Does Forbearance Affect Getting a New Mortgage

When you buy your first home, nobody really prepares you for everything that you need to know.

Buying a home grants you entry into a new world, a world full of jargon that you would never know if you hadn’t bought a house. Due to this, it is very easy to make bad decisions and find yourself in a bad financial position. 

One term that you might not have heard mentioned before you bought a home is forbearance. It is a very niche term, so when you first hear it mentioned to you, you might be puzzled as to what it means.

But forbearance is actually very common, and more than 3 million Americans are currently in mortgage forbearance plans. 

In this helpful guide, we’ll be taking a look at what forbearance is, what this term means, and how it affects your mortgage. So, to find out all the things that nobody has ever told you before, keep on reading. 

What Is Forbearance?

When you apply for a mortgage, you do so knowing that every single month you will have to repay a certain amount of money.

The company that offers you the mortgage essentially buys the house for you, and then you will have to constantly repay them to be able to retain ownership of your home.

But most companies will recognize that there are some situations where you might be unable to repay your mortgage for a month, and this is why forbearance exists.

If you find yourself in a sticky financial situation, for example through accident, injury, or loss of employment, then you can apply for a forbearance plan from your mortgage lender.

Most companies offer this, but different companies will offer different terms.

Being unable to keep up your monthly repayments for one month can seem like the end of the world, and you might be panicking that you could lose your home. But, most lenders offer forbearance periods to help you out.

Where a lot of people go wrong is that they simply miss payments, and this is why you could lose your home. But, if you speak to your lender, and take out a forbearance plan, then this doesn’t have to be a worry.

A forbearance plan will reduce or suspend mortgage payments for a set amount of time.

The money that should have been paid during this time will either be paid in a lump sum at the end of the period, or your monthly payments will increase to cover the forbearance period.

As long as you approach your mortgage lender, and take out a forbearance plan, then you will not need to worry about losing your home if you are unable to keep up your repayments.

Does Forbearance Affect Getting A New Mortgage?

As soon as you consider buying a home, you will quickly realize that every single financial decision that you make will impact your ability to get a mortgage.

When a lender considers you for a mortgage, they will look at your complete financial history, and this will affect whether they accept or reject you. So does forbearance affect your ability to get a new mortgage?

Forbearance plans do not impact your credit score, because of this you might not expect your forbearance plan to impact your ability to get a new mortgage.

But this isn’t the case. Mortgage lenders look at a lot more factors than just your credit score when they are considering you for a mortgage, and forbearance is one of these factors.

Traditionally, a forbearance plan would have a huge impact on your ability to get a new mortgage. This is because when you enter a forbearance plan you are admitting that you cannot afford to repay your mortgage, and this is a big financial hardship.

While your existing mortgage lender might not be bothered by your forbearance plan, because they have leverage on this (i.e., they can take away your home if you do not repay the mortgage), new lenders will be bothered.

When you are considered for a mortgage by a lender, they are looking at you and your financial history, and weighing up the risk of offering you a mortgage.

If you have a forbearance in your financial history, then this is not going to be appealing.

But, over time, this will become less of a big deal, so having forbearance in your history does not mean that you will be unable to get a new mortgage.

It simply means that you may be unable to get a new mortgage immediately.

How Long After Forbearance Can You Get A Mortgage?

When forbearance plans first came into place, it was generally accepted that you should wait around 1 year after you have completed your forbearance plan to apply for a new mortgage.

In the immediate months after the forbearance plan has happened, you will be incredibly unattractive to lenders.

But, over time, the forbearance will become less and less important, and generally within a year, you will be able to find plenty of lenders who are willing to offer you a mortgage.

In recent years, the time that you have to wait to apply for a new mortgage has changed. But generally speaking, the longer that you wait, the higher your chances of getting a new mortgage.

However, there is something else that will affect your ability to get a new mortgage, and that is repaying your forbearance plan. If you have the money, then you can pay off your forbearance plan in a single lump sum.

But in most cases, the cost of your forbearance will be added to your mortgage payment for the immediate months after the plan has ended. Due to this, you will generally have to wait 3 months before you can apply for a new mortgage.

Summary

In short, yes forbearance will affect your ability to get a new mortgage. You will be unable to get a new mortgage immediately after forbearance, unless you can repay the forbearance plan in a single lump sum.

You may also struggle to get a new mortgage for around a year after your forbearance plan ends, as this is considered a financial hardship, and isn’t viewed favorably by lenders. But after time has passed, you will be able to get a new mortgage. 

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