What Happens if You Miss a Mortgage Payment?

Homeownership involves numerous financial responsibilities, from fixing water leaks to making monthly mortgage payments. You might wonder: What happens if you miss a mortgage payment? 

What Happens if You Miss a Mortgage Payment?

Missing a mortgage payment can lead to a series of escalating consequences that threaten your short-term finances and long-term credit health. Here’s a look at what typically happens:

• Grace period: Most mortgages include a 15-day grace period, during which you can avoid late fees and credit score impacts if you pay within this time. Check with your lender to confirm the exact details of your grace period.
• Late fees: Late fees will apply if you miss the grace period and can accumulate quickly.
• Credit score impact: If your payment is 30 days late, your lender will report it to the credit bureaus. This can significantly lower your credit score, making it harder to get loans or favorable interest rates. Payment history is a critical factor in your credit score, contributing up to 35%.
• Lender outreach: By 45 days late, your lender will likely contact you to discuss payment assistance options and help you address the missed payments.
• Additional late fees and credit damage: After 60 days, another late fee is added and your credit score may suffer further as this second missed payment is reported.
• Pre-foreclosure: When you’re 90 days late, your lender will send a demand letter. This formal notice indicates that you’re significantly behind on payments and warns about foreclosure proceedings unless you catch up.
• Foreclosure: If you remain delinquent, foreclosure can begin. This legal process allows the lender to sell your home to recover the loan balance. Foreclosure leads to the loss of your home, a substantial drop in your credit score and difficulties in borrowing in the future.

How Many Missed Mortgage Payments Trigger a Foreclosure?

Every foreclosure is different, but different lenders may act based on a certain number of missed mortgage payments. Here’s what you need to know:

Typically, a lender will start the foreclosure process after four consecutive missed mortgage payments, which means you are 120 days delinquent. However, this timeline may depend on the lender’s policies and housing market conditions in your area. Some lenders may be more lenient and try to negotiate repayment options instead of foreclosing immediately.

State regulations and relief measures can also impact the foreclosure timeline. For example, during the COVID-19 pandemic, the federal CARES Act imposed a moratorium on foreclosures and some states extended these protections beyond the federal deadline.

Foreclosure practices depend specifically on the lender. A lender with a portfolio of low-risk loans may be more forgiving with missed payments, while a lender with high-risk loans might wield a bigger stick after as few as two missed payments.

What Is the Typical Timeline for a Foreclosure Process?

The foreclosure process involves several key stages, each with its timeline and implications for the homeowner.

• First missed payment: The foreclosure process starts when you miss your first mortgage payment. Federal law requires loan servicers to wait until the borrower is more than 120 days late before beginning foreclosure proceedings.
• Notice of default (NOD): After 120 days, the lender sends a Notice of Default, a formal warning that your mortgage is in default. This notice usually includes details on the amount owed and the deadline to resolve the default. 
• Notice of trustee’s sale: If the default is not resolved, the lender issues a Notice of Trustee's Sale, setting a date for the property's auction. This notice is recorded in the county where the property is located, posted on the property, and published in local newspapers.
• Trustee’s sale: The property is sent to auction. If no one buys the property at the auction, it becomes the property of the lending institution.
• Real estate owned (REO): If the property isn't sold at the auction, it becomes Real Estate Owned (REO) by the lender. The lender typically tries to sell these properties through a real estate agent or at REO auctions.
• Eviction: After the property is sold or becomes REO, the former homeowner receives a notice to vacate the property. If they do not leave voluntarily, the new owner can start eviction proceedings to remove them from the property.

How Does Missing a Mortgage Payment Affect Credit?

Missing a mortgage payment can seriously hurt your credit score. Once you're 30 days late, your mortgage is considered delinquent, which gets reported to credit bureaus, causing your credit score to drop. A missed payment can lower your score by around 52 points on average and stay on your credit report for seven years. If things progress to foreclosure, your score could plummet by as much as 100 - 160 points. 

A lower credit score from missed mortgage payments makes it challenging to access credit in the future, making it harder to qualify for things like car loans or credit cards. Your credit history and initial credit score factor matter — you have more room for your credit score to drop if you have strong credit. 

How to Avoid Missing a Mortgage Payment

To avoid missing a mortgage payment, consider these strategies:

• Automatic payments: Set up automatic payments through your bank to ensure your mortgage is paid on time every month. You won’t have to make payments manually; as long as you have the funds, you’ll create a consistent payment schedule. 
• Budgeting: Make a budget and stick to it. Track your spending, cut unnecessary expenses, and prioritize your mortgage over nonessential costs to save enough funds each month for your mortgage.
• Emergency fund: Build an emergency fund to cover unexpected expenses. Aim for at least three to six months' worth of living expenses saved up. This fund is a financial safety net, allowing you to handle surprises without missing mortgage payments.

What to Do if You Can’t Pay Your Mortgage

If you're struggling to pay your mortgage, here are alternatives to foreclosure worth considering:

Housing Counseling

Housing counselors approved by the U.S. Department of Housing and Urban (HUD) can offer guidance on various housing-related issues, including defaults, foreclosures, and credit problems. They provide impartial advice, often at little or no cost.

Mortgage Forbearance

This arrangement with your lender allows you to temporarily pause or reduce your mortgage payments temporarily. While interest still accrues during forbearance, it can provide breathing room without immediate credit repercussions.

Mortgage Modification

Mortgage modification involves changing your mortgage terms to make payments more manageable. It could involve extending the loan term, lowering the interest rate, or forgiving part of the principal. 

Home Sale

Selling your home can help you avoid foreclosure if you can fetch a high price to cover your mortgage. It involves preparing, pricing and marketing your home to attract potential buyers.

Short Sale

If you owe more on your mortgage than your home is worth, a short sale allows you to sell the property with your lender's approval for less than the outstanding mortgage balance.

Deed-in-Lieu of Foreclosure

You voluntarily transfer ownership of your property to the lender to avoid foreclosure. While it impacts your credit, it's less damaging than foreclosure and provides a quicker resolution.

Managing Mortgage Payment Default

Missing a mortgage payment can lead to various issues, including late fees, credit score drops and foreclosure risks. Still, you can proactively avoid defaulting by budgeting, setting up automatic payments and saving for emergencies. But if you stumble, there are several ways out. You can request a loan modification or even sell your home outright. Stay in touch with your lender to devise a game plan and keep your dream of owning a house alive.

Frequently Asked Questions