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Mortgage Deferral, What You Need To Know | If you're considering mortgage payment deferment (also called mortgage forbearance), there are some mortgage deferral pros and cons you need to understand before making the decision. As we approach the mortgage deferral cliff, it's important you do not defer your mortgage payment unless you absolutely have to, because it can have unexpected consequences!
In this video I talk about what mortgage deferral is, the types of forbearance options lenders provide, the potential effects of accepting one, and the things you need to do to protect yourself when securing a forbearance.
When you took a forbearance and they put it at the end of your mortgage, well, guess what?
When you're refinancing, you're ending that mortgage.
Time to pay up.
So don't forget because I don't want anybody to have any surprises.
Hi everybody, welcome back to the channel.
Today, we're gonna to talk about mortgage forbearance.
It is a big, bad F word.
Stay tuned till the end of this video to learn more about mortgage forbearance and why you should not do it.
If you can avoid it, please don't do it.
Welcome back to your one stop shop for anything and everything mortgage education.
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My name is Stephanie Weeks and I have helped thousands of customers with their mortgage financing.
And my goal now is to help you, any and every consumer that I can, have mortgage peace.
I discuss in these videos, anything and everything mortgage education, and I bring to the table, my 16 years of mortgage loan officer experience to do so.
Mortgage forbearance, what is it?
Why is it bad? And why you should not do it unless you absolutely have no other choice?
I wanna kind of give you a quick disclaimer first.
Let me say to anyone out there listening to this, if forbearance is something that you absolutely need and there's nothing that you can do, and you have to have reprieve from making your payments during difficult times, then you need to do that, you need to protect yourself, you need to do what's best for you and or your family and it just is what it is. Sometimes life throws us curve balls that we can't control.
Okay, so disclaimer, if you absolutely must take advantage of a forbearance, you just have to do so and cut yourself some slack. Times will get better, you'll make it through it and it just is what it is. So it's okay, peace of mind means a lot.
Now I'm gonna go ahead and dive into forbearance and the things I wanted to cover about that.
So why do I say that it's an F word?
It's an F word, which is associated with bad words, right? So what does it mean?
Let's start there. What it means is that you need some type of reprieve or some type of break
because you are going through some type of hardship that has caused you to not be able
to make your mortgage payment.
When you look great to a forbearance, you are saying, "I cannot make my mortgage payment and I need a break."
That is what that means. So what happens when you take a forbearance? What does that mean? Where does the payment go?
So we discussed what it means technically but where does the payment go?
So what happens is that each forbearance is different, they're structured differently.
So with some mortgage companies, you're saying, "I need a three-month break from paying my mortgage because of a hardship. So at the fourth month, I'm gonna go ahead and pay you all three months at once."
And I'm gonna pause on that 'cause I want you to think about that.
In some forbearance agreements, you are saying that I need a forbearance. I need a break. In this example, three months, and that on the fourth month, "I will come back to you Mr Mortgage Company and I will pay all three payments at once."
Wow, some people don't realize they're committing to this and I don't know about you, but I feel like if I can't make a payment for three months, how the heck am I supposed to make three months payments at one time?
It just doesn't make a lot of sense to me when they offer those types of agreements.
And I just really want you to read everything you're signing, know what you're getting
into and agreeing to, because that's one example of a mortgage forbearance agreement.
Let's talk about another example.
The next example is that they're gonna put the payments at the end of the loan and guess what? People are surprised by even what that means.
So let me give you an example. Let's say you took a forbearance, let's say that you put three months at the back of the loan.
Let's say that then you're trying to refinance.
Keep in mind, you might not be able to, since you had a forbearance. Very possible that you cannot refinance because you have a forbearance but let's say that something works out
and you're able to do so and you think that you owe $150,000 on your mortgage, right?
That's what you see on your statement.
Well, guess what? When that payoff comes in, it's $150,000 on the mortgage plus the three-months payments you missed.
So now whatever numbers that you're working with with your loan officer are probably incorrect.
That is gonna suck, so keep that in mind.
That's another example of what you were agreeing to with a forbearance.
Where does the payment go?
Example one, possibly you're making three payments at once on the fourth month and example number two is possibly that you're putting it at the end of the loan, which sounds amazing if
you keep the loan forever.
But when you go to pay it off, you're gonna owe more than you're thinking that you do.
The next thing that I wanna talk about, because I get this question a lot, will taking a forbearance mess up your credit?
Politically correct answer is, it's not supposed to.
So a lot of things these days are electronic and computer-generated and computer-automated.
So what has happened in the past that I've seen and I haven't seen it so much in this year of 2020 with COVID, so hopefully they fixed it, but what I've seen in the past is when people took forbearances years and years and years ago, they actually in one part of their system said, "Yes, this person does not owe their payment, they're not late, whatever."
But then in another part of the system, it started reporting to the credit bureau that the mortgage is not paid, it's 30 days, 60 days, 90 days late, which is detrimental to your credit.
So it's not supposed to negatively affect your credit but you always need to assume the worst, watch everything, monitor your credit and make sure that if you took a forbearance and it's not supposed to affect your credit, that it's actually not, that would be one tip.
And the second tip is, if you do anything, forbearance as this example, you get that in writing, you read every line and you read every number and you read every detail on that page before you sign it and agree to something
you don't even realize that you're agreeing to.
And that way, let's say that that agreement says, "You're in forbearance for three months,"
that agreement says, "This will not negatively impact your credit score."
Beautiful, you both signed it, you've got your copies.
Next thing you know, an error has happened, it's showing on the credit, not only can you dispute
with the mortgage company to fix it, but you have something in writing to also take to the credit
bureau in case heaven forbid, you need to go that route as well.
Next, can a forbearance
mess up or mess with or affect your refinance approval?
And the answer is absolutely, absolutely, absolutely.
A few things, I'm gonna throw a couple of examples and get your mind kind of thinking.
So when you're refinancing, the lender is looking at you and your profile and your credit,
your capacity, your collateral.
And so those are three of
the seasoned mortgages,
there are actually four.
You can figure out the fourth by downloading the checklist I'm putting here for you today.
But so those couple of things, right?
Those three things.
So your credit is, is it good? Is it on time? How's your pay history?
Or one of the things we look at when you're refinancing is what's the date last active on your credit for your mortgage?
'Cause that usually indicates the last payment that you made.
So if a loan officer's looking at your credit, we're in July, your credit report says last active May,
that's a huge indicator that you haven't made a payment.
So that's gonna lead to other investigation, asking for things like most up-to-date mortgage statement, which is then gonna show if there's money that you haven't paid because the forbearance and that's gonna cause an issue because we're saying, or trying to prove that you have the capacity to pay that new mortgage.
And if you didn't have the capacity to pay the old mortgage within the last 12 months, well, you're kind of telling on yourself right there, "I don't have the capacity" and that's gonna make it
hard to get a refinance and in some cases, make it absolutely impossible to get a refinance.
So it can absolutely affect that refinance.
The other way that it can affect your refinance is remember what I said previously is that the balance, so let's say that you're banking on a new loan amount of $156 to pay off a loan of $150
and that's to rolling closing costs, prepaid, set up your new escrow, all that stuff, right?
Well, the second that that pay off comes in and you owe 153 and not 150, your loan devalue just changed.
Now you might need $3,000 to close that you weren't expecting, why?
Because the path came in higher because when you took a forbearance and they put it at the end of your mortgage, well, guess what?
When you're refinancing, you're ending that mortgage.
Time to pay up.
So don't forget because I don't want anybody to have any surprises.
I hope you're having a wonderful time talking about mortgage forbearance with me.
I know it's not a super exciting topic but you know what I learned this week, I always say that knowledge is power.
And I actually had somebody tell me yesterday and I was like, "Wow, I'm totally taking that saying, "it makes so much more sense.”
So knowledge is power, but actually what's more powerful, applied knowledge.
Applied knowledge is power.
So I hope these videos are helping you to be empowered, apply your knowledge and make sure that you're making the best decision when it comes to anything and everything mortgage.
So let's dive into my last topic for today having to do with forbearance and that is taking a forbearance, can that affect if you're looking to pre-approve for a new home?
And the answer is absolutely yes because just like we talked about with the refinance, we as lenders are looking at your credit and your capacity to pay.
So if you wanna get approved for a new home in the next 12 months, and you have taken advantage of, not a foreclosure, my gosh, no, no, no, no, a forbearance, then we're gonna be able to see that.
There are some things that are gonna let us, kind of give us trigger clues that you have.
We're gonna find things that might be on your monthly mortgage statement you're gonna produce, might find things on the credit report, the status history on their credit report, the status updates on the credit report, the date last active on the credit report, all of those kinds of things, right?
If we're analyzing bank statements and such or we might need to verify 12-months payments on the mortgage, which sometimes if it's not reporting right and we can't get the credit updated, you need canceled checks.
It's rare, but it could happen.
So it's probably going to be found that you chose to have a forbearance.
So again, when you're looking to finance a home, we are looking at do have the capacity to pay?
And with lending, we look at a lot of things.
So this is not super, super specific here but generally, we're looking real close at the last 12 months and we're looking pretty darn close at the last 24 when it comes to payment histories.
And so if you've said in the last 12 months, "Oh, I don't have the capacity to pay my mortgage, I need to take a forbearance," well, that's not a clean good 12-month pay history and it can absolutely affect the loan program that you can do.
It might affect the approval altogether.
It might end up costing you money and additional money unexpected if you can't go the route that you thought you were gonna go with your mortgage pre-approval. So it can affect you pre-approving for a new mortgage as well.
So please keep that in mind.
Remember, like I said, life happens, cut yourself slack.
If you have to do it, you do it.
You take care of yourself, you do what you need to do but applied knowledge is power, so don't forget.
Today's free download is going to be the four Cs of mortgage.
Check this download out. It's gonna make more sense as to why we're kind of talking about one of the Cs when we talk about forbearance.
So I really hope this checklist helps.
I'm gonna drop it and I'm gonna drop the link below the video.
If you feel more knowledgeable and you know about forbearance and if it's going to be right for you or not, please drop me a comment below.
Say forbearance, say yes, say definitely, say for sure any of those things, I'd love to hear your feedback.
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Thanks again.
