Friday, February 2, 2018

A Foreclosure Starts With a Missed Payment

What happens when you miss a mortgage payment? We’re exploring that today.

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Today we’re going to be talking about what happens if you miss (or skip) your next mortgage payment, and what happens when those missed payments start to add up.

The first thing to know is that every mortgage has a grace period. Typically, you have a 10 to 15 day window to make your payment where you won’t be charged any late fees. If you do pay after that 15th day, however, your lender will charge you a late fee. Something around 4% to 5% of the payment. That’s around $80 to $100 on a $2,000 payment. That may not seem like a lot of money, but it adds up.

However, the late fee isn’t the big problem. The big problem is with the credit. If you are late with your payments, you need to understand how it will affect your credit in the long run. Most lenders won’t report the missed payment to a credit bureau until it’s 30 days late or more. If you pay before that 30th day, it won’t be reported negatively on your credit. If you go 30 days late and it is reported, you will see a 50- to 100-point drop on your score. If you've never missed a payment before, it might drop even more than that.

Once a payment is over 30 days late, you might be wondering if you’re in danger of being in default. There’s a misconception out there that lenders want to foreclose on you. They really don’t. The banks want to keep you in your house. While being late on a few payments will affect your credit score and payment totals, they typically don’t start any foreclosure proceedings until you are 90 days late or more.

If you know you’re not going to be able to make your payment, what are your options? Most people are afraid to call their lender, but it’s actually the first thing you should do. They might be able to give a special forbearance or they might be able to switch up your loan a bit to lower the monthly payment. Either way, they are the first person you should talk to. There are also numerous other options that can help you from legally going into foreclosure.

Setting up automatic payments is a great idea.

To prevent yourself from any late payments in the future, one of the best ways is to keep yourself on an automatic payment plan. You want to set that up as the first bill you send every month. It reports to your credit, it helps you build up your equity, and it keeps you in your home.

If you have any questions for me about foreclosures, mortgages, or anything else, don’t hesitate to give me a call or send me an email. I look forward to hearing from you.