Over 4 million Americans have put their loans into forbearance.
Up until recently, there has been a lot of uncertainty about what it means when a borrower’s loan goes into forbearance. Will there be a huge lump sum owed at the end of the forbearance period? Will it have an impact on credit? Will people be able to purchase or refinance in the future if a loan has gone into forbearance? Initially, the CARES Act did not provide clear guidelines or statements regarding any of those questions, resulting in many borrowers unable to take advantage of record low rates and uncertain if the forbearance policies in place would cause more harm than good.
Now for the good news. On Tuesday, May 19th, the Federal Housing Agency (Fannie Mae and Freddie Mac) provided clarity regarding what forbearance means to borrowers, and gave guidance on how Fannie Mae and Freddie Mac loans will handle repayment, as well as how it will affect a borrower in the future.
Here’s what it means for you.
Let us start by saying, if you’ve not been impacted financially by COVID-19 and can keep paying your payments on time and in full, you should. Forbearance or deferment is not forgiveness, and that money does not go away. So, if you can still pay, that is your best option.
Can you purchase or refinance in the future? Yes! Fannie Mae and Freddie Mac borrowers will be allowed to purchase a new home or refinance their current mortgage even if a loan has gone into forbearance. The borrower must show three consecutive months of payments after the forbearance period has ended. Additionally, if your loan has gone into forbearance accidentally (many Fannie Mae and Freddie Mac loans were being placed into forbearance, if a borrower even breathed the word), you can purchase or refinance immediately if your payments are up to date, without having to wait the three-month period.
Will you have to owe a lump sum at the end of your forbearance period? Not unless you want to. Here are a few ways borrowers can exit a forbearance plan:
- A borrower can pay the sum of the missed payments in full when their forbearance period ends.
- A borrower can defer the payments to the end of the loan. For example, if you were in forbearance for six months, you could tack those six months onto the end of your loan, adding an additional six months of payments before maturity. You can do this for up to 12 months, per the Federal Housing Finance Agency.
- A borrower can use a repayment plan. They can pay the amount due or missed payments, over the course of 36 months or until they are up to date on their payments.
At Love Your Hood, we’re committed to being a resource for you and all of your housing needs. Please don’t hesitate to reach out to one of our trusted realtors if you have any questions regarding forbearance, or buying and selling in the current climate.
Source: National Association of Realtors
The Tax Cuts and Jobs Act was finalized on December 20, 2017 and went into effect after December 31, 2017. So what does this mean for you, as a current or potential homeowner? We give a breakdown on important numbers for current and potential homeowners here:
- $750k = limit on mortgage interest deduction (for mortgages issued after Dec. 15th, 2017)
- $10k = state and local deduction for income, sales, & property taxes
- $12k = standard deduction for single filers
- $24k = standard deduction for married filing jointly
- $0.00 = personal exemptions
- 2 out of 5 years = how long you have to live in a primary residence to qualify for capital gains exclusion
- 15% = max rate on capital gains (generally speaking)
Source: Samantha Sharf at Forbes
Trump’s Tax Cuts & Jobs Act was released at the beginning of November (follow the live coverage about it on The Wall Street Journal’s website). Three major components of this Reform that are relevant to buyers, sellers, and investors are:
- the mortgage interest deduction will go from $1million to $500k,
- a new cap on property taxes, and
- capital gains limitations.
These all become more concerning as the median home price is approaching $500k in Denver.
Source: Aldo Svaldi at The Denver Post