What Happens If I Can’t Pay My Mortgage?
If you are having trouble making your mortgage payment, let your mortgage lender know as soon as possible. Make this call before you miss a payment. Don’t delay. You’ll find the phone number for your mortgage lender on your monthly bill. Let them know the specifics of your financial situation and why you may need assistance making future payments. Your lender may be willing to work out a new repayment plan for you. A new lower payment may be all you need to stay on track with your mortgage payments. But if you are already behind on your mortgage payment, it may already be impacting your credit. If you miss a mortgage payment, your mortgage lender will report the late payment, known as a delinquency, on your credit report. Late payments remain on your credit report for seven years so that is why it is so important to stay current on your mortgage payments for as long as you can and reach out for help before you fall behind on a payment. Let’s look at the steps you can take when you are having trouble making mortgage payments.
Forbearance. If your financial struggles are temporary, your mortgage lender may be willing to reduce or suspend your mortgage payments for a limited period of time. Forbearance won’t erase what you owe. And missed or reduced payments must be made in the future at the end of the forbearance period. But forbearance can be a way to get back on your financial feet.
Deferment. With a deferment, a mortgage lender allows you to defer your mortgage payments for a period of time. The deferred payments are then added on at the end of the mortgage loan.
Refinancing. If you have good credit, consider refinancing your mortgage. A lower interest rate could lower your mortgage payment to an amount that is much easier for you to pay. And that lower mortgage payment may be all you need to get through a tough financial time.
New Repayment Plan. This one you work out with your mortgage lender. Together you set up a new repayment plan that will allow you to go forward with new payments. If you are already behind on payments, a new repayment plan can help you to catch up.
Selling Your Home. If your house is worth more than you owe on it, selling your home is a good financial move. It may be hard to let it go but it is a sound financial option. Downsizing to a more affordable living space may be just what you need to get back on track financially. And selling your home will make it happen.
Short Sale. If you owe more than your home is worth, you may want to consider a short sale. With a short sale, the lender agrees to accept the amount that you sell your house for as full payment on the mortgage loan, even though this amount is less than what you owe on your mortgage. A short sale may be a good financial deal but it does have a negative impact on your credit. So consider it carefully.
Loan Modification. A mortgage loan modification is a change in your mortgage loan terms. This modification can reduce your monthly payment to an amount you can afford. Loan modifications may involve extending the number of years you have to repay the loan, reducing the interest rate and reducing the principal balance.
Deed in Lieu of Foreclosure. With a deed in lieu of foreclosure, your mortgage lender agrees to release you from your mortgage in exchange for you giving them the deed to your home. Doing so will free you of your mortgage and your home. But it will also have a negative impact on your credit.
Steps to Foreclosure
No one wants it to come to this. But it is better to know what may be coming. Here are the steps to foreclosure.
The first step is defaulting on your mortgage, meaning you are 30 days or more behind on your mortgage. This is the time to work out a new payment arrangement with your lender and request financial assistance such as forbearance, if those arrangements are possible.
Step two in foreclosure is getting a notice of default by the mortgage lender. This notice is sent when the homeowner is 30 to 45 days past due on their mortgage. The mortgage lender will set a period of time for the homeowner to pay the lender the required past due amount and return the loan to good standing. This notice will be sent certified mail and the homeowner typically has 90 days to pay off the most recent bill on their mortgage.
If a homeowner hasn’t come up with the money within 90 days of the notice of default, the lender may move forward with the foreclosure process. The next step is a notice of sale and this will state that the lender will sell the home at auction in 21 days. A notice of sale is sent to the homeowner by certified letter. The notice of sale must be published weekly in a newspaper in the county where the home is located for three, consecutive weeks before the auction date.
The homeowner still has the option of reinstating their mortgage up until five days before the sale, if they can come up with the money.
In step four in the foreclosure process, the home will be sold at auction to the highest bidder, who will have to pay the full amount immediately.
The new homeowner must serve any remaining occupants of the home a three-day, written notice to move out. And if the occupant does not move out in three days, the bidder must go through a formal eviction process in court in order to take possession of the house.
Forbearance Help During COVID-19
Has COVID-19 hurt your finances? If your mortgage loan is backed by the U.S. government, you may be eligible for forbearance under the CARES Act. Provisions of the CARES Act allows you to temporarily suspend mortgage payments if you are experiencing financial difficulties due to COVID-19. So if your mortgage is from the Federal Housing Administration (FHA), Department of Veterans Affairs (VA), U.S. Department of Agriculture (USDA) and Fannie Mae and Freddie Mac, you may be eligible for forbearance under the CARES Act.
The forbearance lasts up to 180 days and you have a right to request an extension for up to an additional 180 days.
Contact your loan servicer to request the forbearance. Regular interest will continue to accrue on your account. You’ll need to work out a plan to pay back the forbearance at the end of forbearance period, either a lump sum payment or a payment plan. Find out what your lender is willing to do for you. Will subsequent monthly payments be higher for a period of time to make up in forbearance? It is good to work this out ahead of time, so you’ll be able to plan.
Will Mortgage Insurance Help?
Mortgage protection insurance will cover your mortgage payments if you lose your job or become disabled. Mortgage protection insurance also will pay off the mortgage of your home when you die, so your family home will be paid off and your family will be able to live there mortgage-free.
If you have lost your job, your mortgage protection insurance will cover your mortgage payments for a certain amount of time. It is a good idea to take full advantage of this benefit. How long will this benefit last? Call the mortgage insurance company and find out. You don’t want to miss out on financial help when you are unemployed.
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