What Happens If You Miss a House Payment?
Understand the sequence of events and financial impacts that follow a missed mortgage payment. Gain clarity on the unfolding consequences.
Missing a house payment triggers a series of events impacting a homeowner’s financial standing and ability to keep their home. Understanding these consequences is important. The process unfolds in stages, beginning with financial penalties and escalating to more severe actions if the default is not resolved.
Immediate Effects and Early Communications
When a mortgage payment is not received by its due date, consequences begin. Most mortgage agreements include a grace period, typically 10 to 15 days, allowing payment without a late fee. Payments made within this period are considered on time for credit reporting, avoiding immediate negative impact.
Once this grace period expires, lenders assess a late fee, commonly 4% to 5% of the overdue payment or a flat fee. While a direct financial penalty, it does not immediately affect the homeowner’s credit score. A significant credit impact occurs if the payment remains outstanding longer.
A missed payment is reported to credit bureaus once it is 30 days past due. This significantly lowers the homeowner’s credit score, as payment history is a primary factor. Soon after the due date, homeowners can expect initial communications from their lender, such as calls, emails, or reminder letters.
Lender Communications and Repayment Paths
As the missed payment extends beyond 30 days, communication from the mortgage servicer escalates. The lender’s collections or loss mitigation department may reach out to understand the homeowner’s financial situation and discuss solutions to bring the account current and avoid further default.
One option is reinstatement, paying the entire overdue amount, including late fees and costs, to bring the loan current. For homeowners unable to pay the full amount, a repayment plan might be offered. This allows paying an additional amount with the regular mortgage payment each month until the overdue balance is covered.
Another path is forbearance, a temporary suspension or reduction of mortgage payments. Missed amounts accrue and must be repaid later, often as a lump sum, through a repayment plan, or as part of a loan modification. Loan modifications permanently change the original mortgage terms, such as adjusting the interest rate, extending the loan term, or reducing the principal balance, to make monthly payments more affordable.
The Path Towards Foreclosure
If missed payments are not resolved, the loan progresses into default, leading to foreclosure. Federal regulations require servicers to wait until a mortgage loan is over 120 days delinquent before initiating foreclosure on a primary residence. This period allows homeowners to work with their servicer on loss mitigation.
If no resolution is reached, the lender sends a Notice of Intent to Accelerate or a Demand Letter. This letter warns the homeowner the lender intends to demand the full remaining loan balance if the default is not cured by a specified date. If not remedied, the lender can “accelerate” the loan, making the entire outstanding principal balance, plus accrued interest and fees, immediately due.
Following acceleration, the lender initiates the foreclosure process by filing legal documents based on state laws. This could include a Notice of Default (NOD) or a Lis Pendens, a public notice of a lawsuit concerning property title. These filings begin the legal process that can lead to the property’s sale to satisfy the mortgage debt.
Longer-Term Credit Implications
A missed mortgage payment has a significant, lasting negative impact on a homeowner’s credit report and score. Due to payment history’s weight in credit scoring, a single missed payment reported 30 or more days late can cause a considerable credit score drop. More missed payments and longer delinquency result in more severe damage.
A negative mark for a missed payment or foreclosure remains on the credit report for approximately seven years from the date of the missed payment or foreclosure initiation. This prolonged negative information makes obtaining new credit difficult. Lenders for car, personal, or credit card loans may view the homeowner as a higher risk, leading to higher interest rates or denial.
Securing another mortgage after foreclosure is challenging, often requiring several years and demonstrating responsible financial behavior. Beyond traditional lending, a poor credit history from missed mortgage payments can affect other areas. This includes higher insurance premiums, difficulties applying for rental housing, or issues with utility deposits or employment screenings.