While nobody wants to miss a mortgage payment, it can happen — especially if money is tight one month.
Generally, missed payments can cause your credit score to plunge and lead to late fees. Multiple missed payments can even lead to foreclosure, further damaging your credit and leaving you with no home. But it doesn’t all occur at once.
The typical timeline of missed mortgage payments
A mortgage payment that’s overdue by just a few days might not have any impact on your credit. That’s because most loan servicers offer a grace period where you can make a payment within 15 days after the due date without penalties. After the grace period, it may charge you a late fee, which should be explained in your loan documents.
However, failing to make a payment altogether can negatively affect your credit and the home loan.
One missed mortgage payment
Your servicer will likely report the missed payment to the credit bureaus once it’s 30 days late. This can hurt your credit score. Generally, a late payment can cause more damage for people with higher credit scores.
If you haven’t made a payment for 36 days, your loan servicer is required to contact you — though it may reach out sooner.
Good to know:
The servicer can’t start foreclosure proceedings right away, but the late payment is a serious matter nonetheless.
Two missed mortgage payments
Once you’re 45 days past due, your loan servicer may assign someone to your account. They’ll contact you and let you know about your options.
After 60 days — or two missed mortgage payments — you’ll incur a second late fee. The late payment will also be reported to the credit bureaus.
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Three missed mortgage payments
After three missed payments, your loan servicer will likely send another letter known as a demand letter or notice to accelerate. The letter acts as a notice to bring your mortgage current or face foreclosure proceedings.
Additionally, your loan servicer will report the late payment to the credit bureaus, which may cause your credit score to drop even more.
Four missed payments
Once you’re 120 days past due, if you haven’t arranged to make repayments with your bank, your loan servicer can start the legal foreclosure process. It can also add attorney fees to your balance.
The loan servicer’s attorney will schedule a home sale and notify you of the foreclosure date. This date varies with each state, but it may be as soon as two or three months after receiving your demand letter.
Good to know:
If you make arrangements with your lender or pay the total amount due before the date of sale, you may be able to keep your home.
The loan servicer will also report the newest late payment to the credit bureaus, and your credit score may drop once again. Each late payment can stay on your credit history for up to seven years.
Mortgage forbearance
With mortgage forbearance, your loan servicer agrees to temporarily pause your monthly mortgage payments for a certain period of time. It also won’t start the foreclosure process.
During the coronavirus pandemic, lenders can report that your mortgage account is in forbearance. But, per the CARES Act, your account must be marked as “current” if it was in good standing before entering forbearance.
If your loan is federally backed, you can call your loan servicer and request pandemic-related mortgage forbearance until Sept. 30, 2021. Extensions may apply, too:
- Fannie Mae and Freddie Mac loans: Conventional loan borrowers may request an extension for a maximum of 18 months of forbearance. You may be eligible for the extension if you entered forbearance before Feb. 28, 2021.
- Government-backed loans: Borrowers with a loan backed by the FHA, VA, or USDA may request an extension as long as they enrolled in forbearance on or before June 30, 2020.
Loan repayment options
If you’re 120 days or more past due on your mortgage payments or you’re about to exit a mortgage forbearance program, your loan servicer must reach out to discuss options.
Here’s how you may be able to rehabilitate your account and avoid foreclosure:
- Defer payments: You can resume regular mortgage payments and move any missed or suspended payments to the end of the loan term. This option is usually available for Fannie- and Freddie-backed loans, VA loans, FHA loans, and USDA loans.
- Modify the loan terms: The servicer may agree to a loan modification, where you change the loan’s length or interest rate to make the payments more affordable. On federally backed loans, your servicer may be able to lower your mortgage payment by 25% or more.
- Enter a repayment plan: You can also create a repayment plan with your loan servicer if you have a conventional mortgage, FHA loan, USDA loan, or VA loan. You’ll spread your unpaid balance over a certain period of time — such as 12 months — on top of your regular mortgage payments. This will temporarily result in higher monthly payments.
- Reinstate the loan: This option lets you pay back the outstanding balance all at once. Under all federally backed mortgage programs, loan servicers can’t require you to pay off your forbearance balance with a lump sum. But you can choose to do this if you have the funds.
Foreclosure safeguards
The loan payment options mentioned above may work for financially sound borrowers. However, the loan servicer may be able to start the foreclosure process if a borrower still can’t make payments after forbearance ends or after missing four payments.
However, homeowners are protected by three new safeguards established by the Consumer Financial Protection Bureau. Before starting foreclosure, the loan servicer must:
- Ask the borrower to complete a loss mitigation application. The loan servicer must allow you to pursue loss mitigation, which may prevent foreclosure. Loss mitigation options include some of the repayment options we’ve already discussed (such as loan modification and repayment plans) as well as a short sale.
- Confirm the property is abandoned. If loss mitigation doesn’t work, the loan servicer may start foreclosure proceedings after confirming a property is abandoned under local and state laws.
- Reach out to the borrower. The loan servicer will also need to make a reasonable effort to reach the borrower.
These new safeguards apply on top of existing rules that bar loan servicers from starting the foreclosure process until a homeowner is at least 120 days past due on a home loan. They’ll be in effect from Aug. 31, 2021, to Dec. 31, 2021.
How does a late mortgage payment affect my credit score?
When you’re at least 30 days behind on mortgage payments, your loan servicer reports the information to the credit bureaus. The late payment can remain on your credit reports for up to seven years, and it may affect your credit score during this time.
Missing several payments in a row can damage your credit score more than missing only one payment. And multiple missed payments could result in foreclosure, which is one of the most damaging negative marks you can have on your credit.
How much will a mortgage late fee be?
Homeowners usually have a grace period of 15 days after the due date to make their mortgage payment. After that point, you may pay a late fee for each month that you miss a payment.
The late fee is set by state law, but it usually equals 3% to 6% of your monthly payment. So, if your mortgage payment is usually $1,000 and your late fee is 5%, then you may be on the hook for an extra $50 for each month you go without paying.
How can I skip a mortgage payment without penalty?
If you stop making mortgage payments but you’re in a foreclosure-prevention program — such as forbearance, loan modification, or a short sale — then you might be able to avoid foreclosure and the credit hit. Perform some research and request one of these options when you’re having financial problems.
