The past year has been one filled with ups and downs for homeowners. If you lost your job or were furloughed, you may have had trouble paying your mortgage. Fortunately, the CARES Act took care of homeowners, allowing most people to request forbearance so they didn’t have to worry about losing their homes during these tough times.
The good news is you weren’t under any obligation to keep the home that was in forbearance. If you sold it, you may be ready to buy another home.
Sounds easy enough, right?
There are a few steps you must take before you can buy a home, though.
A forbearance is an agreement to stop your payments for the time being. You can request it for up to one year but in 6-month increments.
If you sell your home in that time, the lender didn’t receive your payments. You must make up the payments from the proceeds of selling the home, just like you would pay any outstanding loan amount. You must prove to future lenders that you made good on the debt.
Prove you Improved your Financial Situation
Here’s the tougher part.
You have to prove you can afford another loan. Since you have a history of forbearance, lenders will naturally be nervous about lending to you. Your credit score probably fell too because lenders report a mortgage forbearance to the credit bureaus. It’s not as damaging as a foreclosure, but it’s still damaging.
Lenders will wonder if you’ll need forbearance again or if you’ll default on your loan. To prevent this, most lenders require a 12-month history of ‘good credit.’
Here’s what that means:
• Prove timely housing payments – Even if you’re renting, prove you made the rent payments on time. Ask your landlord for a letter showing your last 12 payments, the due date, and the date you paid.
• Keep your credit score high – Most lenders report a mortgage forbearance to the credit bureaus. It doesn’t hurt your score as much as a foreclosure, but it may drop. In the 12 months that you establish a solid housing payment history, work on your other credit factors too.
• Save for a down payment – The more money you can put down on a home after mortgage forbearance, the better. Lenders like when you have ‘skin in the game,’ because you’re more likely to make your payments on time so you don’t risk losing your money.
Buying a Home after Mortgage Forbearance is Possible
Buying a home after mortgage forbearance isn’t as hard as it seems. It comes down to proving you are a good financial risk.
The minute you sell your home, work on improving your credit. Lenders want to see that you’re stable and reliable, despite the mortgage forbearance. Mortgage lenders realize times were tough and many people couldn’t prevent using forbearance to get by, but if you’ve improved your financial situation and can prove you can afford a new mortgage, you’re in good shape.
Always check with a professional lender before you make financial decisions. This discussion about buying a home after selling a forbearance home can be different state to state, and also different lenders and investors will have different rules and potentially programs that will fit your needs. So even if you just sold, or you are planning to sell call a couple mortgage brokers and plan accordingly.