Missing a mortgage payment can feel scary and stressful, especially if you’re dealing with a financial emergency like a job loss or unexpected bills.
Here’s the good news: Mortgage lenders don’t want borrowers to fall into default or foreclosure. Late or missed mortgage payments are more common than you think, so there are programs and strategies geared toward helping financially strapped homeowners with mortgage payments.
If you’re worried about falling behind on bills and wondering what happens when you miss a mortgage payment, we’ve rounded up the best options and actions to take when you can’t afford your mortgage.
Key Takeaways:
- If you are having trouble paying your mortgage, contact your loan servicer or lender as soon as possible.
- There are state and federal programs in place to help financially distressed homeowners.
- Options for leaving your home include selling your home or handing over the deed to your mortgage lender.
- Lenders typically won’t begin the foreclosure process until you’ve had four consecutive missed payments (around 120 days).
Call Your Mortgage Servicer – Immediately
If you need help with mortgage payments now or think you may need help in the near future, reach out to your loan servicer as soon as possible. The servicer is the company that manages your home loan after you close on the home purchase. The mortgage servicer handles monthly payments, maintains escrow accounts, and assists with issues such as late payments or foreclosure. If you’re unsure about who holds your mortgage, double-check with the original lender or just look at your most recent mortgage statement.
There is usually a 14-day grace period after your payment due date before you would need to pay late fees. Lenders typically don’t begin the foreclosure process until there have been four consecutive missed payments. Don’t wait for the debt to become unmanageable or for credit bureaus to be notified before you reach out.
It may feel embarrassing to call, but the sooner you do, the better the chances of remaining in your home. Your mortgage servicer will likely discuss various mortgage relief options with you and guide you through the best options for your specific situation. They could suggest putting your mortgage into forbearance or help you with a repayment plan.
Reach Out To A Qualified Housing Counselor
The U.S. Department of Housing and Urban Development (HUD) can help connect you with a housing counselor. When you talk to one, you’ll need to state your immediate situation, such as preventing foreclosure on your home or needing help to pay your monthly mortgage bill.
A counselor will ask you about your overall financial picture, including income, debt load, type of mortgage, outstanding mortgage balance and credit history. The more information you can share, the better equipped they will be to help you.
You can reach a HUD-approved housing counselor and speak to them for free by calling 855-437-3243.
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Apply For Government Assistance Relief
If you purchased your home with a government-backed loan such as an FHA or VA mortgage, you may qualify for special assistance from the agencies that insured it.
If you have a conventional loan, consider state-based assistance programs that utilize federal funding to support mortgage payments.
Ask About Loan Modifications
If you are having financial trouble, you can ask your lender about getting a loan modification, which allows homeowners to adjust their loan terms.
Using loan modification could mean a reduction in your loan’s interest rate, an extension of the repayment period or the opportunity to change your home loan. In some cases, you can use a mix of all three options in a loan modification.
When you get a loan modification, your lender will change your loan terms and interest – essentially hitting reset on the loan to make your monthly payments more manageable.
View Your Refinancing Options
Find a refinance lender that will work with your unique situation.
Consider Refinancing (If You Qualify)
If you’re up to date on your mortgage payments but are worried about keeping up in the future, refinancing might be a good option to consider.
If you have an FHA or VA loan, you may qualify for an FHA Streamline or VA Streamline Refinance. These programs are designed to make refinancing easier and more accessible to eligible homeowners.
Refinancing can help lower your monthly payments by reducing your interest rate or extending your loan term, making your mortgage more affordable over time – which might be enough to help you continue to make mortgage payments on time.
Keep in mind, though, that refinancing typically comes with closing costs – so if money is tight or you’ve missed a mortgage payment recently, this may not be the right solution for you.
Ask Your Lender For Help
Always talk to your lender about options for mortgage assistance. Here are some common ways your mortgage servicer or lender may be able to help.
Forbearance
Lenders use forbearance to bring immediate financial relief. A forbearance on your mortgage is a temporary pause on payments or an immediate reduction of your monthly payment. Putting your mortgage into forbearance can provide some breathing room to get your finances back on track. But this isn’t a gift. You will be required to pay back all the funds you borrowed when the forbearance period ends, including interest.
Repayment Plan
If you’re worried about affording back payments on your mortgage, a repayment plan may be a good choice. When you use a repayment plan, it allows you to catch up on missed payments by paying them back over a set time period, such as three to six months. Repayment plans often work best if you’ve experienced a temporary financial crisis, after which you can pay your full monthly mortgage, along with a partial payment of any past-due amounts.
Be aware that your lender may still consider you delinquent on your mortgage, which could potentially hurt your credit and continue to put you at risk for foreclosure. Make sure to carefully read a repayment plan contract and ask your lender exactly how they consider your loan’s standing during a repayment period.
You can use a repayment calculator to help you estimate the monthly payments needed to bring an overdue mortgage loan up to date.
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Consider Selling Your Home
Unfortunately, if you missed a mortgage payment, cannot keep up with future payments and have exhausted your options to stay in your home, you may want to consider selling. Here are a few ways to go about selling your home if you’re struggling financially and know that you can’t afford to continue paying your mortgage.
Traditional Sale
If you have equity in your home, and it is not yet in foreclosure, you could sell it on the open housing market. The best-case scenario? You sell your home, pay off your mortgage – including any missed payments and associated fees – and walk away with some money to start over. If you need to sell your home quickly, be prepared to take the best offer on the table so that your home doesn’t sit on the market for long.
Short Sale
Your mortgage lender can help you sell your property in a short sale. When you take this option, be prepared to sell your home for less than what you owe on it. Usually, short sales occur when a homeowner cannot afford their mortgage and can prove financial hardship and their home’s value has dropped low enough that a traditional sale won’t cover the mortgage payoff. In a short sale, your mortgage lender has the final say on any offer on your home.
The upsides? You can often remain in your home during the sale proceedings, and in some cases, you may receive relocation assistance from your lender to help with moving costs. In addition, a short sale is a better option than foreclosure because it will do less damage to your credit score.
Pro tip: Use a Realtor who is familiar with short sales if you go this route.
Deed In Lieu Of Foreclosure
When you agree to sign a deed in lieu of foreclosure, you voluntarily transfer your home to your lender so they can sell it. This option is usually a last resort before a foreclosure occurs and you are evicted from your home.
To qualify for one, you’ll need to demonstrate significant financial hardship, and your lender must agree to the arrangement. While you won’t receive any proceeds from the sale, some lenders may offer relocation assistance. Like a foreclosure, a deed in lieu of foreclosure will negatively impact your credit score. It may also delay your ability to qualify for a new mortgage, as lenders often impose a waiting period for borrowers in these situations.
In some cases, your lender may forgive the remaining mortgage balance after the home is sold. In others, you could still be responsible for the difference between the sale price and what you owe, but that will depend on your arrangement with your lender.
FAQ
The Bottom Line: Help Is Available If You Miss A Mortgage Payment
If you can’t pay your mortgage, don’t panic. Unexpected financial obstacles may be limiting your ability to pay your bills, but you may be able to keep your home. Reach out to your home loan provider and a HUD-approved housing counselor to ask for help and work to get back on track.
Ben Shapiro
Ben Shapiro is an award-winning financial analyst with nearly a decade of experience working in corporate finance in big banks, small-to-medium-size businesses, and mortgage finance. His expertise includes strategic application of macroeconomic analysis, financial data analysis, financial forecasting and strategic scenario planning. For the past four years, he has focused on the mortgage industry, applying economics to forecasting and strategic decision-making at Quicken Loans. Ben earned a bachelor’s degree in business with a minor in economics from California State University, Northridge, graduating cum laude and with honors. He also served as an officer in an allied military for five years, responsible for the welfare of 300 soldiers and eight direct reports before age 25.
