David Bakke, a personal finance blogger based in New York City, recently ran into some financial problems and found himself missing home mortgage payments — a key duty when it comes to homeownership.
“I had some financial constraints and am currently behind on mortgage payments, and I’m learning a lot about mortgages and payments right now,” Bakke said.
Here’s what Bakker has learned about missing home loan payments through the entire process.
“When you miss mortgage payments, you risk lowering your credit score, and potentially losing your home,” he said. “But with my lender, you’ll usually have to miss four consecutive mortgage payments before the foreclosure process can begin.” (Some home loan lenders will begin that process after two or three missed payments, or 90 to 120 days).
"When someone falls behind on paying, and you eventually get notification from your mortgage lender that you're behind,” he added. “If nothing is done to remedy the situation, you get another notification that a trustee sale will begin.”
After that, the house is actually sold (usually in an auction-style setting), and if the property isn't sold during that process, the home becomes property of the lender and they'll attempt to sell the home on their own.
“Once the property is actually sold, you’ll be served eviction papers,” Bakke said. “Although this sounds rather quick on paper, the actual process can take as much a year or longer.”
The road to foreclosure
As Bakke described, missing more than one home mortgage payment can lead to late fees, a lower credit score, financial and emotional stress, and even foreclosure since most mortgage lenders will begin the foreclosure process after just a few missed monthly payments.
After a specific number of missed mortgage checks (the actual number is on your mortgage loan contract), the lender will issue a letter of foreclosure notice informing the borrower that he or she has 30 days to keep up with the missed payment. After the 30-day period ends, mortgage lenders begin the actual foreclosure process.
“The average foreclosure takes six months, however, this will vary state-to-state based on laws and other regulations that are in place,” said Kimberly Porter, CEO of Microcredit Summit, a personal financial platform. “The process could take upwards of a year in some cases.”
The damage inflicted by a home foreclosure can be substantial. “For instance, a foreclosure can drop your credit score by up to 300 points and will remain on your credit report for up to seven years,” Porter said.
Steps to take if you miss a mortgage payment
Take these action steps when you miss a mortgage bill, or you know you’re going to miss your next one.
Reach out to your mortgage lender directly
“Some lenders will be able to waive fees, hold off on reporting to the credit agencies, or might even have programs to help you keep your home,” Porter said. “Many lenders are also making more accommodations than usual due to the pandemic."
Leverage your mortgage lender’s desire to make the loan work
Borrowers should also know that banks need their mortgage assets to perform and they don’t want debtors to default.
“In some cases, if you explain your situation to your lender, they may extend the lifetime of the loan or they will refinance the loan with better terms,” said Luke Smith, owner of We Buy Property In Kentucky, based in Louisville, Ky. “This typically will result in a new agreement that you can afford to pay, but you will pay more over the lifetime of the loan. The bank wants to make money, so they will negotiate, but they have to gain something in return.”
If you're interested in refinancing your home to save cash, make sure to use Credible to compare lenders and secure the best rates available.
Sell the property
The last option would be to sell the home.
“It's better to sell your home and move on with cash (equity from the sale) so you can purchase a new home, rather than to foreclose,” Smith said. “Foreclosure damages your credit, making it harder to rent or purchase a new place to live. Even if you sell your property and lose some money, it would be better to sell and move on with cash in your hand, and a clean record.”