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How to Recover From Missed Mortgage Payments

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The best way to ensure your credit stays in great shape is to pay your monthly bills — especially your mortgage — on time. That’s because payment history plays the biggest factor in determining your credit score. Still, unexpected events — such as a job loss or medical emergency — can occur, causing you to miss a payment or two.

If that’s the case, you’re not alone. In fact, mortgage delinquencies (loans with past-due payments) have increased from their 2018 levels, according to the latest National Delinquency Survey from the Mortgage Bankers Association.

So can you bounce back from a missed mortgage payment? The answer is yes, but there’s work involved. Below, we explain how to recover from missed mortgage payments, including repairing your credit, and what you need to know to avoid losing your home.

How many payments can you miss before foreclosure?

Days late

What happens?

1

Your grace period kicks in.

15

You’re charged a late fee.

30

Your servicer reports the late payment to the credit bureaus.

45

Your servicer assigns a representative to work with you on foreclosure prevention.

60

You’re charged a second late fee.

90

Your servicer sends you a demand letter, giving you 30 days to catch up. You’re charged a third late fee.

120

The foreclosure process typically begins, though it could start sooner.

The number of mortgage payments you can miss before foreclosure — the action a bank or mortgage lender takes to repossess a property — is initiated varies from lender to lender, but the process can begin as early as 60 days after your first missed payment. (Check your state’s foreclosure laws online.)

 Being a day late on your next mortgage payment likely won’t alarm your mortgage servicer. In fact, most offer a grace period — generally 15 days — before they charge a late fee, which is typically a percentage, often around 5%, of the principal and interest portion of your monthly payment. You can find specific details about your grace period and late fee on the promissory note you signed as part of your mortgage closing documents.

 Once you’re 30 days late, it’s likely your mortgage servicer will report that information to the three major credit reporting bureaus: Equifax, Experian and TransUnion. Your credit score will be negatively impacted as a result (more on this later). You can also expect your servicer to contact you directly no later than 36 days after your past-due payment to discuss getting you current on your mortgage again.

You’ll also receive a Notice of Default, as mentioned in your promissory note, by the 45th day you’re late on the mortgage payment. The notice gives you a deadline to pay the past-due amount, which must be at least 30 days after the notice date. If you miss that deadline, your servicer can demand that you repay your outstanding mortgage balance, plus interest, in full.

Your mortgage servicer will also assign someone on its team to work with you on foreclosure prevention options once you’re 45 days late. This information will be communicated to you in writing. We’ll discuss available options in the next section.

 Once you’re 60 days late, you’ll be charged a second late fee, as you’ve missed two payments. Your servicer will send you another notice by the 36th day after the second missed payment. This same process applies for every month you’re behind.

 At 90 days late, your servicer will likely send you a demand letter telling you to bring your mortgage current within 30 days. You’ll likely be charged another late fee.

 If you’re not able to catch up on payments by the 120th day, the foreclosure process typically begins. Your mortgage servicer’s attorney will contact you and you’re now responsible for repaying the outstanding loan balance, interest and late fees, plus your servicer’s legal fees, if any.

Once your servicer’s attorney files a foreclosure lawsuit with your county court to resell the home and recoup the money owed, the attorney schedules a foreclosure sale date. You’re notified in writing about the sale and given a move-out deadline. The sale information may also be advertised in your county’s newspaper or on its website.

There’s still a chance you can keep your home if you pay the amount owed, along with any applicable legal fees, before the foreclosure sale date.

What to do when you’ve missed mortgage payments

There are several ways to recover from missed mortgage payments before reaching the point of losing your home. Here are some options:

  • Forbearance: Your mortgage servicer agrees to temporarily reduce or suspend your monthly mortgage payment for a set amount of time. Once the forbearance period ends, you’ll repay the total amount that was reduced or suspended.
  • Modification: This is the process of changing your loan’s original terms. A mortgage modification might involve extending your loan term, lowering your mortgage interest rate or switching from an adjustable-rate to a fixed-rate mortgage. The goal is to reduce your monthly mortgage payment to a more affordable amount.
  • Repayment: Your servicer agrees to let you spread out your late payments over the next several months to bring your mortgage current. When you make your monthly mortgage payments, you add a portion of the past-due amount to each of those payments until you catch up.

Options to leave your home without going through foreclosure include a deed-in-lieu of foreclosure and short sale. A deed-in-lieu of foreclosure, also known as a mortgage release, allows you to give up ownership of your home in exchange for no longer being responsible for your outstanding mortgage debt. You may be able to rent the home for up to a year after going through the process and receive up to $3,000 to help you relocate.

A short sale allows you to sell your home for a price that is less than the amount you owe on your mortgage. Depending on the final sales price, you either pay off a portion of your mortgage balance or the entire amount. If you go this route, be sure you won’t be responsible for the remaining balance if the short sale proceeds aren’t enough to cover the full amount you owe.

How late mortgage payments affect your credit

Late payments start to affect your credit once you’ve been delinquent for 30 days or more. Depending on which credit score range you’re in before your past-due payments are reported to the bureaus, your score could drop by anywhere from 60 to 110 points, according to research by FICO. Being 90 days late could lower your score by another 20 points or more.

It can take up to three years to fully recover from a credit score drop after being 30 days late on your mortgage, FICO’s research found. That time can increase to seven years once you’ve been 90 days late.

Here’s what you should know about repairing your credit by yourself.

What about late mortgage payment forgiveness?

If you’ve otherwise had a good payment history on your mortgage and have only been late once, you could try writing a goodwill letter to your mortgage servicer to have the late payment information removed from your credit reports. The purpose of the letter is to ask your lender to forgive the late mortgage payment by erasing the negative information from your credit report.

Your goodwill letter should include your name, contact information and account number. Be sure to keep your letter concise. Make note of your good payment history prior to this point and explain what led to the late payment. Demonstrate the steps you’re taking to prevent late payments in the future and end the letter requesting removal of the late payment details from your credit reports. Thank your servicer for their consideration and print, sign and mail your letter to your servicer’s address.

Once the late payment is taken off your credit reports, your credit scores will eventually increase, as long as you continue to make on-time payments. Remember the letter is simply a request — your servicer isn’t required to forgive a late mortgage payment.

The bottom line

Falling behind on your mortgage can be a frustrating and scary experience, particularly if you’re facing the threat of foreclosure.

The smartest thing you can do is be proactive about getting back on track instead of waiting for your mortgage servicer to reach out. If you think you’ll be behind soon or are already a few days behind, now’s the time to contact your lender and review your options.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Crissinda Ponder
Crissinda Ponder |

Crissinda Ponder is a writer at MagnifyMoney. You can email Crissinda here

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Guide to Home Appraisals for Mortgages

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

There are many factors that can lead to a mortgage denial when you’re trying to buy a home. One of the most common things that can stand between you and an approval is an issue with the property’s appraisal.

But what is an appraisal? And why do home appraisals matter so much during the home buying process? This guide answers those questions and more.

What is a home appraisal?

An appraisal is a written estimate that details a professional appraiser’s opinion of a home’s value. When you buy a home, your mortgage lender will more than likely require a home appraisal before approving the loan.

“Appraisers are reporters of the market,” said Stephen Wagner, 2019 president of the Appraisal Institute in Chicago. “They interpret the actions of buyers and sellers in the marketplace.”

All 50 states require appraisers to be certified or licensed to provide appraisals to mortgage lenders who are federally regulated, according to the Appraisal Institute. Appraisers receive their credentials after passing an examination administered by their state’s appraisal board.

When choosing an appraiser, government-sponsored enterprise Fannie Mae has specific requirements for mortgage lenders. They need to select from professionals who not only meet the certification or licensing requirements, but also have experience in and knowledge of the local real estate market and the specific property type being appraised.

Many appraisers use the Uniform Residential Appraisal Report, the most common form used in real estate appraisals.

What do appraisers look for?

Before visiting a property, an appraiser gathers upfront information related to the property. Once they begin the appraisal assignment, they typically review the property’s:

  • Amenities
  • Condition
  • Interior
  • Structure
  • Upgrades

But not all appraisal assignments look the same, said John Brenan, vice president of appraisal issues with The Appraisal Foundation in Washington, D.C.: “Some require an appraiser to personally inspect the interior of a home. Some only require an appraiser to personally inspect the exterior of the home.”

The homebuyer doesn’t have to be present for the appraisal. In many cases, a real estate agent will provide access to the home if necessary, he added.

The U.S. Department of Housing and Urban Development (HUD) requires appraisals for FHA loans to be more in-depth than those for conventional loans. Appraisers hired by FHA lenders must establish an unbiased opinion of a home’s value and determine whether it meets the FHA’s minimum property standards — by inspecting the home’s foundation and major systems, for example.

The U.S. Department of Veterans Affairs follows a similar process for VA home appraisals. The appraiser must determine the value of the home and review the property’s condition to assess whether it meets the VA’s minimum property requirements.

Appraisers typically determine a home’s value by using one of three common methods:

  • The sales comparison approach, which involves reviewing recent home sales and homes currently for sale that are similar to the property being appraised. The appraiser makes adjustments to the home’s value based on its condition, features and quality.
  • The cost approach, which involves calculating what it would cost to build that same house on a similar lot, minus depreciation. This method can be helpful for appraisals on relatively newer homes, according to Brenan.
  • The income approach, which involves taking the rental income of the property being appraised, or a comparable property, to determine a value that would provide the rate of return that the typical investor would require for a similar home. As Brenan noted, this approach is typically used for commercial property appraisals.

The most commonly used method for real estate transactions is the sales comparison approach. When using this approach, appraisers consider several factors, according to the Appraisal Institute, which include:

  • Conditions of the sale
  • Economic characteristics
  • Expenditures made immediately after the purchase
  • Financing terms
  • Location
  • Market conditions
  • Non-property components of value
  • Physical characteristics
  • Property rights being transferred
  • Use and zoning

Homebuyers usually pay for an appraisal as part of their closing costs. An appraisal fee can run about $300 to $400, but it can vary depending on the state, property type, loan type and the complexity of the appraisal assignment. For example, the VA has a state-by-state fee schedule for home appraisals. The appraisal fee is $450 in Georgia and $525 in New York.

There isn’t a “shelf life” on appraisals, Brenan said. However, each lender has guidelines it follows that dictate how old an appraisal report can be for mortgage lending purposes.

Why appraisals matter to the homebuying process

An appraisal establishes a home’s value. This number is important to your mortgage lender because it affects the loan you need to purchase the home.

Lenders rely on a house appraisal to determine whether the sales price makes sense and to calculate the homebuyer’s loan-to-value ratio.

[An appraisal], as described by Wagner, “is a risk mitigation tool at that point, to make sure that somebody’s not paying too much for a property or that the lender isn’t going to lend too much against the property.

Put another way, a home appraisal is designed to ensure that the collateral for a mortgage — the house — is adequate enough to justify the loan amount, Brenan said. The appraisal also helps establish value in the event of a foreclosure sale, should the lender need to take the property back because the borrower defaulted on the mortgage.

Aside from mortgage approval, other reasons you might need an appraisal include:

Can you skip a home appraisal?

In certain circumstances, you may be able to sidestep the home appraisal requirement when getting a mortgage to purchase a home.

Conventional mortgage borrowers may be able to get what’s called a property inspection waiver (PIW) mortgage, which is a loan that goes through the underwriting process without an appraisal. It’s also known as an appraisal waiver mortgage.

With a PIW mortgage, the lender can use existing information about the property’s estimated value to originate a loan, rather than ordering a new appraisal. However, the homebuyer would need to supply a 20% down payment in most cases.

How to dispute a home appraisal

An appraiser’s opinion of value isn’t necessarily the end of the line, Brenan said.

If you’re not happy with your appraisal — for example, the home value comes in lower than expected — you have the option to dispute the appraiser’s findings.

Let’s say you’re looking to buy a home priced at $300,000 but the appraisal comes in at $250,000. After your lender has given you a copy of the appraisal report to review, you can request another appraisal if you’re not satisfied with the results. It’s helpful to provide any evidence you may have that disputes the appraiser’s findings, such as a recent comparable sale or missing square footage.

Keep in mind that your lender isn’t obligated to honor your request. But if it does, you’ll be responsible for the additional appraisal fee.

“If the borrower or a real estate agent or whoever wants the appraiser to consider additional information, go through the lender, share that information,” Brenan said. “The appraiser will review it and notify the lender if it warrants any type of change.”

If your lender decides to stick with the original appraisal or no changes occur after it’s reviewed, a few things can happen. Using the example above of an appraisal coming in lower than the sales price, you would either need to come up with the difference in cash or renegotiate with the seller on a lower price. Otherwise, the loan could be denied.

It’s also important to remember that although a house appraisal is part of your homebuying process and you’re responsible for paying the fee, you aren’t the appraiser’s client. In terms of a home purchase or refinance, the lender is required to order the appraisal and can’t accept an appraisal ordered by a borrower — “that is to avoid any possible bias or undue influence,” Brenan said.

Home appraisal vs. home inspection

While they both involve taking a critical look at a home, an appraisal and inspection aren’t the same.

An appraisal examines the elements and features that help determine the value of a home. But an inspection evaluates the home’s structure, interior and exterior to assess its condition and recommend any necessary repairs. Unlike appraisals in most cases, home inspections can be optional. Inspection fees range from about $300 to $500, though it can change based on a number of factors, such as the size and age of the home.

An appraiser is generally looking for things that impact value, such as the quality, design and floor plan, Wagner said.

“Appraisers do not inspect properties to the depth and level that a home inspector might, wherein as a home inspector is … testing plumbing and electrical and kind of almost seeing behind the walls, if you will,” he explained.

The bottom line

A home appraisal provides benefits for both homebuyers and mortgage lenders, Wagner said.

“In addition to valuation issues, they may find out things about the property that they might not have otherwise been particularly aware of,” he said.

For example, a home could be advertised as a certain size, but the appraisal showed that it’s actually smaller or larger than marketed.

“There’s a number of aspects of the physical characteristics of a property that may come to light that were not obvious to the buyer at the outset,” he said.

Lastly, since an appraiser is analyzing market information to arrive at a home’s value, there’s not much of a need to worry about bias.

“The appraiser is the independent, impartial, objective party in the entire transaction,” Brenan said. “The appraiser is the only one whose compensation does not depend on whether the deal goes through or not.”

The information in this article is accurate as of the date of publishing. 

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Crissinda Ponder
Crissinda Ponder |

Crissinda Ponder is a writer at MagnifyMoney. You can email Crissinda here

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The Pros and Cons of a Credit Union Mortgage

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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Though banks are better known, their not-for-profit cousins known as credit unions still command a significant chunk of the mortgage market. During the first quarter of 2019, credit unions originated 8% of mortgages in the United States, according to credit union consulting firm Callahan & Associates.

Often overlooked, credit unions can be a good option when shopping for a mortgage. Joining a credit union can make it possible for you to reap benefits such as lower origination fees or a more competitive interest rate.

This article will explore whether homebuyers might get a better deal from a credit union mortgage and the implications a relationship with a credit union might bring.

How is a credit union different from a bank?

Although credit unions fall under the umbrella of financial institutions, they differ from commercial banks in several key ways.

Banks are typically owned by their shareholders, credit unions are not-for-profit organizations owned by their members. This often translates to better rates and terms on their financial products.

While banks can serve the entire nation, credit unions tend to be community-based institutions that play a significant role in serving people in a local area.

“Credit unions are a really important part of the financial services fabric,” said Barry Zigas, director of housing policy at the Consumer Federation of America in Washington, D.C.

On the other hand, credit unions typically don’t offer the same suite of products that a larger bank is often known for. While you can take advantage of a checking, savings or individual retirement account, for example, you may find it challenging to access financial planning or investment services.

Below we highlight how credit unions stack up against banks.

Credit Union Commercial Bank
  • Not-for-profit organization
  • Member-owned
  • Typically have higher yields on deposit accounts
  • Typically have lower interest rates on credit and loan products
  • Membership is based on an affiliation or geographical location
  • Smaller branch and ATM networks
  • Federally insured up to $250,000 through the National Credit Union Administration
  • For-profit organization
  • Shareholder-owned
  • Yields are usually lower on deposit accounts
  • Interest rates on credit and loan products are usually higher
  • Anyone can establish a relationship with a bank
  • Larger branch and ATM networks
  • Federally insured up to $250,000 through the Federal Deposit Insurance Corp.

Getting a mortgage from a credit union

One of the main differences when applying for a mortgage through a credit union rather than a traditional bank is that you must be a member of the credit union before you can attempt to borrow money.

Credit union customers own “shares” in the institution, typically via a $5 deposit held in a particular savings account.

In order to become a member, you must meet the membership requirements outlined by the credit union you’re interested in joining. Credit union members have a common bond, which could be any of the following, according to the National Credit Union Administration:

  • An employer.
  • A geographical location where those interested in joining live, work, worship or attend school.
  • A group membership, such as a homeowners association or labor union.

Family members of credit union customers are also often eligible to join.

One of the key reasons for choosing a credit union: You may be able to save money on lender fees, said Bruce McClary, vice president of communications at the National Foundation for Credit Counseling. A credit union may also be more flexible with credit score requirements than a bank and may offer lower mortgage interest rates.

However, since credit unions are small organizations, there’s the risk that your credit union’s name or ownership could change. Your credit union could also sell the rights to service your mortgage to a third party, which may impact your customer service after your loan closes.

“Even though you may be saving money on origination fees and you may not be paying as many other fees with your mortgage — so it might be more affordable at the onset — you may end up having to deal with a servicer that you weren’t dealing with before, rather than dealing with your credit union,” McClary said.

It’s important to note that bank-originated mortgages can also be sold and handed over to other servicers, so this issue isn’t unique to credit unions.

Still, developing a relationship with a credit union over time — as in, the organization’s representatives are very familiar with you and your finances — could work in your favor when you decide to apply for a mortgage, McClary said.

“Being a member of the credit union might actually put you in an advantage in terms of approval or maybe in terms of negotiating terms of the mortgage in the application process,” he said.

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Pros and cons of a credit union mortgage

Consider the following benefits and drawbacks of a credit union mortgage before you choose this type of lender for your home purchase.

Pros

  • Potentially lower origination fees and other lending costs.
  • Mortgage rates may be lower.
  • A greater sense of community, since the institution is member-owned.
  • Potential for more negotiating room during the mortgage lending process.
  • Shared branching benefits, which allow you to use the services of an outside credit union.

Cons

  • You must meet eligibility guidelines to join the credit union and become a member before applying for a mortgage.
  • Credit unions typically have smaller branch networks.
  • There’s the risk of your credit union closing, switching owners or going through some other changes, which can affect how your mortgage is serviced.
  • Typically carry fewer product offerings than traditional banks.
  • May have limited online banking capabilities.

The bottom line

A traditional bank isn’t your only option for getting a mortgage. Depending on what your lending needs are and how much you value building a relationship with your financial institution, a credit union might be right for you.

However, if you’re concerned about mortgage servicing, be sure to check with your credit union for more information about how they plan to handle your mortgage once it’s originated.

“I think consumers who are members of credit unions should certainly go to their credit union and find out what their loan terms are, what the application process is like and maybe even ask, ‘Are these loans that you hold or are these loans that you sell off?’” Zigas said.

Zigas also recommended practicing that same due diligence with other types of mortgage lenders and shopping around.

“It’s a very competitive environment, and there’s no assurance that your credit union will actually be offering you the best possible rate,” he said.

It pays to comparison shop before you settle on a particular mortgage lender. For example, if you were looking to buy a house that required a $300,000 mortgage, you could potentially save more than $42,000 in interest over the life of a 30-year term by shopping for the best rate, according to data from LendingTree’s latest Mortgage Rate Competition Index.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Crissinda Ponder
Crissinda Ponder |

Crissinda Ponder is a writer at MagnifyMoney. You can email Crissinda here

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