Forbearance Agreements: What They Are, How to Get One, and the Traps

When your income drops and mortgage payments start feeling impossible, forbearance is the word your lender might use — and it's worth understanding exactly what it means before you sign anything. Forbearance isn't forgiveness. It's a pause, and what happens after that pause is where many homeowners get blindsided.

Here's everything you need to know about mortgage forbearance agreements: how they work, how to get one, and the traps that catch people off guard.

What Is a Mortgage Forbearance Agreement?

A forbearance agreement is a written deal between you and your mortgage servicer that temporarily reduces or suspends your monthly payments. In exchange, you agree to repay the missed amounts later — either in a lump sum, through added monthly payments, or by extending your loan term.

The word "forbearance" literally means holding back or restraining. Your lender is restraining itself from foreclosing while you get your financial footing back.

What it is: A temporary relief from payments, with repayment required later.

What it isn't: Loan forgiveness, a payment holiday that disappears, or free money.

During COVID-19, the CARES Act allowed millions of homeowners with federally backed mortgages to enter forbearance for up to 18 months with no proof of hardship required. At peak, over 8.5 million homeowners were in forbearance in 2020. Most exited successfully — but plenty didn't, largely because they misunderstood the repayment terms.

When Does Forbearance Make Sense?

Forbearance is designed for temporary hardship. If your financial problem is permanent — say, you lost a job and don't expect to find comparable income — forbearance just delays the inevitable and can make your situation worse.

Good candidates for forbearance:

You lost income temporarily (medical leave, layoff while actively job hunting, seasonal income gap)
You had a major unexpected expense that drained your savings
A natural disaster damaged your home or disrupted your work
You're going through a divorce or estate situation that will resolve in months, not years

Poor candidates for forbearance:

Your income has permanently dropped and you can't afford the home long-term
You're already deeply underwater on the mortgage
You've been in financial hardship for over a year with no clear recovery path

If the hardship looks permanent, you may need a loan modification — a different animal entirely where the loan terms themselves are restructured.

How to Get a Forbearance Agreement

Step 1: Contact Your Servicer Directly

Your mortgage servicer is the company you send payments to — it may not be the bank that originally gave you the loan. Call the number on your monthly statement and specifically ask for the "loss mitigation" department. That's the team that handles hardship requests.

Don't wait until you've missed a payment if you can help it. Servicers generally prefer proactive borrowers, and contacting them before default gives you more options.

Step 2: Explain Your Hardship

You'll typically need to describe the nature of your financial hardship. Depending on your loan type and servicer, you may need:

A written hardship letter
Proof of income loss (pay stubs, termination letter, medical bills)
Recent bank statements
Tax returns

For federally backed loans (FHA, VA, USDA, Fannie Mae, Freddie Mac), the application process is often simpler and self-attestation of hardship may be enough.

Step 3: Understand the Terms Before You Agree

This is where most people make mistakes. Before you sign or verbally agree to anything, get answers to these five questions:

How long does the forbearance last? Typically 3–12 months, sometimes extendable.
What happens to the missed payments? Do they get tacked onto the end of your loan, or will you owe them all at once when forbearance ends?
Does interest continue to accrue? Almost always yes — more on this below.
Will this be reported to credit bureaus? Rules vary by loan type and servicer.
What are my options at the end of forbearance? Ask about repayment plans, loan modifications, and deferral options.

Get everything in writing. A verbal promise from a customer service rep is worth nothing.

Step 4: Apply and Document Everything

Submit your application and keep records of every interaction — date, time, representative's name, and what was said. If you're applying by phone, follow up with an email summarizing the conversation. Paper trails protect you.

Servicers are required to acknowledge receipt of a "complete" loss mitigation application within 5 business days under federal mortgage servicing rules (Regulation X).

The Traps: What to Watch Out For

Trap 1: The Lump-Sum Balloon at the End

In the early days of COVID forbearance, some servicers told borrowers they'd owe everything back in one payment when forbearance ended. For someone who missed 12 payments of $1,800, that's a $21,600 bill due immediately — completely unworkable for most people.

The good news: for federally backed loans, servicers are now required to offer repayment options beyond a lump sum. But for private loans (portfolio loans held by banks), lump-sum repayment can still be the default. Always ask explicitly what the repayment options are.

Trap 2: Interest Keeps Accruing

Forbearance doesn't freeze your loan balance. Interest keeps building on your principal balance throughout the forbearance period. On a $300,000 mortgage at 7% interest, you're accruing roughly $1,750/month in interest alone.

After 6 months of forbearance, your effective missed balance could be $15,000–$20,000 depending on the loan size and interest rate. When you resume payments, you're not picking up where you left off — you're potentially dealing with a larger balance.

Trap 3: Assuming Your Credit Is Protected

Under the CARES Act for COVID forbearance, servicers couldn't report missed payments as delinquent. That protection doesn't apply universally to all forbearance agreements.

Outside of that specific legislation, the rules are:

If your servicer reports you as "in forbearance," it typically doesn't help your score, but it doesn't hurt it as badly as a delinquency
Some servicers report forbearance accounts with a specific code that future lenders can see, which can affect your ability to get a new loan
If forbearance wasn't set up properly and payments show as missed, your credit takes a hit

Before you start, ask your servicer specifically: "How will this forbearance be reported to Equifax, Experian, and TransUnion?"

Trap 4: Thinking You Can Buy or Refinance During Forbearance

If you're in forbearance, you're essentially blacklisted from refinancing or taking out a new mortgage. Most loan guidelines require that you be out of forbearance and have made at least 3 consecutive on-time payments before you can qualify for a new loan.

This matters if you were planning to refinance to lock in a lower rate, take out a home equity loan, or buy a different property.

Trap 5: Not Planning an Exit Strategy

The biggest mistake is entering forbearance without knowing how you'll exit. Servicers will contact you near the end of your forbearance period to discuss options, but you should be thinking about this from day one.

Your exit options typically include:

Repayment plan: Pay extra each month until the missed amounts are caught up (e.g., an extra $300/month for 12 months)
Lump-sum repayment: Pay everything owed at once
Deferral/partial claim: The missed payments get moved to the end of your loan as a zero-interest balloon payment due when you sell or pay off the mortgage
Loan modification: Your loan terms are permanently changed (lower rate, extended term) to make payments affordable going forward
Refinance: If you have equity and qualify, you roll the owed amounts into a new loan
Selling the home: If none of the above works, selling before foreclosure is almost always better than letting the bank foreclose

If your servicer isn't discussing these options with you, ask. Federal rules require servicers to evaluate you for all available loss mitigation options before moving to foreclosure.

How Forbearance Affects Your Credit Score

The impact depends on how the forbearance is set up and reported:

Scenario	Credit Impact
Payments suspended, reported as "in forbearance"	Minimal to moderate negative impact
Payments suspended, reported as current (CARES Act-style)	No negative impact
Missed payments reported as 30/60/90 days late	Significant negative impact (can drop score 50–150+ points)
Comes out of forbearance and makes payments on time	Score recovers over 12–24 months

If your servicer agrees to report you as current during forbearance, get that in writing and check your credit reports monthly to make sure it's happening.

What Happens If You Can't Repay After Forbearance?

If you exit forbearance and still can't afford your mortgage, you have options — you're not automatically headed for foreclosure.

Loan modification is the most common path. Your servicer restructures the loan: they might extend the term from 30 to 40 years, temporarily lower your interest rate, or add missed payments to the principal balance. The goal is a payment you can sustain.

Short sale lets you sell the home for less than what's owed, with the lender's approval. This damages your credit but is far less devastating than foreclosure.

Deed in lieu of foreclosure means you voluntarily hand the home back to the lender. Also damages credit, but avoids the full foreclosure process.

Foreclosure is the last resort and the worst outcome — it stays on your credit report for 7 years and makes it nearly impossible to buy another home for 3–7 years depending on the loan type.

The key is communication. Servicers lose money on foreclosures too. They have financial incentive to work something out.

Forbearance by Loan Type: What's Different

FHA loans: Contact your servicer; they can offer up to 12 months of forbearance, and HUD-approved housing counselors (free) can advocate for you
VA loans: The VA has a specific forbearance program; contact your servicer and the VA directly
USDA loans: Similar protections as FHA; contact your servicer
Fannie Mae/Freddie Mac (conventional): Up to 12 months, with a deferral option that moves missed payments to end of loan
Private/portfolio loans: No federal rules apply — terms vary significantly by lender, often less favorable

If you're not sure who backs your loan, you can check Fannie Mae's lookup tool at fanniemae.com or Freddie Mac's at freddiemac.com. For FHA, check HUD's website.

Getting Help for Free

You don't have to navigate this alone. HUD-approved housing counselors provide free or low-cost advice and can help you understand your options, communicate with servicers, and apply for assistance. Call 1-800-569-4287 or visit the HUD website to find a counselor near you.

Avoid companies that charge upfront fees to help you get forbearance or a loan modification. This is a known scam. What they offer, you can get for free.

Key Takeaways

Forbearance temporarily pauses or reduces your mortgage payments — it does not eliminate what you owe
Interest continues to accrue during forbearance, meaning your balance can grow
Always get repayment terms in writing before agreeing to anything
Federally backed loans (FHA, VA, USDA, Fannie/Freddie) have stronger protections than private loans
Exiting forbearance without a plan is the #1 way homeowners end up in deeper trouble
Credit impact depends on how the forbearance is reported — ask your servicer explicitly
Free HUD-approved housing counselors can help you navigate the process at no cost
Forbearance is a tool for temporary hardship; if the problem is permanent, you likely need a loan modification instead

Frequently Asked Questions

Will forbearance hurt my credit score?

It depends. If your servicer reports you as current during forbearance, your score won't take a hit. If they report missed payments as delinquent, that's a significant hit — potentially 50–150+ points. Under the CARES Act, COVID-related forbearance on federally backed loans was required to be reported as current, but that was specific legislation. For any other forbearance, ask your servicer exactly how it will be reported before you agree.

Do I have to pay back all missed payments at once when forbearance ends?

Not necessarily — but the default terms matter. For federally backed loans, servicers are required to offer repayment options beyond a lump sum, including repayment plans (spreading the owed amount over future months) and deferral (moving missed payments to the end of the loan). Private loans may have different terms. Always ask what repayment options will be available before entering forbearance.

Can I still refinance while in forbearance?

No. Most loan guidelines — including those for FHA, VA, conventional, and most private lenders — require you to be out of forbearance and have made at least 3 consecutive on-time payments before you can refinance. Some require 12 months of clean payment history. If refinancing is something you're considering, factor this into whether forbearance is the right move.

How long does forbearance last?

Typically 3–12 months for an initial period, often extendable if you still need help. Federally backed loans have allowed up to 18 months in some programs. The timeline is set by your servicer and the type of hardship you're experiencing. Extensions aren't automatic — you usually have to request them and demonstrate continued hardship.

What if my servicer never mentioned forbearance as an option?

Servicers are required under federal law (Regulation X / RESPA) to inform borrowers of available loss mitigation options when they're in default or have submitted a loss mitigation application. If you're struggling and haven't heard about forbearance, call and ask directly for the loss mitigation department. You can also contact a HUD-approved housing counselor (free, 1-800-569-4287) who can help you understand what you're entitled to and advocate on your behalf.