What Do You Do If You Get Behind on Mortgage Payments?

When times are tough, we often have to think about where to cut back. If you are in the uncomfortable position of needing to select which bills to prioritize, you might wonder what happens if you skip your mortgage payment for just one month.

The consequences vary depending on how late you are. If you are simply a little late, perhaps a week or two, your credit will not be affected, as long as your lender gets your payment before the 30-day mark. If your payment is due on the 1st and you pay it after the 15th, you will need to pay a penalty, but the credit bureaus will not be informed.

If you are more than 30 days late, it’s important to talk to your lender. If you miss a payment or are more than 30 days late, your credit score may be impacted. Be honest with your lender about the situation and whether it was a temporary lapse or you are experiencing financial trouble that could lead to more missed payments. Life changes such as job loss or divorce can leave home owners overextended. Be sure to keep notes of your conversation with your lender and note down when you called.

Once you are facing mortgage trouble, you have a few different options, including deciding to put the home on the market. If you have enough equity in your home, you may be able to refinance to obtain a lower monthly payment. Another option is a home equity loan or HELOC (home-equity line of credit), but this may make the home harder to sell. For these options, you can’t wait until you have missed a payment.

If you decide to sell but want to avoid foreclosure, the Home Affordable Foreclosure Alternatives (HAFA) program may be able to help. HAFA provides two options for transitioning out of your mortgage: a short sale or a Deed-in-Lieu (DIL) of foreclosure. In a short sale, the mortgage company lets you sell your house for an amount that falls “short” of the amount you still owe. In a DIL, the mortgage company lets you give the title back, transferring ownership back to it. HAFA provides free advice from HUD-approved housing counselors and licensed real estate professionals. A HAFA short sale completely releases you from your mortgage debt after selling the property. This means you will no longer be responsible for the amount that falls “short” of the amount you still owe. HAFA has a less negative effect on your credit score than foreclosure or conventional short sales. Your lender can advise you about your eligibility for this program.

You may also attempt a loan modification. A loan modification changes the terms of your existing mortgage and can include lowering the interest rate, reducing the principal amount or extending the amortization period. Loan modifications are generally done only if the home owner can prove a hardship such as job loss, divorce, illness, relocation or other life-changing event. The Home Affordable Modification Program (HAMP) may help lower your payments through a variety of programs with different eligibility requirements. If you are unemployed, the Home Affordable Unemployment Program (UP) may reduce your mortgage payments to 31 percent of your income or suspend them altogether for 12 months or more.

Although it can be tempting to just hope things will work themselves out, it’s vital to face the situation head on. By connecting with your lender early, you can resolve problems so that you get the outcome you desire and you can preserve your credit score and be better prepared for your future.

Laura Sherman contributed to this article.

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