We’re only human—sometimes we miss our bill due dates, possibly get charged a late fee, and then are more careful to pay it on time the next month. But what happens if you’re delinquent in paying something big, like your mortgage?
While foreclosure is always a possibility if you’re really late on a mortgage payment, how long does that take? If you’re just a few days late, will that affect your credit score at all?
Let’s go over what happens when you’re late on your mortgage, and how to avoid it all costs.
What Happens If I’m a Few Days Late on a Mortgage?
Just like a rent payment, your mortgage payment is due on the first of every month. So, what exactly happens if you pay your mortgage on the second or third day of the month? Should you expect a late fee?
If you only miss your payment by a few days, chances are that you won’t have any kind of late fee or reporting to the credit bureau because most lenders generally give you a “grace period.” You should contact your lender to find out what your exact grace period is, but many lenders will give you 15 days to pay your mortgage without penalty.
However, just because it’s technically allowed doesn’t mean you should get into the habit of it.
“The 15th is described as ‘the bank has the check,’” says Theresa Sheridan, Senior Loan Officer in Seattle. “There are clients who wait until day 15 and call in their payment with a credit card. If a client spends all their money from their end-of-month check, they know they can wait until their check on the 15th and pay. This is a hard cycle to get out of once a client is in this habit.”
If you don’t pay your mortgage by that 15th day of the month, then you can expect to incur a late fee (usually about 5% of your payment).
What Happens if I’m More than 30 Days Late on a Mortgage?
A late payment after 15 days will result in a late fee, but a late payment after 30 days will result in even more consequences—like being reported to credit bureaus.
Missing a mortgage payment by more than 30 days can drop your credit score, but the question is: How much can it drop? Well, this depends largely on your overall credit history as well as the scoring system that your particular lender uses. The drops also tend to be higher if you have an “excellent” credit score (780 or above) and have never missed a payment before.
However, even though you may get a ding on your credit score, the good news is that you most likely won’t go into foreclosure after just 30 days delinquency.
“Banks will go to great lengths to contact borrowers from the minute they are 15 days late,” Sheridan says. “Since the short sale/foreclosure boom, I think banks have learned that offering counseling or help lines for clients who are struggling is far preferable to having a client foreclose. Banks are in the business of lending money, not of owning real estate.”
What Happens if I’m More than 90 Days Late on a Mortgage?
When you are more than 90 days late on a mortgage payment, you are subject to your lender starting the foreclosure process. In most states, falling behind more than 90 days on your mortgage means that your lender can initiate the foreclosure process—starting with pre-foreclosure.
Pre-foreclosure begins with your lender recording a public notice (a Notice of Default) that you, the owner, have defaulted and they will mail this notice to you and might even be required to post it on your door.
After this, state law determines different waiting periods. Typically, you have 90 days from the Notice of Default to arrange payment to bring your payments up to date. If you still haven’t paid the payments you owe on your house, then your house may be put up for auction. In some states, the lender must file proceedings in court to complete the foreclosure process. The homeowner does have a chance in many states to stop the foreclosure process—otherwise known as the “right to redemption”—up until the home is sold at the auction. However, if they can’t come up with the money then the home will be sold to the highest bidder, and if it’s not sold at the auction it will become a bank-owned property.
How to Avoid Foreclosure and Late Payments
Obviously, no one wants to miss payments and go into foreclosure, but life is often unpredictable. You never know when you might lose your job or if someone in your family will have a pressing medical issue that becomes a huge financial burden.
If you are ever in a financial predicament and don’t think you’ll be able to make your mortgage payments, you do have some options—but only if you reach out to your lender. You could potentially qualify for what is called a forbearance, which is essentially when a lender and an owner agree to lowered or suspended payments until the owner is back on their feet. There may also be government assistance programs available to help you bridge the gap in your payments or restructure your mortgage.
This doesn’t mean that you’re off the hook, however; you will still have to catch up on the repayment. The most important thing to remember is that you want to be the one reaching out to them and not the other way around.
But unless you are going through a financial hardship or extraordinary circumstances, you should be making your mortgage payments on time each and every month. To avoid making delinquent payments, Sheridan suggests to set up autopay, but also make sure to schedule it well ahead of time so you’re not cutting it too close.
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