If you’re considering doing mortgage forbearance due to covid-19 ,make sure you watch this video so you know what to ask your lender to know how it will impact your credit score
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Is mortgage forbearance bad for your credit?
Traditionally speaking, yes mortgage forbearance can be bad for your credit but in the case of covid-19, guidelines issued by the Federal Housing Administration and mortgage giants Fannie Mae and Freddie Mac clearly state that banks and loan servicing companies shouldn’t report borrowers who are using disaster forbearance or similar programs as delinquent to the credit bureaus.
The problem with this is that lenders and loan servicing companies are far from perfect. Let’s just say, the lender or the firm that processes the monthly payments may promise temporary debt relief but then fail to update its files. Or, it may be unclear when the mortgage payments are to resume. Either way, the borrower could get reported as delinquent and their credit score could take a hit. To avoid any such issue, make sure you get the forbearance mortgage agreement in writing and fully understand its terms.
When is my mortgage payment considered late?
For credit reporting purposes, your payment isn’t considered late in normal circumstances until after 30 days. For example, if your mortgage payment is due on May 1st but you make the payment on May 15th or May 29th, that would not affect your credit in a negative way. With that said, you have a bit of a grace period before it affects you negatively.
What should you do if you know you will be late on your mortgage payment?
Call your lender and have a conversation. Tell them exactly what is going on so there are no surprises. Your lender will work with you if you have been affected by covid-19
What is a mortgage forbearance?
A mortgage forbearance agreement is an agreement made between a mortgage lender and delinquent borrower (or potentially delinquent in this case) in which the lender agrees not to exercise its legal right to foreclose on a mortgage and the borrower agrees to a mortgage plan that will, over a certain time period, bring the borrower current on his or her mortgage.
What Is a Credit Score?
A credit score is a statistical number that evaluates a consumer’s creditworthiness and is based on credit history: repayment history, number of open accounts and total levels of debt. Lenders use credit scores to evaluate the probability that an individual will repay loans in a timely manner.
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