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?
Your grace period kicks in.
You’re charged a late fee.
Your servicer reports the late payment to the credit bureaus.
Your servicer assigns a representative to work with you on foreclosure prevention.
You’re charged a second late fee.
Your servicer sends you a demand letter, giving you 30 days to catch up. You’re charged a third late fee.
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.