FHA Forbearance: What You Should Know

Life is unpredictable. When you close on your mortgage loan, you never anticipate having trouble making the payment, but things happen. High medical bills or a job loss could put a strain on your finances. Maybe you need to rebuild after a natural disaster. If you have an FHA loan, an FHA forbearance could buy you time to get back on your feet.

What Is Forbearance?

In the financial sense, a forbearance is a temporary pause or reduction in a payment. It’s designed to give someone relief from certain monetary obligations so they can concentrate on getting the budget back in order after an unexpected event.

It should be noted that if you can pay any amount during the forbearance, it will help. Whatever isn’t paid during the forbearance will be due when the forbearance is over. There are several options for repayment and getting current that we will get into later.

When it comes to real estate, forbearance is most often referred to in relation to mortgages. Most frequently, this is utilized when someone experiences a temporary hardship like a job loss. It’s also commonly used in the wake of natural disasters.

Forbearance may also be an option after a job loss or other event that causes financial distress. The options you have after forbearance and the impact on your credit are going to depend on what caused the need for the forbearance. Fannie Mae and Freddie Mac may have different policies than the VA, for example. Here, we’ll discuss FHA forbearances.

What Is FHA Mortgage Forbearance?

FHA mortgage forbearance is a temporary payment pause or reduction of your mortgage payment for those with FHA loans. If you contact your servicer, the entity you make your payments to, about having trouble with your monthly payments, this may be one of the options they’ll discuss with you.

If you’re approved for and accept a forbearance, you’ll be approved for a defined period of time. Rocket Mortgage^® approves clients in 3-month increments. Although there are isolated circumstances when it may last longer, forbearance usually lasts no longer than a year. You’ll also do check-ins every month and can exit when you’re ready to resume payments.

Once you reach the end of your forbearance, Rocket Mortgage will go over your options for getting current on your loan or finding a way for you to exit the home gracefully if staying in your current home no longer makes financial sense.

If you’re a Rocket Mortgage client currently struggling to make your mortgage payment, they’re ready to help. Get in touch by filling out their Application For Success.

FHA Forbearance Eligibility Requirements

In order to qualify for an FHA forbearance, you generally have to meet a couple of requirements.

• You need to have an FHA loan. This isn’t to say that there aren’t options for other types of loans such as conventional and VA loans. It’s just a different type of forbearance.
• You need to have a temporary hardship. The problem you’re experiencing must be temporary. Otherwise, you may need to look at other options for dealing with your hardship. That said, whether your issue is a natural disaster, temporary medical hardship or job loss, forbearance could be a logical first step to getting back on your feet.

How To Apply For An FHA Loan Forbearance

If you’re struggling to make a mortgage payment and want to look at forbearance as an option, here’s how you go about it, whether the loan is through the FHA or any other investor.

1. Contact Your Mortgage Servicer

If you’re experiencing payment trouble, the first step is to speak with your mortgage servicer. Your servicer collects your monthly payment. This may or may not be the lender who originally closed your loan. Whether you end up going into forbearance or not, they’ll be able to make you fully aware of all the options that may be available to you.

2. Apply For Forbearance

If it’s determined that the best option for you is a mortgage loan forbearance, you’ll need to fill out an application. As part of the process, you’ll be asked to explain the nature of your hardship. Your lender could also ask for things like bank statements and a list of monthly expenses. The goal is to determine the nature of your problem and the kind of assistance that’s best.

3. Discuss Terms

If you’re approved for and offered an FHA forbearance, your lender will discuss the terms with you. This will include the length of your initial forbearance approval. They’ll also talk about whether any reduced payment will be due from you during the term of your forbearance. It should be noted that if you can make any payment during your forbearance, it will lessen what you owe at the end of it.

Make sure you’re clear on the terms of your forbearance before you move forward so that you know what you’re getting into. Ask whether and how this could impact your credit.

4. Sign Documents

Once you accept your forbearance, you’ll sign a forbearance agreement verifying that you accept and understand the terms.

5. Discuss Post-Forbearance Options

Once you exit forbearance, you’ll need to pay any past-due amounts. You’ll be evaluated to see if you qualify for one of a number of options. As with a forbearance, these options may impact your credit depending on the circumstances that led to your forbearance.

Some allow you to stay in your home and get caught up on your payment. If that’s not possible, lenders look to help you exit your home gracefully. Let’s go over the options for staying in your home first:

• Repayment plan: A repayment plan adds some of your past-due amount to your payment each month until you’re current on your loan. The term of these plans is usually short, anywhere from 3 – 6 months.
• Partial claim: With other loan options, this may be referred to as a deferral. In this case, some or all of your past-due payments become due when you next refinance, sell your home or otherwise pay off your loan. This may be used alone or in combination with a modification, which we’ll discuss next.
• Modification: The goal of any modification is to bring you current on your loan by adding your past-due payments back into your loan balance. This also typically changes the interest rate and remaining term of your loan. It may be used on its own or in combination with a partial claim.
• Reinstatement: Although this isn’t doable for everyone, the fastest way to become current on your loan is to make a one-time payment encompassing your full past-due amount. You may be able to do this if it’s strictly an issue of cash flow. As an example, maybe you work for a couple of months before receiving promised backpay.

If you reach the end of your forbearance and realize it isn’t possible or realistic for you to resume making your payment, you can look into ways you could exit your home while avoiding a full foreclosure.

• Sell your home: Home values have been up in many areas across the country over the last several years. If you can sell your home and turn a profit, this is ideal. You could pay off your existing loan and take whatever is left over to use it toward a down payment on a more affordable house or rent of a new place.
• Short sale: In the event that your home value has fallen since you purchased your home, your lender may approve a short sale. In this arrangement your lender accepts the market value for your home, even if it’s less than what you owe. If you go this route, your lender has to agree to the arrangement and approves all offers. In exchange for your cooperation, your lender may help you with getting some amount of funds for your next place. You may hear this referred to as “cash for keys.”
• Deed-in-lieu of foreclosure: A deed-in-lieu of foreclosure occurs when you voluntarily surrender your property to your lender. Again, your lender may be able to provide you financial assistance toward finding your next place.

Although a short sale and deed-in-lieu of foreclosure do you usually impact your credit and future mortgage prospects, it’s not as bad as if you go through a full foreclosure.

FHA Forbearance FAQs

Now that you have the basics down regarding FHA forbearance, let’s answer a few of your frequently asked questions.

What’s the difference between forbearance and deferment?

Forbearance is the act of temporarily pausing or reducing your mortgage payment. Deferment is one option your mortgage servicer will evaluate you for to allow you to get current on your mortgage loan by moving some or all of your past-due payments to be due when your loan is paid off. The FHA refers to this as a “partial claim.”

How does forbearance affect refinancing?

Forbearance impacts refinancing in a couple ways. If the forbearance impacted your credit score, you may have to build your score back up again before you qualify. You may also have to complete a certain number of payments before you qualify. This may change based on how you resolved your forbearance. Speak with a Home Loan Expert regarding your personal situation to see if you qualify for a refinance loan.

Does forbearance affect my credit?

Whether you’re FHA forbearance impacts your credit depends on the circumstances that led up to forbearance. In most circumstances, it will have a negative effect on your credit, although the effect will be less than if you did nothing and racked up late payments or let the home go into foreclosure.

There are exceptions to this in limited circumstances such as forbearances resulting from natural disasters.

Can I extend my forbearance?

You’ll check in with your servicer every month. Rocket Mortgage approves forbearances for up to 3 months at a time. Typically, these last no more than a year.

How do I get out of forbearance?

If you’re ready, you can speak to your servicer and exit forbearance at any time. They’ll go over workout options for handling the next steps. If you don’t exit on your own, your forbearance will naturally end at the end of the term of the forbearance.

Does forbearance affect my credit?

Whether you’re FHA forbearance impacts your credit depends on the circumstances that led up to forbearance. In most circumstances, it will have a negative effect on your credit, although the effect will be less than if you did nothing and racked up late payments or let the home go into foreclosure.

There are exceptions to this in limited circumstances such as forbearances resulting from natural disasters.

Can I extend my forbearance?

You’ll check in with your servicer every month. Rocket Mortgage approves forbearances for up to 3 months at a time. Typically, these last no more than a year.

How do I get out of forbearance?

If you’re ready, you can speak to your servicer and exit forbearance at any time. They’ll go over workout options for handling the next steps. If you don’t exit on your own, your forbearance will naturally end at the end of the term of the forbearance.

The Bottom Line

FHA forbearance involves pausing or reducing the payment on an FHA loan. If you think you need it, it’s a good idea to reach out to your mortgage servicer and go over what your options might be.

Most of the time, forbearance and the options for handling the aftermath do impact your credit, but it’s less than it would be if you just let it go to foreclosure. Natural disasters are an exception.

If you’ve yet to miss a monthly payment, you may be able to find ways to lower your monthly payment before going the forbearance route. Otherwise, we recommend speaking with your servicer as soon as possible. Rocket Mortgage clients can fill out the Application For Success.