What happens if you don’t pay your mortgage payment? One of the scariest things that many homeowners have to face is the possibility of foreclosure. When you are faced with the prospect of being unable to pay your mortgage, and the possibility of losing your home, it can be very demoralizing. But there are programs that can help you.
And perhaps more importantly, you won’t lose your home immediately when you miss one mortgage payment. There is a process that follows whenever you can’t make your mortgage payment, which I’ll explain in detail below:
The First Consequences of Not Paying Your Mortgage
The process a lender has to follow when foreclosing on your home differs by state. Some states require that the lender foreclose through the court system, while others don’t require the same level of legal requirement. For those readers in our home state of New Jersey it is important to know that New Jersey is a judicial foreclosure state, meaning that for most part, foreclosure processes go through the court system. The judicial process is slower than a non-judicial process and includes more protections for homeowners in default. Here is a general timeline of what happens when you can’t pay your mortgage, although you should check with your state for individual specifics and possible variations:
- Missed mortgage payment: Most lenders require you to make your payment by the first of the month, but have a grace period that lasts until the 15th. Once you are past the 15th of the month, a fee might be assessed and your payment considered delinquent.
- Credit score hit: You’ll probably receive a notice and/or a phone call as early as the 16th day of the month. However, it’s not until you are 30 days late that many lenders decide to report you to the credit bureaus. Once reported on a missed/late mortgage payment, your credit score takes a hit. It can be as much as 100 points.
- Demand/breach letter: Your mortgage is considered in default once it reaches 30 days late. You will probably receive some sort of demand/breach letter about your mortgage when it is somewhere between 45 and 60 days late. This letter informs you that foreclosure could be coming if you don’t pay.
If you can’t pay your mortgage, it’s better to approach the lender up front, rather than wait until things get messy. Just ignoring the problem won’t make it go away. Instead, call your lender when you know you are having problems. You might be eligible for a refinance or a loan modification that can make your payments more manageable.
The federal government has two programs that are intended to help homeowners who may be struggling with making their mortgage payments. These were both set up in the aftermath of the 2008 housing market crash and global financial crisis.
The first, known as HAMP, assists homeowners who have missed payments and are in danger of foreclosure to get a refinance that will help them make their monthly payments. The second, known as HARP, does the same thing for homeowners who have not yet missed any payments but are concerned about not being able to make mortgage payments in the future.
Another possibility you should know about is that the lender might be willing to agree to forbearance or deferment if your situation is temporary. Working with your lender when you can’t pay a debt is your best first option.
Homeowners who stop paying their mortgage do so for a host of reasons. Lives and financial circumstances change. Job loss or relocation might put consumers in a bind. Housing values can plummet, leaving homeowners owing far more than the property is worth.
About 6% of all mortgage loans were at least one payment behind at the end of April, according to the Mortgage Bankers Association. Whatever the catalyst, deciding to forgo that monthly payment is a choice few take lightly. Foreclosure can inflict serious damage on your credit. It’ll also make obtaining another home loan next to impossible in the short-term. Missing one or even a couple mortgage payments doesn’t mean foreclosure is imminent. But forgoing them will set in motion a process that can have long-lasting consequences for your credit and finances.
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