Can you qualify for a USDA Loan after forbearance?

Can you qualify for a USDA Loan after forbearance?

How long do you have to wait after forbearance to qualify for a USDA loan?

This week’s topic is especially timely due to the many homeowners who are exiting their COVID-19 forbearance plans.

However, many are still unsure how to qualify for a USDA loan after one has entered into a forbearance plan and in today’s video, I am going to walk you through the details on how to qualify for a USDA loan after forbearance.

Now, before we get started, don’t forget to take advantage and download our USDA Blueprint for Success with the link below. This free guide is designed to walk you through the process step-by-step and is a great tool for both homebuyers and Realtors alike.

Can you qualify for a USDA Loan after forbearance in Florida, Texas, Tennessee, or Alabama?

For background on today’s topic, the Consumer Financial Protection Bureau (“CFPB”) provides the following:

“Forbearance is when your mortgage servicer or lender allows you to pause or reduce your mortgage payments for a limited time while you regain your financial footing.”

The CFPB additionally states, “Homeowners who receive COVID hardship forbearance are not required to repay their paused payments in a lump sum once the forbearance period ends. You can talk with your mortgage servicer, or start with a HUD-approved housing counseling agency, to discuss a repayment plan that works for your situation.”

“If your mortgage is backed by HUD/FHA , USDA, or VA:  You may request up to two additional three-month extensions, for up to a maximum of 18 months of total forbearance. But to qualify, you must have received your initial forbearance on or before June 30, 2020. Check with your servicer about the options available.”

Now, so how do you qualify for a USDA loan after forbearance?

Thankfully USDA COVID-19 FAQs provide answers to the following questions on how to qualify for a USDA loan after forbearance:

Question:  If the borrower is in forbearance but has been making their payments on time. Do they qualify for a refinance or purchase loan?

Answer: Yes, a borrower who is current on their loan payments qualifies for a purchase or refinance loan, assuming other standard requirements are met.

Question: Is there a waiting period after forbearance in order for a borrower to be eligible for a new loan?

Answer: Yes, there is a waiting period subject to the following seasoning requirements:

• For purchase transactions (Manually Underwritten, Refer and Refer with Caution), applicants emerging from forbearance must have resumed repayment of their mortgage loan for a period of at least 3 months prior to applying for a new loan.
• For non‐streamlined and streamlined refinance transactions, the loan must have closed at least 12 months prior to the request to refinance, borrower must have resumed making payments for a period of at least 3 months and have a total 180‐day period of satisfactory payments, excluding the time the loan was in forbearance.
• For streamlined‐assist refinance transactions, the borrower must have resumed making payments for a period of at least 3 months and not have any defaults in the previous 12‐month period, excluding the time the loan was in forbearance.

However, it is important to note that USDA forbearance qualifying guidelines also provide further details for situations where the property will be sold prior to any waiting periods occurring:

“If the property will be sold, thus they cannot meet the 3-month seasoning period, the seasoning period cannot be achieved (as the home was sold) and would not be applicable.”

Question: If the borrower had their auto loan, student loan, or similar debt in forbearance due to COVID-19 and the payments are currently deferred. Can we exclude these payments from debt‐to‐income ratios?

Answer:  No, the regular monthly payment should be considered in the debt‐to‐income calculation even if the loan is in deferment or forbearance.

The reasoning is that because deferment/forbearance due to Covid-19are treated as temporary in nature and require that the regular monthly payment be considered in the debt‐to‐ratio calculation.

Please note that while this was only a brief summary and is not meant to encompass all forbearance related questions, it does provide key points to remember when attempting to qualify for a USDA loan after forbearance.

As a USDA Approved Lender, we will walk you through the USDA loan qualifying process step-by-step. Just call or email to discuss your scenario and let us show you the “Metroplex” difference!

800-806-9836 Ext. 280
SeanS@MPLX.org

I want everyone to make it a great day and look forward to seeing you right here for the next tip of the week!

P.S. – You can download our “USDA Blueprint for Success” by CLICKING HERE.