The Quick Read: A forbearance paused payments on the old mortgage and left the loan contract alone, while a modification rewrote the contract, so underwriters on a bank statement refinance usually read a fully resolved forbearance as the lighter event and a modification as the heavier one that calls for more clean payment history. Both are reviewed next to your twelve months of deposits, not in place of them. Exact seasoning varies by lender, and every file is underwritten individually.
- Forbearance changed the timing of payments. Modification changed the loan itself.
- A clean credit score does not hide either event from an underwriter.
- The mortgage payoff letter and payment history carry most of the weight.
- Deferred balances come due at payoff, so they affect cash-out math.
- A bank statement refinance is reviewed on documented income under the applicable program, subject to lender guidelines.
Here is the honest answer on who each path fits. A borrower who paused payments and then reinstated or repaid the missed amounts has the simpler story. A borrower who modified has a longer story, but a modification that has run cleanly for a long stretch can also refinance. Neither event ends the conversation. Each one changes which documents you gather and how long the lender wants to see on-time payments since.
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Side-by-Side
This table compares how the two prior events are typically treated on a bank statement refinance. The right-hand column reflects published industry norms, not a fixed rule from any single lender.
| Factor | Forbearance | Loan Modification |
|---|---|---|
| What it was | Temporary pause in payments | Permanent change to loan terms |
| Loan contract | Unchanged | Rewritten |
| How underwriters often read it | Lighter event if fully resolved | Heavier event, longer clock |
| Seasoning clock | Often from the end of the pause | Often from the execution date |
| Key documents | Agreement, payoff, payment history | Agreement, payoff, payment history |
| Review basis | 12 months of bank statements | 12 months of bank statements |
| Entity vesting | Varies by program | Varies by program |
| Reserves | Commonly around 6 months | Commonly around 6 months |
Notice that the income side is identical. The deposits qualify the file the same way either way. Only the credit-event review changes.
What Each Event Actually Was
Forbearance was a temporary pause. According to the Congressional Research Service, federally backed mortgages could receive forbearance for a COVID-related hardship, and that coverage was not limited to owner-occupied homes. Rental properties with federally backed single-family mortgages were also eligible. Multifamily loans sat on a separate statutory track.
The length matters for how you describe the event. The Federal Register rule states that a borrower with a federally backed loan could request an 180-day forbearance, extendable for another 180 days, on attesting to a hardship. The pause did not erase the missed amounts. Those were resolved afterward through reinstatement, a repayment plan, a deferral, or a modification.
A modification is different in kind. It permanently changes the contract. The same Federal Register rule describes a streamlined modification option that could not increase the monthly principal and interest payment and capped the new term at 480 months total. Some modifications also set aside part of the balance as a deferred amount that is payable at sale, transfer, or payoff.
Loans that were not federally backed followed a different path. A portfolio lender or private lender offered whatever relief it chose to offer. So your file may hold a formal agreement, an informal arrangement, or something in between. Lenders ask for the paper either way.
Which One Did You Have?
Borrowers confuse these events more than they expect. A quick diagnostic helps before any file goes in.
1. Look at the servicer letter. If it says payments were suspended and the loan terms stayed the same, that is a forbearance.
2. Check the exit. If the missed amounts were paid in a lump sum or through a repayment plan, the contract likely never changed.
3. Look for a new note or amended terms. A rewritten interest term, payment amount, or maturity date points to a modification.
4. Look for a deferred or subordinate balance. If part of the loan was moved to the end of the term, the file carries a leftover that comes due on payoff.
5. Pull the mortgage history. The servicer’s record shows how and when the event ended.
Underwriters often separate a pure forbearance from one that ended in a modification, repayment plan, or balance add-on. That distinction drives most of the difference in review. Across the wholesale network Lendmire places files with, this is where files get slowed down, because borrowers describe the event loosely and the paper tells a different story.
When Forbearance Is the Better Fit
A forbearance-only history is the cleaner position when the loan returned to normal and stayed there. It tends to work best in these situations:
- The pause ended and the loan was reinstated or the missed amounts were fully repaid.
- The mortgage history shows steady on-time payments since the exit.
- No modification, deferral, or balance add-on followed the pause.
- The property is a one-to-four unit home, which is where most bank statement refinances sit.
Because the contract never changed, many underwriters treat this as a shorter credit-event review. Lenders still differ on the seasoning clock, and some count from the end of the pause while others look at the new payment record. An investor on a public forum described a servicer-lender denying a cash-out refinance at the last stage over a prior forbearance, even after four on-time payments, because that lender wanted twelve. That is one anecdote, but it shows why overlays differ and why shopping the file across lenders matters.
A forbearance does not fit well if the ending is vague. Missing exit paperwork turns a light event into a long list of questions.
When Loan Modification Is the Better Fit
This heading needs a plain reading. A modification is rarely the easier event to explain. It is the better fit when it permanently resolved the problem and the loan has run cleanly since.
- The new terms replaced a shaky payment structure, and the payment history on the modified loan is long and clean.
- The modification did not leave a deferred balance, or the deferred balance is documented and small.
- You want to refinance out of the modified loan into a structure that matches your current documented income.
- The execution date is far enough back that the lender’s seasoning clock has run.
A modification also leaves a clear dated record. Some borrowers find that easier to document than a pause with a messy exit. The tradeoff is the clock. Many lenders measure seasoning from the date a modification was executed, and some measure from original inception. Plan for a longer wait than a forbearance-only file would face.
One more edge case matters. A borrower who fell behind again after a modification faces a harder review. Multiple events in the credit history are a common reason for tighter overlays. Exact terms depend on lender and investor guidelines, credit profile, reserves, and property review.
How the Bank Statement Side Changes the Picture
A bank statement refinance qualifies the borrower on deposits. The program reviews twelve months of business or personal statements and averages the deposits, using lender-specific expense factors. Pandemic relief can show up in those statements in three ways. There may be a gap during a slow business stretch, a lump-sum deposit or payoff, or a visible rebuild in income. Underwriters may ask for a letter of explanation. Write it plainly: what happened, when it ended, and what has been stable since.
Leverage depends on occupancy. On a primary residence, select lenders in the network offer up to 90% LTV on a purchase or rate-and-term refinance. A cash-out on a primary residence tops out around 80% LTV with a fixed expense ratio, or 75% with an accountant-prepared ratio. A second home cash-out reaches up to 75% LTV. An investment property cash-out tops out around 75% LTV. Loan sizes generally run from $125,000 to $3,500,000, and reserves commonly sit around six months of the housing payment. All of this is subject to lender guidelines and credit review.
Occupancy also decides the disclosure regime. Owner-occupied bank statement loans are consumer mortgages, and the consumer disclosure rules apply. A bank statement loan on a non-owner-occupied rental, including a short-term rental, is business-purpose and exempt from those rules. Lendmire’s consumer mortgage licensing covers 16 states, so confirm availability for the property’s location.
The prior event does not disappear because the income method changed. The credit-event overlay sits in the credit section of a guideline, and it applies under both bank statement and rental-income programs. If the rental property is the real driver, see Lendmire’s complete DSCR loans guide for the property-income side.
Payoff Surprises and Deferred Balances
The old loan’s payoff is where cash-out math breaks. If a modification deferred part of the balance, that amount is repaid out of the refinance. A borrower who plans around the visible principal alone can be short at settlement.
Request a payoff statement early. It shows the full amount due, including any deferred portion. On a cash-out, that reduces what is left after the old loan is cleared. Lendmire’s piece Rate-and-Term vs Cash-Out on a Super Jumbo Bank Statement Refinance covers how the two structures compare. Tax treatment varies; consult a qualified professional before relying on any deduction.
Entity Vesting and the Guarantor
Many investors hold rentals in an LLC. A prior forbearance on an entity-held loan may follow the personal guarantor, and lenders disagree on how it counts. Some programs give seasoning credit for time vested in an entity only when the borrower is the majority owner. Which treatment applies varies by program. Lendmire’s piece Reset vs Recast vs Bank Statement Refinance for an LLC Portfolio Investor covers entity structure in more depth.
Documents to Gather
Having these ready prevents preventable gaps:
- The forbearance or modification agreement from the servicer.
- A payoff letter or mortgage history showing the exit date and how missed amounts were resolved.
- Twelve to twenty-four months of mortgage payment history.
- Twelve months of bank statements, plus ordinary asset and ID documents.
- A short letter of explanation covering the hardship and the recovery.
Multifamily with five or more units follows a different statutory track, and most bank statement refinances sit in the one-to-four unit range. If your property is larger, treat it as a separate conversation.
A Balanced Verdict
Forbearance is usually the lighter event if it ended cleanly and nothing was added to the loan. Modification is usually the heavier event, but a long, clean record on the modified loan can carry the file. The deciding factors are the event type, the dates, the payment history since, and whether anything else was added. Anyone who tells you one event is always disqualifying or always ignored is oversimplifying. Underwriting is individual, and the network includes lenders with very different overlays.
Key Terms Defined
Forbearance: A temporary pause or reduction in mortgage payments that leaves the loan contract unchanged.
Loan modification: A permanent change to the loan’s terms, such as the payment, the term length, or the balance structure.
Deferral: A set-aside portion of the balance that becomes payable at sale, transfer, or payoff.
Seasoning: The amount of on-time payment history a lender wants to see after a credit event.
Bank statement refinance: A refinance that is reviewed on documented income drawn from twelve months of bank statement deposits, under the applicable program and subject to lender guidelines.
Frequently Asked Questions
Can I refinance while still in forbearance?
Usually not. Lenders generally want the pause to have ended and the loan to be current before they review a refinance. Check the specific program, because requirements vary.
Does a modification disqualify me from a bank statement refinance?
Not automatically. A modification typically calls for a longer clean payment record than a forbearance, and the clock often runs from the execution date. Some lenders in the network will review a seasoned modification with a clean record.
Does a good credit score hide a past forbearance?
No. Servicers reported many forborne loans as current, but the underwriter still sees the history on the payoff letter and mortgage history. The score and the servicing record are reviewed together.
Do pandemic forbearance rules from agency loans apply to bank statement loans?
No. Agency repayment-plan and deferral rules apply to agency loans. A bank statement lender sets its own credit-event rules, so outcomes differ between lenders.
What happens to a deferred balance when I refinance?
The deferred amount generally comes due at payoff. It is repaid from the new loan’s proceeds, which can reduce cash out. Get a payoff statement early.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage serving self-employed and high-net-worth borrowers in 16 states. Bank statement, P&L-only, 1099-only and asset-based mortgages 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. Congressional Research Service, CARES Act mortgage provisions
2. Federal Register, COVID-19 borrower protections final rule
3. BiggerPockets forum, denied refinancing after forbearance
This article is part of Lendmire’s bank statement loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Bank Statement HELOC vs Bank Statement Home Equity Loan · Can a Franchise Owner Use a Bank Statement Loan? · Portfolio DSCR vs Bank Statement Loan for a 1099 Contractor
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.