Simply put, a re-performing loan is a loan that was previously considered non-performing and you began making payments on it again. Re-performing loans are also called “scratch and dent” loans because it has a performing issue or is defective.
Even if you have not repaid the missed payments your loan will still become re-performing—just remember that you will still need to repay what you missed. Whether you are a home buyer, owner, and seller, re-performing loans can affect you in different ways.
Re-Performing Loans & Buying a Home
If you’re buying a home, remember that sellers will be looking for a buyer who has a good history of making their payments and have been preapproved for a loan. If you have a history of being unable to make regular payments, sellers will be wary about selling to you and look for someone who is more stable financially.
Re-Performing Loans Can Affect Future Loans
If you have a history of re-performing loans, you may find that it may be more difficult for you to get another loan in the future. The reason being, a re-performing loan is risky to lenders because you now have a history of being unable to make your loan payments on time. In addition, re-performing loans have a higher chance of defaulting and are more difficult to refinance.
To refinance a re-performing loan, you will need to communicate with your lender and prove that you are in financial need. Remember that lenders want you to be able to repay your loans, so working with your lender will help you get the help you need.
Avoiding Re-Performing Loans
While you do need to begin making your payments again as soon as possible if they become non-performing, it is always a good idea to avoid getting to the point where your loan becomes re-performing. To do that, always look for a reputable lender that can help you find a loan that you can afford.