Think You Might Miss a Mortgage Payment? Here’s What to Do
Data shows that foreclosures are down (way down, actually) but that doesn’t mean they no longer exist. If you fall behind on your mortgage payments — even just a month or two — it could set the foreclosure process in motion, and that means your credit, your finances and, most importantly, your home hang in the balance. Learn more!
So, what can you do to prevent getting into this type of pickle? The best course of action is to avoid missing a payment in the first place. Here’s how to do that:
What is the Mortgage Payment Grace Period?
Most mortgage lenders offer a grace period of at least a few weeks. If you miss your payment due date, you might still have a bit to catch up before you’re charged a late fee. Make sure you’re aware of your grace period and use it to your advantage when necessary.
Call your lender or servicer.
As scary as it may be to tell your lender you can’t pay them, it’s a necessity and the first step you should take. Call them up (or your servicer, if your loan has been transferred since closing day), and inform them of the situation. Let them know what hardships you’re dealing with, break down the details of your income and expenses, and ask what options you have.
Some lenders and servicers have mortgage assistance and foreclosure prevention programs in place that can help. They also may be able to give you an additional grace period or modify your loan to make it more manageable. This might include extending the loan’s term (to spread out and lower your payments), changing your payment date (to better align with your paychecks), or changing the interest rate.
Talk to a housing counselor.
Call or set up a time to meet with a HUD-approved housing counselor. These professionals are experts in foreclosure prevention, and they can also help you with budgeting, managing your debt, or pursuing alternative options to stay afloat on your mortgage. You can contact a housing counselor 24-7 at 888-995-HOPE (all calls are free).
Consider a hardship affidavit.
If you’re facing a genuine financial hardship (you’ve lost your job or are facing high medical bills, for example), then you can complete what’s called a “hardship affidavit” and submit it to your lender. This basically serves as documentation of your financial struggles and it may encourage the lender to modify your loan.
Think about refinancing.
If you’ve had your home a while, you might consider refinancing your mortgage loan. By refinancing into a longer-term loan, you can spread out your remaining balance further, thus lowering your monthly payments. If interest rates are lower than the one on your current loan, you may be able to reduce your payments even further.
Make sure to inquire with your lender about upfront costs and the possibility of including these in the financing.
Apply for mortgage forbearance.
Forbearance offers a temporary stay on your mortgage payments. If you qualify, you may be able to suspend your payments for at least a few months, sometimes up to a year. In some cases, forbearance may also allow you to lower your payments for a period of time. Usually, you’ll need to pay back the suspended or reduced payments (plus interest) in a lump sum at a later date, though sometimes, lenders may let you spread these costs over time.
Note: You’re most likely to qualify for mortgage forbearance if you have a long history of on-time payments or can show that your financial hardship is limited or will be short-lived.
Sell your property.
If your hardship is going to be an extended one (or there’s just no end in sight), then your home may truly be beyond your means. Selling the home might be the best way to prevent a foreclosure, as well as free up the financial resources you need to get by. Until you get on your feet again, you may consider renting and stowing away your sales proceeds for a rainy day.
No One Wants Foreclosure (Not Even Your Lender!)
It’s important to note that foreclosure is a last-ditch option — both for you and your lender or servicer. Not only do foreclosures result in the loss of your home, but they also stay on your credit report for seven years, impacting your financial options for years to come.
For lenders and servicers, foreclosures are expensive and time-consuming to pursue. In most cases, these companies stand to gain more by keeping you in the property, even if you’re only paying a reduced payment for a period of time.
Keep this in mind if you feel you might need to miss a payment and talk to your lender or servicer openly about the struggle. In most cases, they’ll be more than willing to work with you to prevent a foreclosure.
Are you worried about missing a payment? Just want to talk options? Reach out to Embrace Home Loans today. While we can’t provide any kind of financial planning advice, we can help you figure out if a refinance could be right for you.