If you want to refinance your mortgage but you’re enrolled in a forbearance program, generally, you must first end the forbearance and meet certain conditions.
Refinancing involves paying off your original loan and taking out a new loan with new terms. If you can reduce your interest rate or lengthen your repayment period, your new mortgage payment may be easier to manage.
Canceling your mortgage forbearance plan and refinancing could put your home loan back on track. Here’s what you need to know.
[Read: Best Mortgage Refinance Lenders.]
What Is Mortgage Forbearance?
Mortgage forbearance is an agreement between you and your loan servicer or lender that temporarily pauses or reduces your mortgage payments. The bank also agrees not to start foreclosure proceedings during this time.
Forbearance agreements eventually end, though, and homeowners might be stuck with expensive mortgage payments just as they’re getting back on their feet.
“The homeowners will also need to make up the missed payments,” says Ed DeMarco, president of the Housing Policy Council, a trade group representing mortgage lenders and servicers. “These missed payments may be deferred to the end of their mortgage term or may be rolled into the mortgage balance.”
In these cases, a refinance might help. Refinancing “creates an opportunity for many homeowners to reduce their monthly mortgage payments or shorten their loan term, either of which may reduce risk for the borrower and the lender,” says DeMarco.
Can You Refinance a Mortgage in Forbearance?
If you have a loan backed by Fannie Mae or Freddie Mac, or by the FHA, USDA or VA, here is what you need to know:
— Fannie Mae or Freddie Mac. You’ll need to make three timely payments under a loan modification or repayment plan before you can refinance. Then you may refinance the entire loan amount, including any missed payments, into a new loan. You can use the online lookup tools for Fannie Mae and Freddie Mac to find out whether one of them owns your mortgage.
— FHA. Borrowers will need to exit forbearance to refinance. “But the requirements vary by loan program or by the individual lender or investor that holds the loan,” DeMarco says. If you want a rate-and-term FHA refinance, for example, you must first make three consecutive on-time payments. Streamline refinances also require a minimum of three consecutive payments, while cash-out refinances require at least 12 consecutive payments.
— USDA or VA. If your mortgage is backed by one of these agencies, call your mortgage servicer to see what your options are. You can look up your loan servicer using the Mortgage Electronic Registration Systems website.
[Read: Best Mortgage Lenders]
How Can You Qualify for a Refinance?
Borrowers can refinance after a forbearance, but only if they make timely mortgage payments following the forbearance period.
If you have ended your forbearance and made the required number of on-time payments, you can start the refinancing process. Here’s what you’ll want to do.
Assess Your Financial Standing
Eligibility for refinancing your mortgage depends largely on your financial situation. Lenders generally look for a credit score of at least 620, which falls in FICO’s fair range, and a debt-to-income ratio of no more than 43% for conventional loan refinancing.
Improve Your Credit Score
Here’s how:
— Always pay your bills on time.
— Pay down your debt. Using no more than 30% of the available credit on any card can help your credit score.
— Pull your credit reports for free from AnnualCreditReport.com and look for inaccuracies. You can dispute errors with the credit reporting agencies.
— If one of your friends or family members has a strong credit history, ask to be added to an account as an authorized user.
— Avoid applying for new credit, which can signal a worsening financial situation.
— Keep credit card accounts open to maintain the length of your credit history.
Contact Multiple Lenders
Compare interest rates, annual percentage rates, estimated monthly payments and closing costs. If interest rates are 1% lower or less than your current rate, refinancing could be wise.
The refinance might even work in your favor with a shorter loan term, especially if you’re getting rid of mortgage insurance. But if you’re unable to find interest rates lower than your current mortgage rate, you may have other options.
What Are Alternatives to a Refinance?
Refinancing isn’t the only option if you need a more manageable mortgage payment. Instead, you can request a loan modification, sell your home or stay in forbearance. You may also be able to receive help via homeowner assistance funds or supplements.
Here’s more about each of these choices.
Asking For a Loan Modification
This is an arrangement you make with your lender to change your loan terms permanently. The lender could lower your interest rate, lengthen your loan term, or, in rare cases, forgive some of your principal.
A loan modification might be a good option if you don’t qualify to refinance or can’t afford closing costs.
Selling Your Home
Consider your income and your expenses for the foreseeable future. If you think you’ll have trouble making payments because money is tight, but you have equity in your home, you might want to sell it to avoid a short sale or foreclosure.
But keep in mind that any payments missed during forbearance will probably be due once you sell the home.
Homeowner Assistance Fund
The Homeowner Assistance Fund was created to provide up to $10 billion in assistance to homeowners affected by COVID-19, which may include those with mortgages in forbearance. The program began accepting applications in 2022 and expires on Sept. 30, 2026, or when the funds run out. Some state programs are set to expire sooner, so check local eligibility requirements and availability.
FHA Loss Mitigation Option
The Department of Housing and Urban Development’s Payment Supplement program may be able to reduce your monthly mortgage payment for up to three years without the need for a loan modification. Contact your mortgage servicer to see whether this is an option for you.
Extending Forbearance
After three to six months in forbearance, evaluate whether you’re still financially struggling and then call your loan servicer to determine the next steps.
“The servicer may be able to extend the forbearance, but the homeowner must request such an extension,” DeMarco says. Extending forbearance might be a good idea if you can’t pay your bills and this option is still available to you. Just be sure you have a plan for eventually making up your missed payments.
After exiting mortgage forbearance, you may be able to defer those payments to the end of the loan term, create a payment plan with your loan servicer or modify your loan terms. You can also pay everything back in one lump sum, though your loan servicer can’t require you to.
Ultimately, the guidelines on forbearance and refinancing mean that homeowners don’t have to choose between short- and long-term mortgage relief. If you’ve entered forbearance, refinancing to a lower interest rate is still within reach and can give you more control over your financial future.
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Can You Refinance a Mortgage in Forbearance? originally appeared on usnews.com
Update 02/26/26: This story was previously published at an earlier date and has been updated with new information.