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- As millions of Americans lose their jobs during the coronavirus outbreak, banks are offering mortgage forbearance.
- However, lenders might view taking advantage of that offer — and your initial job loss — as financial hardship, and it could count against you when you apply for home loan financing in the near future.
- There’s no official rule for how lenders should handle job loss and forbearance amid COVID-19, so ask your lender about its policies.
- You may not want to enroll in forbearance if you’re still able to pay; if you’re struggling to make mortgage payments, forbearance might be your best option.
- Read more personal finance coverage »
As unemployment surged to 15% from 4.4% in March due to the coronavirus pandemic, many lenders have extended special mortgage forbearance plans to keep homeowners from falling behind on their bills.
When your loan goes into forbearance, your mortgage payments are paused for a given amount of time. Depending on the lender — those offering and extending forbearance plans right now include big-name banks such as Regions, Bank of America, PNC, and Wells Fargo — you may pay back the amount in one lump sum, spread out payments over time, or tack the missed payments onto the end of your loan term.
Especially for people who are out of work, forbearance may help you keep your home even if you can’t make payments during the pandemic. By enrolling in forbearance, you could also free up funds to cover necessary expenses while you’re out of work, including other bills or a trip to the hospital.
However, there may be an unexpected consequence: By enrolling in forbearance, you may forfeit your ability to qualify for a home loan in the near future.
Mortgage lenders are checking for employment right up until closing
The issue with economic hardship and forbearance isn’t only what might happen in the future; it’s also what’s happening to homebuying deals in the works right now.
When you initially applied for your home loan, you probably had to provide proof of income. But if you lost work between the time you applied and the time you close, you run the risk of the lender rescinding your loan offer.
“Banks have been verifying employment just prior to closing for years,” said Melissa Cohn, Executive Vice President of Family First Funding LLC. “They used to just call and verify that the borrower is still employed — what has changed is that they now ask for a pay stub dated within 10 days of closing to make sure that they are still employed and still getting paid enough income to qualify for the mortgage.”
You might not be able to close on…