Understanding the Consequences of Missing Mortgage Payments

At O1ne Mortgage, we understand that life can sometimes throw unexpected financial challenges your way. Missing a mortgage payment can be a stressful experience, but knowing what to expect and how to handle the situation can make a significant difference. If you find yourself struggling with mortgage payments, don’t hesitate to call us at 213-732-3074 for expert guidance and support.

What Happens When You Miss a Mortgage Payment?

Missing a mortgage payment can lead to a series of events, each with its own set of consequences. Here’s a breakdown of what typically happens:

Grace Period

Most mortgage contracts include a grace period, usually up to 15 days, during which you can make your payment without incurring any penalties. If you manage to pay within this period, you can avoid late fees and other negative consequences.

Late Fees

If your payment is still unpaid after three to four weeks, your loan servicer will likely notify you that your payment is late and that you’ve been charged a penalty or fee. This is the first step in the process, and it’s crucial to address the issue promptly.

Delinquency

Once a payment is 30 days late, it is considered delinquent. Your mortgage servicer will report the late payment to the national credit bureaus, resulting in a 30-days-past-due entry on your credit reports. This can negatively impact your credit scores. If you continue to miss payments, expect increased communication from your loan servicer through letters, emails, and text messages.

60 Days Past Due

A second missed payment will add a 60-days-past-due notice to your credit reports, further damaging your credit scores. It’s essential to take action at this stage to prevent further consequences.

Default

A third missed payment results in a 90-days-past-due notice on your credit reports and typically prompts your mortgage servicer to send a notice of default. This indicates their intention to foreclose within 30 days. At this point, the servicer may also file with the appropriate court to begin foreclosure proceedings, place your name in a public notice listing borrowers facing foreclosure, and seek a date for selling the property at public auction. This phase, known as pre-foreclosure, is your last chance to avoid losing your home by bringing your loan current or working out other arrangements with your loan servicer.

How Many Payments Can You Miss Before Foreclosure?

Foreclosure is typically triggered after you miss three payments, or 90 days past due on your mortgage. A final foreclosure order, requiring you to vacate the property, takes at least another 30 days, by which time you’ll have missed a total of four payments. In some jurisdictions, a policy known as the right of redemption gives foreclosed homeowners a year or more to buy back their property after foreclosure by paying more than the high bidder at a foreclosure auction. Homeowners may be able to stay in the house during this redemption period, potentially missing 15 or more payments before facing eviction.

How Late Payments Can Impact Your Credit

Payment history is the most critical factor contributing to credit scores, and payments made 30 days or more after their due date can significantly harm your credit scores. The first missed payment on an otherwise unblemished credit report can be especially damaging, and each subsequent missed payment adds further negative consequences. Missed payments remain on your credit reports for seven years, lowering your credit scores as long as they appear, although their negative effects lessen over time.

How Foreclosure Can Impact Your Credit

Foreclosure is a major negative event in your credit history. A foreclosure entry remains on your credit reports for seven years from the date of the first missed payment that led to foreclosure and hurts your credit scores as long as it persists. The number of points by which a foreclosure reduces your credit scores depends on factors such as your score before missing payments, the presence of other negative entries, and the severity of score reduction from missed payments prior to foreclosure. Some mortgage lenders may require a certain amount of time to pass following a foreclosure before considering your application for a new mortgage.

What to Do if You Can’t Afford Your Mortgage Payment

If you cannot afford your mortgage payments or anticipate missing one or more payments, consulting a HUD housing counselor may help you explore alternatives. Once you’ve done so, it’s in your best interest to reach out to your loan servicer to discuss next steps. Here are some options if you can’t afford your mortgage payment:

Home Sale

If you’re in a hot real estate market, you may be able to sell the house relatively quickly, use proceeds from the sale to pay off your mortgage, and put any remainder toward a more affordable home or rental unit. If you owe your lender more than the house’s market value, putting it on the market would be considered a short sale, and you’ll need your mortgage servicer’s permission to proceed.

Mortgage Forbearance

If your difficulty making payments is due to a temporary financial setback, such as a short-term loss of income or an unexpected expense, your servicer may offer mortgage forbearance—a temporary reduction or suspension of your payments. You’ll need to convince your lender that you’ll be able to resume regular payments—and make up any you’ve missed during forbearance—within a short time, typically no more than 12 months.

Loan Modification

If your credit and payment history are good, your loan servicer may agree to a loan modification that restructures your mortgage to reduce your monthly payment. This typically involves extending the number of payments you must make on the loan, often resulting in greater total interest costs over the life of the loan.

Deed in Lieu of Foreclosure

If the preceding options aren’t viable for you, a deed in lieu of foreclosure arrangement can spare you the most severe consequences of foreclosure. In exchange for vacating your house, leaving it in good condition, and turning the keys and your title deed over to the loan servicer at a prearranged time, you may even be able to negotiate a “cash for keys” stipend that gives you some money to put toward new living arrangements.

The Bottom Line

Depending on the laws in your location, your house could be foreclosed upon after you miss as few as four mortgage payments, or you might be able to stay put for more than a year’s worth of missed payments. However, since just one missed mortgage payment can do major damage to your credit scores and start you on the path to foreclosure, it’s best to do all you can to avoid missing any payments.

If making your mortgage payments becomes impossible, working with your lender to avoid foreclosure is your best option. When you’re ready to seek a new mortgage or if you’re rebuilding credit damaged by foreclosure, you can see where you stand by checking your credit score for free from Experian.

At O1ne Mortgage, we are here to help you navigate these challenging times. For any mortgage service needs, call us at 213-732-3074. Our team of experts is ready to assist you in finding the best solution for your situation.