Mortgage forbearance does affect refinancing, but it does not close the door on it. Every major loan program lets you refinance after a forbearance once you have made a set number of consecutive on-time payments after the plan ends. For conventional loans backed by Fannie Mae or Freddie Mac, that number is three. FHA rate-and-term refinances also require three. VA and USDA refinances require six. Cash-out refinances carry longer waits than rate-and-term transactions on the same loan type.
Waiting Periods by Loan Type
If your mortgage is backed by Fannie Mae or Freddie Mac, you become eligible to refinance after three timely, consecutive monthly payments once your forbearance plan ends or you have been placed in a repayment plan, deferral, or modification.1Federal Housing Finance Agency. FHFA Announces Refinance and Home Purchase Eligibility for Borrowers in Forbearance Those three payments have to be made individually, month by month. A single lump-sum catch-up does not satisfy the rule.2Fannie Mae. Options After a Forbearance Plan or Resolved COVID-19 Hardship Apply before you have hit that mark and automated underwriting will almost certainly reject the file. Loan officers cannot waive the timeline.
FHA loans split by refinance type. A standard rate-and-term refinance or an FHA Streamline needs three consecutive on-time payments after forbearance ends. A cash-out refinance needs twelve.3U.S. Department of Housing and Urban Development. Mortgagee Letter 2020-30 The mortgage being refinanced must also be current when you apply.4U.S. Department of Housing and Urban Development. Streamline Refinance Your Mortgage FHA does offer a Credit Qualifying Streamline Refinance that may be available with fewer than three post-forbearance payments, though the lender will look more closely at your credit and income if you go that route.
VA loans set a higher bar. A VA Interest Rate Reduction Refinance Loan (IRRRL) requires six consecutive monthly payments after forbearance ends.5Veterans Benefits Administration. Impact of CARES Act Forbearance on VA Purchase and Refinance Transactions USDA Streamlined-Assist Refinances similarly require six months of verified payment history and are manually underwritten, meaning a human reviews the file rather than an automated system.6USDA Rural Development. USDA Single Family Housing Guaranteed Loan Program Overview Manual review can help if your finances have clearly improved since the hardship.
Getting the Loan Current First
No refinance moves forward until the existing mortgage shows a current status. There are three common paths, and each one affects the timeline differently.
- Reinstatement. You pay the full delinquent balance, including missed payments and any late fees, in a single lump sum. The loan returns to current immediately and the waiting-period clock starts.
- Repayment plan. Your servicer spreads the missed amount across several months, adding a portion to each regular payment. Fannie Mae allows repayment plans up to twelve months. The monthly payment goes up during that stretch, but the loan counts as current once the plan begins and you make the agreed payments.7Fannie Mae. Servicing – Elevated Forbearance
- Payment deferral or partial claim. The missed balance moves to the end of the loan term, due when you sell, pay off the mortgage, or refinance. The monthly payment stays the same and the loan shows current once the deferral is finalized.8Consumer Financial Protection Bureau. Exit Your Forbearance Carefully
Payment deferrals are often the fastest route back to refinance eligibility because the loan becomes current right away without raising your monthly payment. Deferrals do come with a catch on FHA loans, though.
The FHA Partial Claim Lien
If you have an FHA loan and your forbearance was resolved through a partial claim, HUD advanced money to cover the missed payments and placed a subordinate lien on your property.9eCFR. 24 CFR 203.371 – Partial Claim The lien is interest-free and requires no monthly payments. It becomes due when you sell, transfer title, or refinance into certain loan types.10U.S. Department of Housing and Urban Development. FHA Loss Mitigation Program
This creates a real budgeting problem at closing. If you owe $8,000 on a partial claim and refinance, that $8,000 typically has to be paid off at closing. You will either need cash on hand or enough equity to fold it into the new loan amount. Many borrowers only discover the lien exists once they are deep into the application. Ask your servicer early whether a partial claim is attached to your property, and get the payoff amount in writing.
How Forbearance Shows Up on Your Credit
The CARES Act required lenders to report accounts as current for borrowers who entered forbearance while their loans were in good standing. That protection applied during a covered period that ended 120 days after the national COVID-19 emergency was terminated in April 2023.11Office of the Law Revision Counsel. 15 USC 1681s-2 – Responsibilities of Furnishers of Information to Consumer Reporting Agencies Those protections are no longer in effect.
For anyone entering forbearance today on a non-COVID hardship, credit reporting depends on the servicer’s policies and whatever agreement you negotiate. Some servicers voluntarily report the account as current during forbearance; others report missed payments. Get the credit reporting terms in writing before you accept any forbearance agreement. If your report already shows missed payments from a prior forbearance, those marks will weigh on your refinance application. Most programs factor your credit score into the interest rate you are offered, even after you have cleared the minimum waiting period.
Lender Overlays
Meeting the agency minimum does not guarantee approval. Individual lenders often layer stricter standards on top of program rules. After a forbearance, you may run into higher minimum credit scores, larger down payment or equity thresholds, or a longer payment history requirement than the agency itself demands.
Underwriters want to see that the hardship was temporary and fully resolved. A borrower who entered forbearance because of a one-time medical event and returned to stable employment is an easier approval than one whose income is still uneven. A low debt-to-income ratio helps. Overlays vary by lender, so if one lender’s rules are too restrictive, shopping around is worth the time.
Documentation to Gather
Proving that your forbearance is fully resolved takes more paperwork than a standard refinance. Start pulling these documents together early. Any mismatch between what your servicer reports and what you submit can stall the file.p>
- Forbearance agreement. The original written agreement showing start date, end date, and terms. Your servicer keeps a copy if you cannot find yours.
- Exit or resolution letter. A letter from your servicer confirming the forbearance has ended and specifying how it was resolved: reinstatement, deferral, repayment plan, or modification.
- Payment history. A dated ledger showing each monthly payment made after the forbearance ended. Most servicers post this in the online portal, or you can request a certified copy.
- Modification or deferral agreement. If the forbearance ended in a modification or deferral, the new loan terms need to be in the file.12U.S. Department of Housing and Urban Development. FHA Single Family Housing Policy Handbook 4000.1
Check every document for date accuracy before you send anything in. A wrong forbearance exit date on the servicer’s side can make it look like you have fewer qualifying payments than you actually made, and correcting servicer records takes time.
Deferred Interest and Your Taxes
If your forbearance included a payment deferral, some interest that accrued during the pause was pushed to a later date. The IRS generally allows a mortgage interest deduction only in the year the interest is actually paid, not when it accrues.13Internal Revenue Service. Publication 936 – Home Mortgage Interest Deduction If deferred interest gets rolled into a lump-sum payoff at closing, you would deduct it in the year you close the refinance rather than spread across the years it originally built up. The IRS has not issued guidance specifically on forbearance deferrals, so talk to a tax professional before filing if you paid a large amount of deferred interest at closing.