What Happens If I Can’t Pay My Mortgage?

Falling behind on your mortgage payments is different from not paying your rent, because it can have a bigger effect on your credit score. It can also put your home in jeopardy if you can’t settle up. However, you do have several options—from a forbearance agreement, which can give you some time to work things out, to a deed in lieu of foreclosure if you can’t salvage the situation.

Key Takeaways

• The first consequence of not paying your mortgage is a late fee.
• After 120 days, the foreclosure process begins.
• Homeowners who fall behind on their mortgage payments have options to avoid foreclosure, and HUD housing counselors can help you find the option that works best for your situation.

What Happens When You Fall Behind?

First, you’ll be charged a late fee if you haven’t paid your mortgage within 15 days of the due date. Your loan will officially go into default if you’re still unable to make your payment after 30 days.

Important

Mortgage lenders usually offer a grace period on monthly payments. You typically have until the 15th of the month to make your payment without incurring any late fees or penalties.

At that point, your lender will report your overdue payment to credit bureaus, and it will impact your credit score.

When Foreclosure Starts

The foreclosure process can start when you’re more than 120 days past due. This is when the lender takes possession of the home and removes you from the property. The actual legal process for this varies by state. The goal is for the lender to sell the property, using the proceeds to pay off your remaining mortgage balance.

This might sound like the solution to the problem because you’re no longer responsible for the remainder of the loan, but you could be required to pay the difference if the proceeds from the sale don’t cover the full loan balance. This is called a “deficiency judgment,” and it requires additional legal action on the part of your lender.

Options If You Can’t Pay Your Mortgage

Contact your mortgage company right away to find out whether there are any programs available that might be of help to you. You might be able to qualify for a temporary payment reduction, or refinance for a lower payment, depending on where you live and whether you’re past due on the loan.

Tip

You can also meet with a HUD housing counselor who can help you determine the best course of action as well as assist you with budgeting and other financial needs.

Here are some other options:

• A forbearance plan: This allows you to make reduced payments, or sometimes no payments at all, for a period of time if you’re dealing with a temporary hardship.
• A loan modification: Your lender might be willing to modify your loan to make your payments more affordable.
• A deed in lieu of foreclosure: You can voluntarily give ownership of your property to the lender in exchange for total or partial debt forgiveness. This is usually only an option if foreclosure is imminent.
• A repayment plan: These plans are designed for borrowers who are a few payments behind. They allow you to pay a higher monthly payment until you’re caught up on your past-due balance.
• A short sale: A short sale lets you sell the property for less than your outstanding mortgage balance. It requires lender approval.

Tip

A refinance might help if you can pay some—but not the full amount—of your payments. You can usually lower your monthly payment if you refinance into a longer-term loan, although that will increase the amount of interest you’ll pay over the life of the loan.

How To Avoid Falling Behind

Working a few temporary jobs can help you stay in your home and avoid falling behind if your problem is a temporary income issue. Taking in a roommate might also be an option, depending on your circumstances.

Additionally, be sure you’re financially ready to buy a home. This can involve a few steps:

1. Save up for a larger down payment: That gives you equity in your home from day one, and it can prevent you from owing more than your home is currently worth later on down the line.
2. Reduce your debts first: Paying down credit cards, student loans, and other debts in advance of buying frees up income and makes it easier to manage your house payments. 
3. Only purchase a home that you can afford: You might find yourself overwhelmed by your house payment if you stretch yourself too thin, especially if your income changes, or an emergency crops up that requires extra funds. Before securing a mortgage, crunch the numbers to make sure you can afford it.

You should generally plan to stay in your home for at least five years to break even on the purchase. You might plan on upgrading in a few years if you’re buying a starter home. If you’re in a profession that requires you to move frequently, you need to take that into consideration as well. 

Frequently Asked Questions (FAQs)

In a short sale, do I have to pay the difference between the sale price and how much I owe?

In some states, you could be liable for the difference, and the mortgage company can try to collect that debt. If you can’t pay your mortgage and want to opt for a short sale without owing the difference, negotiate with your mortgage lender to forgive the difference, and ask for a release of liability.

Should I pay someone to help me if I can’t pay my mortgage?

Getting help when you can’t make your house payments should not cost you any money upfront. Anybody who offers to help you for a price is running a scam. A HUD counselor can help you for free.

How long should I wait to contact my mortgage company if I can’t make my payments?

Contact the mortgage company right away if you know you’ll be over 15 days late. It’s important to stay in contact and let your lender know what’s going on. The earlier you discuss your situation, the more options you will have to try and keep your home.