What Is Forbearance?
During forbearance, the lender agrees not to pursue foreclosure while you catch up. The CARES Act of 2020 granted up to 18 months of forbearance for federally backed loans (Fannie Mae, Freddie Mac, FHA, VA, USDA) with no documentation required. That program ended, but forbearance remains a standard loss mitigation tool. For investment property owners, protections are weaker than for primary residences—shorter periods (typically 3–6 months vs. 12–18), stricter documentation, and fewer post-forbearance options. If you hold distressed notes, forbearance agreements are a key negotiation tool.
Forbearance is a formal agreement between a borrower and lender to temporarily reduce or suspend mortgage payments, typically due to financial hardship. It is not forgiveness—the missed payments must eventually be repaid through a repayment plan, deferral, or loan modification.
At a Glance
- What it is: Temporary pause or reduction of mortgage payments by lender agreement
- Duration: 3–6 months typical for investment properties; up to 12–18 months for primary residences (CARES Act era)
- Not forgiveness: Missed payments must be repaid—they are deferred, not eliminated
- Credit impact: Under CARES Act, no negative reporting for federally backed loans; conventional forbearance may be reported as delinquent
- Investment properties: Less protection than primary residences
How It Works
Requesting Forbearance. Contact your loan servicer before you miss a payment. Explain the hardship—job loss, medical emergency, natural disaster, or temporary cash flow disruption. For investment properties, servicers typically require documentation: bank statements, rent rolls showing vacancy, and a written hardship letter. Approval is not guaranteed for investor loans the way it was for primary residences under the CARES Act.
During Forbearance. Payments are reduced or suspended for the agreed period. Interest continues to accrue on the principal balance. A $200,000 balance at 7% accrues roughly $1,167 per month in interest during forbearance—that amount gets added to what you owe. You cannot be reported to collections or face foreclosure proceedings during an active forbearance agreement, though this protection is stronger for federally backed loans.
Post-Forbearance Options. When forbearance ends, you typically have three paths. A repayment plan spreads the missed payments over 6–12 months on top of your regular payment—so monthly costs temporarily increase by 50–100%. Payment deferral moves the missed amount to the end of the loan as a balloon due at sale, refinance, or maturity—no increase in monthly payments. Loan modification restructures the loan terms entirely, potentially extending the term, reducing the rate, or adding missed payments to the balance.
Investment Property vs. Primary Residence. Investment property forbearance is harder to get and shorter in duration. The CARES Act mandated forbearance for federally backed primary residence loans, but investment property borrowers with portfolio or DSCR loans had no such mandate. Servicers often limit investment property forbearance to 3 months with one 3-month extension. Post-forbearance, deferral options are less common for investor loans—repayment plans are the default.
Real-World Example
Rachel owns a fourplex in Memphis financed with a conventional Fannie Mae loan at 6.75%. Her principal balance is $320,000. Monthly payment: $2,076 (P&I). Two units go vacant simultaneously after a major plumbing repair takes 8 weeks. Her rental income drops from $4,800/month to $2,400, and the repair costs $11,000. She requests forbearance through her servicer and receives a 3-month pause. During those 3 months, $5,600 in interest accrues. When forbearance ends, she chooses a 12-month repayment plan: her regular $2,076 payment plus $519/month for the deferred amount, totaling $2,595 for 12 months. Both units are re-leased by month two, restoring income to $4,800. She survives the cash crunch without foreclosure.
Pros & Cons
- Prevents foreclosure during temporary hardship—buys time to stabilize
- No immediate lump sum required—multiple repayment options exist
- Under CARES Act rules, no credit score damage for federally backed loans
- Can be a strategic tool for note investors acquiring non-performing loans
- Interest continues accruing—you owe more when forbearance ends
- Investment property forbearance is shorter and harder to obtain than primary residence
- Repayment plans increase monthly payments significantly after forbearance
- Some servicers report forbearance to credit bureaus for non-federally-backed loans
Watch Out
- Lump sum myth: Some borrowers believe the full missed amount is due immediately when forbearance ends. For federally backed loans, servicers must offer alternatives (repayment plan, deferral, modification). For portfolio loans, read your forbearance agreement carefully—some do require lump-sum repayment.
- Credit reporting gap: The CARES Act prohibited negative credit reporting during forbearance for federally backed loans. But if your investment property loan is a DSCR or portfolio loan, the servicer may report missed payments. Get the credit reporting terms in writing before entering forbearance.
- Note investor angle: If you buy non-performing notes, the borrower may already be in or eligible for forbearance. A forbearance agreement followed by a loan modification can turn a non-performing note into a re-performing one—often more profitable than foreclosure.
- Refinance timing: Having a forbearance on your record can delay your ability to refinance or obtain new loans. Fannie Mae typically requires 3 months of on-time payments after forbearance ends, plus 12 months of payment history, before approving a new loan.
Ask an Investor
The Takeaway
Forbearance is a lifeline, not a strategy. Use it when temporary cash flow disruptions threaten your ability to keep a property—then exit as quickly as possible through a repayment plan or deferral. For investment properties, expect shorter timelines and fewer protections than primary residences. Always get forbearance terms in writing, especially credit reporting provisions, before agreeing to anything.