The Quick Read: A refinance generally becomes possible once the loan is out of forbearance and a modification is in place, but not while the loan is still in forbearance, and not on day one after a modification. Lenders want the old loan out of forbearance, current, and followed by a clean run of on-time payments. The required run depends on whether the loan is conventional, FHA or VA, and on what the new loan is for. The refinance programs described below are subject to lender guidelines and full file review.
What Is the Straight Answer?
Most homeowners can refinance after forbearance or a modification once the loan is current and a track record exists. Conventional, FHA and VA each count that track record differently. The temporary pandemic shortcuts that once let borrowers refinance after just three payments are gone, so standard payment-history rules now apply.
Refinance savings and break-even estimate
The starting figures are an example value with a balance in proportion and a placeholder for costs. Replace them with yours, and enter the current rate from your statement.
Editable benchmark: 7.40% as of October 15, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not a refinance quote.
Illustrative starting assumptions: a $350,000 home value, a $245,000 current balance, a current rate you enter and a remaining term seeded at twenty-five years, closing costs seeded at $5,000 as an editable placeholder (not a fee quote) and rolled into the new loan, a thirty-year term at the current Freddie Mac benchmark, and property taxes and insurance estimated at typical national rates. Every field is editable.
Illustrative estimate only — not a Loan Estimate, approval, quote, or commitment to lend. The new rate field carries the weekly Freddie Mac thirty-year conventional benchmark, a market reference and not a refinance quote; a refinance is priced by the lender at lock, and the current rate, the remaining term and the closing costs are figures you enter. The current payment is estimated from the balance, the current rate and the remaining term; the break-even divides the closing costs by the monthly saving and ignores the interest effect of a longer term. On the VA IRRRL the funding fee is added to the loan unless the veteran is exempt. Taxes and insurance are editable estimates. Licensed in sixteen states for consumer mortgages; Lendmire is a broker, never the lender.
Here is the quick map:
- Still in forbearance: generally not eligible for a new conventional or VA loan.
- Out of forbearance and current: the lender reviews your payment history under normal rules.
- After a modification: the payments you made under the new terms are what count, so history is rebuilt from the modification date.
- Deferred balance or partial claim: it shows up on the payoff statement and has to be handled at closing.
Key Terms Defined
Forbearance: an arrangement where the servicer lets you pause or reduce payments for a time, while you still owe the full amount.
Deferral: a way to repay missed amounts later, often at the end of the loan or at payoff, instead of in a lump sum.
Modification: a permanent change to the loan's terms, such as a longer term or a lower rate, so the payment becomes manageable.
Partial claim: a method in which missed payments move into a separate, interest-free subordinate balance that comes due at payoff or sale.
Limited cash-out refinance: a refinance that pays off the existing first mortgage and closing costs, with only incidental cash back. Some call it a rate-and-term refinance.
Seasoning: the number of payments or months a loan must have behind it before it can be refinanced.
Net tangible benefit: a test for government streamlines requiring the new loan to leave the borrower measurably better off.
What Forbearance Actually Does
Forbearance pauses or reduces payments. It does not forgive anything. The CFPB/CSBS consumer forbearance guide says borrowers in most cases get multiple repayment options, and a lump sum is typically not the only one. That guide dates to the pandemic era, so treat it as background rather than current rules.
Repayment can look like one of these:
- Repaying everything when payments restart.
- Adding the missed amount to the end of the loan.
- Paying extra during the remaining term.
- Rolling the shortfall into a modification.
Interest can keep adding up on paused amounts, so the balance may be larger when forbearance ends. That matters later, because any deferred amount is part of what the new loan has to pay off.
Forbearance is also a defined arrangement, not an informal pause. If the home is a rental, occupancy changes the leverage rules: investment property carries lower maximum leverage than a principal residence, and that is all this article covers on the point.
How Is the Refinance Underwritten, Step by Step?
Underwriting a post-forbearance or post-modification refinance follows a predictable path. Across the wholesale programs Lendmire arranges files with, the same five questions decide most outcomes.
1. How did you exit forbearance? Reinstatement, a repayment plan, a payment deferral, a partial claim and a modification each leave different marks. The lender needs to know which one applies, because it determines what shows on the payoff statement.
2. Is the loan current? An active forbearance is generally a stop sign for a new conventional or VA loan. Plan to be out of it and caught up before applying.
3. What does the payment history show? The lender starts with the credit report. If the report does not show adequate history, the lender needs another acceptable record, such as a servicer payment history, canceled checks or a year-end mortgage statement. Fannie Mae's previous mortgage payment history rule lays out those documentation options. The lender weighs how many payments were late, how late (30, 60 or 90 days) and how recently. Loans with excessive prior delinquencies are not eligible for delivery to the agency.
4. What does the payoff statement say? Any deferred balance or partial claim appears here. This is the number the new loan must cover.
5. Do credit, income, ratios and the home's value support the loan? Wholesale conventional programs start at a 620 decision score, and the automated finding governs most files with a total ratio ceiling of 50%. A recent modification or past-due history can trigger fuller review even on programs that are normally light on documentation.
What decides the outcome, in order of weight: on-time payments since the exit or modification, the loan program, whether a subordinate lien exists, how the credit report reflects the history, and whether the new loan is a limited cash-out or a cash-out refinance.
Where Did the Old Three-Payment Rule Go?
It was temporary and it is gone. Fannie Mae's lender letter LL-2021-03 retired those temporary rules in February 2023, and all standard Selling Guide policies now apply.
Many older web pages still quote the three-payment shortcut. Don't plan around it. Fannie Mae's FAQ after the retirement says lenders can rely on twelve months of credit-report reporting, as before the pandemic. If the report lacks adequate history, the lender has to document an acceptable alternative or the loan is not eligible for sale to Fannie Mae.
One more caution: forbearance may not show up on a credit report, so a clean-looking score does not end the review. Lenders still verify the payment history underneath it.
How Do Conventional, FHA and VA Differ?
Each lane counts your track record differently. Here is how the three compare.
| Factor | Conventional | FHA Streamline | VA IRRRL |
|---|---|---|---|
| Who it's for | Any eligible borrower | Existing FHA loan | Existing VA loan |
| Payment history | Reviewed for lateness and recency | Counted from modification date | Past-due loans trigger full review |
| Appraisal | Typically required | Not required | Not required |
| After forbearance | Standard rules apply | Rules set by FHA | Forbearance doesn't count toward seasoning |
| Net tangible benefit | Not applicable | Required | Required |
Conventional. The limited cash-out refinance reaches 95% LTV on a one-unit principal residence, and 97% where the existing loan is agency-owned and the first-time-buyer program allows. Mortgage insurance applies above 80% LTV. You can ask to cancel it at 80% of the original value with a good payment history, no subordinate liens and no decline in value, and the servicer must end it automatically at 78%. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
FHA. The FHA Streamline refinances an existing FHA loan with no appraisal, limited credit review and a net tangible benefit test. In 2020, HUD's Mortgagee Letter 2020-30 set post-forbearance rules. It required at least six payments on the FHA loan being refinanced, and for a modified loan, six payments under the modification. It also set different post-forbearance counts by refinance type: three consecutive payments for no-cash-out, twelve for cash-out, and fewer than three for credit-qualifying Streamlines. That letter was temporary policy, so confirm current treatment in HUD Handbook 4000.1, which requires documenting the previous twelve months of payment history on standard mortgages. An FHA rate-and-term refinance with an appraisal reaches 97.75%.
VA. The IRRRL has no VA appraisal, a 0.5% funding fee unless exempt, a net tangible benefit test, and seasoning of the later of 210 days and six payments. Generally, a loan more than 30 days past due needs VA prior approval and must meet full underwriting. VA Circular 26-20-25 temporarily waived that approval in certain cases during the pandemic, and that waiver should be treated as past tense.
What Happens to a Deferred Balance or a Second Lien?
Here is where the general rule breaks, and where files get stuck.
A deferred balance is not a lien. Because it is part of what's needed to pay off the existing first mortgage, Fannie Mae's FAQ on this allows it to be included in the payoff on a limited cash-out refinance. The new balance goes up, which raises your LTV.
A second lien changes the category. If a second lien was used to resolve missed payments from a pandemic-era forbearance, the transaction is a cash-out refinance under the same FAQ, because that lien was not used to purchase the home. Cash-out has tighter limits. Conventional cash-out is 80% LTV on a one-unit principal residence, and the first mortgage being paid off must be at least 12 months old, with a borrower on title for 6 months. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
A partial claim is its own case. Treat it like a subordinate balance that must be paid or addressed at closing. How it is handled depends on the program, so get the exact payoff figures in writing from the servicer before assuming anything.
Loan ownership matters. Some high-LTV refinance options require that Fannie Mae own the existing loan. You can't assume that from the servicer's name, so ask the servicer who owns the loan.
What About the Modification Itself?
A modification changes the loan permanently. It also means you may be refinancing a loan with a stretched maturity and a deferred piece sitting off to the side.
Two things follow:
- The clock restarts at the modification date. Payments made before it don't build the track record the lender cares about.
- The refinance has to make sense against what you have. A modification with a lower rate or a deferred principal piece may already be your best deal. Run that comparison before you pay to refinance it.
Common Mistakes That Delay a Refinance
- Applying while still in forbearance. Finish the exit first.
- Assuming forbearance wiped the debt. It didn't, and the balance can grow.
- Quoting the three-payment rule. It was temporary and has been retired.
- Ignoring the payoff statement. Deferred amounts and partial claims live there.
- Missing a payment during the wait. One late payment can restart the clock.
- Skipping a servicer payment history. If the credit report is thin, you need another record on file.
What Should You Do in the Waiting Period?
A few steps help while you build the track record:
- Set up automatic payments so nothing slips.
- Request a servicer payment history and keep a copy.
- Check your credit report for errors.
- Keep your debt-to-income ratio steady by avoiding new credit.
- Ask the servicer what the payoff statement shows and who owns the loan.
If you are at the threshold, gather documents before you apply: recent statements, the modification agreement, and proof of the exit from forbearance. A broker can also compare programs on the same home. Lendmire's refinance programs cover FHA, VA, conventional and jumbo lanes through wholesale lenders, and each has different seasoning and documentation expectations.
If the new loan also changes who is on it, the process differs. Lendmire has a separate piece, Refinancing a Mortgage After a Divorce: Removing a Borrower From the Loan.
When Waiting Beats Refinancing
The flip point is simple. Refinancing is worth it when the new loan beats your current one by enough to cover its costs within the time you'll keep the home. If a modification already lowered your payment or rate, the gain from refinancing may be small. If you plan to move soon, the break-even may never arrive.
Refinancing earlier can still make sense in one case: the current loan has mortgage insurance and your equity has grown. Insurance may cancel on its own at 78%, so compare that path before you pay to refinance.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Frequently Asked Questions
Can I refinance while I'm still in forbearance?
Generally not for a conventional or VA loan. An active forbearance is a stop sign, and lenders want the loan current first. FHA's 2020 rules carved out narrow exceptions for credit-qualifying Streamlines, but that was temporary policy, so confirm what applies today before relying on it.
How many on-time payments do I need after a modification?
It depends on the program. FHA historically counted payments made under the modification, with six required for a Streamline. Conventional lenders review the payment history under standard rules rather than a fixed shortcut. Ask your loan officer which count applies to your loan type.
Does forbearance show up on my credit report?
Not always. Fannie Mae warns that forbearance may not appear, so lenders still verify payment history through the report or another acceptable record, such as a servicer history. A clean score does not skip that step.
Will a deferred balance block my refinance?
No, not by itself. On a conventional limited cash-out refinance, a deferred balance can be included in the payoff. It raises the new loan amount and LTV, though, so check that you still fit the program's leverage limit. A second lien used to cure arrears turns it into a cash-out refinance.
What if I'm denied?
Ask which item caused it: payment history, a subordinate lien, credit, or ratios. Then fix that item, keep paying on time, and reapply. A different program may count your history differently, so a second look is reasonable. Every program is subject to lender guidelines and full file review, and nothing here is a commitment to lend.
If you are weighing a refinance and want the break-even run on your own numbers, Lendmire can help you compare the programs on the same home through its mortgage quote page.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage serving homeowners and home buyers in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. CFPB/CSBS Consumer Forbearance Guide
2. Fannie Mae Selling Guide B3-5.3-03, Previous Mortgage Payment History
3. Fannie Mae Lender Letter LL-2021-03
4. HUD Mortgagee Letter 2020-30
7. Fannie Mae FAQ on limited cash-out refinances after forbearance
This article is part of Lendmire’s Refinance series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: Should You Cash-Out Refinance or Leave Your First Mortgage Alone? · Does a Cash-Out Refinance Mortgage Need Full Underwriting? · How a Cash-Out Refinance Replaces Your Mortgage With Cash
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.