Hey guys, this is Mike from Mike Buys Houses.
I just got off the phone with a seller who was asking me about ‘what happens if I miss a mortgage payment‘? if they happen to miss a mortgage payment. Since it was an interesting conversation, I thought I would share my thoughts. We typically help people through these situations, specifically homeowners who have missed payments in the past and have some arrears potentially or are behind on their payments.
In this specific situation, the homeowner actually just missed their first payment, and they just wanted to know what would happen and what kind of options they may have. As we all know, the world doesn’t stop whether or not they’re going to be able to make those mortgage payments, so knowing your options is extra critical in these situations.
Late Fees
The first thing that we discussed were the late fees that she was going to be facing. First things first, when you miss a mortgage payment, you will want to start by checking the original mortgage documents. If you reach out to me, this is going to be my first question for you as well.
The reason it’s our first stop is because the original mortgage documents will specify what’s going to happen if you miss a payment. Typically, on most loans it’s going to be a late fee, that’s going to be anywhere from 3% to 6% of the amount that was due. One thing to note is there’s going to be a grace period typically, which means that there may be 5 to 10 days usually before that penalty will take effect. However, like I said above, that will be dependent on your mortgage documents.
I typically see that grace period being from 5 to 10 days from the mortgage company before those late fees get added.
Credit Score Impact
The next topic we covered was how these missed payments will impact her credit score. Mortgage payments are an insanely important aspect of your credit score, with on time payments making up about 35% of your total credit score, typically.
When you think about it, it makes sense. Remember what creditors want? They want to get paid.
Any drop in your credit score is going to negatively impact your ability to get loans in the future and potentially make loans more costly for you. So, a missed payment can be very problematic.
One interesting tidbit is that missed payments won’t impact everyone the same. Those with a higher starting credit score will see a larger decrease to their credit score than those who have a lower starting credit score.
Even though one missed payment won’t crush your credit score, it will make an impact and it will stay there for seven months. Actually, the longer you wait until you pay off that missed payment, the larger the credit score hit is going to be. So, basically making on time payments is super important in order to maintain a good credit score, which then allows you to get more loans in the future at cheaper rates.
Any way you look at it, the fact that 35% of your credit score is made up of making payments on time, so when you do miss a payment, you want to try and get it paid as soon as possible. If you think you might miss more payments, then it’s time to start coming up with a plan in order to figure things out, because that is not sustainable.
Think about things like are you going to sell the house, are you going to do something else with the property? That’s where we come in to help.
Solutions Oriented Process
In order to help our friend through her situation, we came up with a plan of attack. The first step, I recommend reaching out to her bank to talk through the option of a loan modification. These are typically dependent on your specific situation, but it’s worth starting there to see if we can reduce the payment amount or work around some penalties.
When you do reach out to the bank, they will often work with you through the Home Affordable Mortgage Program, and that will basically help you lower your monthly payments if you are expecting to miss multiple payments. Sometimes banks are willing to work with you if you only miss one payment and they will maybe add that on at the end, but again, you need to discuss it with them to see what your options are.
They may have some programs, like I mentioned the H.A. M. P. (HOME AFFORDABLE MORTGAGE PROGRAM) is an option where they will lower your mortgage payments and that’ll make it more affordable for you to actually start making the monthly payments.
If you reach out to your bank and you’re not able to make the payments or you just want to come up with a different plan, then I would recommend talking to me. Reach out to me at 267-984-4765 or fill out the form below and we can talk through your options. Even if I’m not the buyer for you, I’m sure I can help you in some way. Let me know if you’d like to talk, I look forward to working with you.