cashier’s check to cover your closing costs
As Americans emerge from forbearance periods, refinancing their current mortgage could be a good way to continue to save money. By following the steps above, you can compare mortgage lenders and mortgage interest rates, ensuring refinancing is the right step for you and that you select the best refinance option. Visit Credible to get in touch with experienced loan officers and get your mortgage questions answered.
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