VA loan forbearance: Everything you need to know

Have you found yourself in a compromising situation with your home loan? If you served in the military, you might benefit from looking into a Department of Veterans Affairs (VA) home loan forbearance.

Forbearance occurs when your mortgage servicer or lender allows you to pause or reduce your payments for a limited period of time. Let’s take a look at what you should know about the VA loan forbearance guidelines and the other options available to you.

VA loan forbearance repayment options

The VA has adopted several protections for mortgagors under financial stress.

VA IRRRL

The VA IRRRL (pronounced “earl”), also called a VA Streamline loan, offers a refinance option that moves more quickly and requires a less complex process than a traditional refinance. To qualify for a VA IRRRL, you must have an existing VA loan.

VA Streamlines can help you:

• Change from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage
• Lower your monthly interest rate
• Change your loan term

A VA IRRRL can help you feel less of a financial pinch and offers a few additional perks, including reduced paperwork. Closing costs and fees can also be rolled into the mortgage.

Loss mitigation options

Not sure you want to pursue an IRRRL? Speak to your servicer about any assistance you might qualify for. Rocket Mortgage^® clients can fill out our Application for Success. As a service member, you can get help from a VA loan technician if you just want an idea of the alternatives.

Either way, your servicer will work with you to see if you qualify for various alternatives, including:

• Repayment plans: This option takes your missed payments and spreads them out over time by adding some amount to your monthly payment until your back payments are made up.
• Loan modifications: In a loan modification, the terms of your loan are modified to incorporate your past-due balance. The modified loan will have different terms and often includes a change in the length of the loan and the interest rate.
• Private sale: In a private sale, a lender holds off on foreclosure to allow you time to sell your home.
• Short sale: If you qualify for a short sale, a lender approves a sale for less than the amount owed on the mortgage. You must show a financial hardship for this to be an option your servicer will consider.
• Deed in lieu of foreclosure: A deed in lieu of foreclosure means the mortgage holder signs the deed over to the lender and walks away from the property. This is also referred to as a mortgage release. In some instances, you may be able to receive relocation assistance to find your next living arrangement.

Refunding

The VA can, under its discretionary authority, refund your loans. In other words, it may buy and take over servicing from a lender when the lender cannot extend satisfactory options to resolve your forbearance.

It’s important to note that this procedure doesn’t occur often – lenders generally want to work with borrowers who experience financial hardship.

In most cases, the VA will only pursue refunding if you have had problems making the payments due to circumstances beyond your control. In addition, the VA typically pursues this avenue when the lender doesn’t want to wait to terminate the loan, but they are confident that your financial situation will improve and you will be able to resume payments in the near future.

You can access a Refund Status Report through the Servicer Web Portal, where you can submit claims with supporting documentation. The VA must review every refunding case during its adequacy of servicing review.

VA loan forbearance and the CARES Act

The CARES Act, introduced in response to the COVID-19 pandemic, provided temporary relief for borrowers with federally backed mortgages. During this forbearance period, no additional fees, penalties or interest – beyond scheduled amounts – were collected. This provided relief for homeowners who were struggling to make ends meet during an uncertain time.

If you were eligible under the CARES Act, you could have requested forbearance on your VA loan for up to 360 days, including an initial 180-day forbearance request and an additional 180-day extension if financial hardships persisted.

Eligibility to apply for forbearance under the CARES Act concluded in 2023 when the state of emergency due to COVID-19 came to an end. But some borrowers taking advantage of the program could still be under the forbearance period. If your loan is still in forbearance under the CARES Act, make sure to contact your lender to verify when your forbearance ends.

Who is eligible for VA loan forbearance?

To find out if you’re eligible for VA loan forbearance, the first step is to reach out to your lender, who will work with you to determine your eligibility and create a tailored agreement.

A forbearance agreement will outline the terms of the forbearance period, including how long it will last and whether there are options for extensions. The plan will also detail how you’ll handle the repayment of missed payments once the forbearance period ends.

Pros and cons of VA loan forbearance

The biggest benefit of VA loan forbearance and repayment options is that they can offer a temporary financial break when most needed. They also help you avoid foreclosure, allowing you to keep your home and preventing the negative effects of foreclosure on your credit.

However, you also need to consider the flip side. Those skipped payments aren’t going away. You’ll need to pay them back based on a plan you agree on with your lender. This could mean facing a hefty bill once the forbearance period ends, which could be financially challenging. Also, while going into forbearance may not impact your credit score, it may be reported on your credit history and could affect your ability to obtain another mortgage in the future.

Beware of unscrupulous lenders

As a veteran, you should watch out for unscrupulous lenders. These lenders target VA mortgage holders by encouraging them to apply over and over for loans in a process called churning.

The VA is aware of this unethical breach and tries to prevent this practice by requiring seasoning. Seasoning means borrowers must make at least six consecutive, timely payments on the loan to refinance.

If you didn't make enough payments prior to invoking forbearance, you would need to make six additional consecutive payments after forbearance to meet the seasoning requirement.

The date of closing for the refinance loan must also be at least 212 days after the first payment due date of the loan being refinanced.

The bottom line: The VA is committed to keeping people in their homes

The VA has various assistance alternatives for eligible service members, veterans and qualifying surviving spouses who are struggling with their mortgage payments.

Talk to your mortgage servicer about what makes sense for you, or continue learning more about your options. Either way, remember that you do not have to tackle tough financial times alone.