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Advice on foreclosure refinance while in forebearance

Mark Cappel
UpdatedOct 31, 2007

My home went into foreclosure and we are on a forbearance agreement with our mortgage company, why cant I refinance?

Hello, my home went into foreclosure and we are on a forbearance agreement with our mortgage company. I have equity in my home. Why cant I refinance? I am trying to pull money out to pay off the bills I am behind on so I can concentrate on my mortgage. Any help on this would help.

In a Foreclosure forbearance, you are allowed to delay foreclosure while your mortgage loan is either re-written (loan modification) or to allow you to defer a few payments and get back on track.

Your lender, if in agreement, will then temporarily cease legal actions. Lenders may agree to combine your Forbearance with Reinstatement or a Repayment Plan if you know you can provide the needed funds to bring your account current by a specific date. This plan works for people who have just experienced a sudden living expense increase or income loss.

Even when in forbearance, being that the default on your mortgage is already reported to the credit bureaus and also due to the fact that you are behind on your other bills as well, most lenders might be unwilling to fund your loan. Your credit has been dramatically negatively impacted, which means that you will need a bad credit loan / refinance. The only way that someone will be willing to give you a refinance is if your debt-to-income ratio is very low, or if you have a bunch of equity in your home making your loan to value below 80%. There are still some lenders who might be sympathetic to your situation and possibly offer a refinance solution.

BUT - you should always consider applying for a refinance. If you want an introduction to pre-screened mortgage lenders, makes it easy to compare mortgage offers and different loan types. Please visit the loan page to find a loan that meets your needs.

Depending on your income, credit report, value of your home and the amount of your equity, you can apply with a new lender to refinance your existing mortgage. Although it might be difficult to secure new financing with a default on your existing mortgage, if you have enough equity in your home, this option might be attractive to a new lender. Although this option may likely create a loan with higher interest rates, a sizable upfront fee and a longer time for pay-off, it may be the best option for you. With your home refinanced, you will become immediately current, the foreclosure will cease and you will be able to enjoy your home. Certainly your existing lender would be happy to have their loan paid off through a refinance.

You should contact several potential lenders to discuss the loan terms they can offer you on a refinance loan. After speaking with several lenders, you should be able to determine whether or not a refinance loan is a financially viable option for you. In case refinancing does not work out you can try these other alternatives:

A Repayment Plan

If your account is past due, but you can now make payments, the lender might agree to let you catch up by adding a portion of the past due amount to a certain number of monthly payments until your account is current.

Mortgage Modification

If you can make your regular payment now, but cannot catch-up the past due amount, the lender might agree to modify your mortgage. One solution is to add the past due amount into your existing loan, financing it over a long term. Modification might also be possible if you no longer have the ability to make payments at the former level. The lender can modify your mortgage to extend the length of your loan (or take other steps to reduce your payments).

Selling Your Home

If catching up is not a possibility, the lender might agree to put foreclosure on hold to give you some time to attempt to sell your home.

Deed in Lieu of Foreclosure

When the lender allows you to give-back your property--and forgives the debt. It does have a negative impact on your credit record, but not as much as a foreclosure. The lender might require that you attempt to sell the house for a specific time period before agreeing to this option, and it might not be possible if there are other liens against the home.

Learn more about foreclosures at the Foreclosure Advice page.

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