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What Happens If I Skip a Mortgage Payment?

"What happens if I skip a mortgage payment?" is one of those questions we hope you never have to ask, but life is unpredictable: Sometimes no matter how carefully you plan, you may find yourself short on the funds you need to pay this crucial monthly bill. So what happens if you skip a mortgage payment for just one month?

Don’t worry—there's no need to panic quite yet. But there are consequences to missing a mortgage payment, so you'll want to know what's in store.

What if you're late on your mortgage payment? 
Every home loan agreement offers borrowers a grace period for late payments. (Most mortgage payments are due the first day of the month but policies can vary, says Guy Cecala, chief executive and publisher of Inside Mortgage Finance.) Typically, there’s a 15-day grace period, in which case you would have 14 days after your payment is due to pay your bill without incurring a late fee. However, “I’ve seen some late fees kick in after seven days,” Cecala says, who recommends checking your policy carefully to see how long your grace period is.

Late fees are based on your mortgage agreement, loan type, and state regulations, but generally the average is 4% to 5% of the overdue payment. So, for a $1,000 monthly mortgage with a 5% late penalty, the fee would be $50. That might seem like a drop in the bucket, but “late fees are a good source of income for mortgage lenders,” Cecala points out.

How a missed mortgage payment affects your credit
Mortgage lenders typically report late payments to credit bureaus after they become 60 days past due—meaning you usually have two months to make up for a missed payment. After the 60-day mark though, your credit score (a reflection of how you've managed past debts) might take a big hit.

According to data from credit analysis firm FICO, someone with an excellent credit score—780 or above—could see it drop 90 to 110 points if the person has never missed a payment on any credit account. In comparison, someone with a 680 credit score and two pre-existing late payments on his credit report may see a 60- to 80-point drop for a mortgage payment delinquency.

Will my bank start foreclosure proceedings if I miss one payment?
The short answer is no.

“The foreclosure process takes a lot longer these days because of the foreclosure crisis [of 2008],” Cecala says. “Mortgage lenders don’t want to foreclose on your home because it results in a loss or a cost to them."

Nonetheless, your mortgage is technically in default if you’re more than 90 days late on your mortgage payments—even just one. At that point, you’ll receive a letter from your mortgage servicer notifying you that you’ve defaulted on your loan; you then typically have 90 days to pay off your most recent bill before your mortgage lender can begin foreclosure proceedings.

I don't think I can make next month’s payment. What are my options?
Your first step is to contact your mortgage servicer and explain your financial situation. “People often feel like they don’t want to turn themselves in, but you don’t know what your options are until you talk to your lender,” Cecala says. Plus, mortgage lenders tend be more accommodating if you notify them in advance that you can’t make an upcoming payment.

You might qualify for a special forbearance, a process where your servicer gives you a temporary break from your mortgage payments.

“It’s essentially an extended grace period,” says Cecala. Alternatively, you may be able to work out a repayment plan with your lender where you agree to pay down past-due amounts on your mortgage over a set period of time.

If you can’t afford to make your mortgage payments (say, due to a layoff or emergency medical expenses), Cecala also recommends looking at the federal government’s Home Affordable Modification Program.

“Through HAMP, homeowners who are not unemployed but struggling to make their monthly mortgage payments may lower their monthly payments and make them more affordable and sustainable for the long-term,” says the Federal Housing Finance Agency’s website. You’ll have to meet certain requirements to qualify. For example, you must have obtained your mortgage before Jan. 2, 2009, and “in general you can’t qualify if you have a jumbo loan,” Cecala says. (Call 1-888-995-4673 for free to speak with a HUD-approved housing counselor to see if you can take advantage of the program.)

How can I avoid a missed payment in the future?
The best way to ensure you won’t miss a mortgage payment, says Cecala, is to set up automatic bill pay so that the money is automatically withdrawn from your bank account each month. (You can do this easily through your bank either online or by phone.) You may even want to set up a dedicated checking account for your mortgage payments, and make arrangements with your employer to have a percentage of your income automatically deposited into the account each month.

Cecala offers one more tip: “If you run into problems making your mortgage payments, you probably want to avoid debt consolidation services. There are costs attached to them,” he says. “You’re generally always better off working with your loan servicer or a nonprofit that offers counseling and mortgage relief services.”

Outdated & Unwanted

Deed vs. Title: What's the Difference? Terms Home Buyers Need to Know

Deed vs. title: 

What's the difference? Most people use the terms interchangeably, but there's a significant difference between the two— a distinction that's important to understand when you're ready to purchase a home. So let's look at what distinguishes deed from title.

Deed vs. title: The difference between these 2 real estate terms
"A deed is a legal document used to confirm or convey the ownership rights to a property," explains Anne Rizzo of Title Source Title Clearance. "It must be a physical document signed by both the buyer and the seller."

Title, however, is the legal way of saying you have ownership of the property. The title is not a document, but a concept that says you have the rights to use that property.

So when you buy a property, you will receive the deed, a document that proves you own it. That deed is an official document that says you have title to the real estate.

How to get the deed and take title of a property
To get the deed and "take title," or legally own the property, your lender will perform a title search. This ensures that the seller has the legal right to transfer ownership of the property to you, and that there are no liens against it. If everything is clear, then at closing the seller will transfer the title to you, and you become the legal possessor of the property.

The title or escrow company will then ensure the deed is recorded with the county assessor's office or courthouse, depending on where you live. You'll generally get a notification a few weeks after closing that your deed has been recorded. If you don't, check with the professional who did your closing and ensure that the paperwork has been filed. At that point, you have the deed and title to the real estate and the property is all yours.

What is title insurance?
Even with all of the due diligence a title company does before closing, there are rare instances when title problems can pop up later (e.g., missed liens and other legal issues that can be very costly to resolve). To protect against any financial loss, two types of title insurance exist: owner's title insurance and lender's title insurance.

"Unlike other types of insurance that protect the policyholder from events that may happen in the future, an owner’s title policy protects the buyer from events that have happened in the past," says Rizzo. "That may jeopardize their financial interest, such as title defects from fraud or paperwork errors, unpaid liens against the property, or claims that someone else is the real, legal property owner."

On the other hand, when you secure a mortgage, your lender or bank will require that you purchase lender's title insurance to protect the lender's investment in case any title problems arise. Lender's title insurance essentially protects the lender's interest in your property, which is typically until your mortgage is paid off.

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Failure to Disclose: Should Buyers Sue Sellers for Not Revealing Problems

Can a buyer sue a seller for failure to disclose information about the house? 

As a buyer, you deserve to know about every problem with the house, from the leaky roof to the small colony of black mold hiding in the cabinet in the laundry room. 

If the seller fails to disclose a problem to you during the property transfer process, should you start calling lawyers, or can you settle this issue yourself outside of a courtroom? It all depends on the real estate disclosure laws in your state and how far along in the purchase process you are.

Real estate disclosure laws
Real estate disclosure laws differ from state to state, but in most places in the U.S., sellers are required to disclose info to a prospective buyer that could affect the property value. That could be anything from a termite infestation to a property line dispute with a neighbor. If your house was built before 1978 and has lead paint, federal law requires this to be disclosed as well.

Sellers must volunteer information about their property to the buyer; it's not enough to just wait for a buyer to ask a question and answer honestly, according to California real estate attorney Bryan Zuetel of Irvine, CA. In many states, that information is shared through a disclosure form, where a homeowner outlines details about the house. That form will include negative information as well as basic facts such as the square footage.

Sellers do not have to disclose something that they don't know about. But if it can be proven that something was known and omitted, a seller can get in big trouble.

"A seller may be liable to the buyer for the nondisclosure of material facts, negligent misrepresentation of facts, intentional misrepresentation of facts, or suppression or concealment of facts," Zuetel explains.

Should you sue a seller for failure to disclose before the sale?
If the seller fails to disclose information about the house but you haven't yet signed on the dotted line, you may be able to cancel the purchase. Canceling the purchase could be a lot less costly and time-consuming than suing the seller.

Laws in most states guarantee a buyer the right to cancel a transaction due to discovery of certain facts during the transaction. In California, for example, Zuetel says a buyer may terminate a transaction within a certain number of days after receiving a disclosure regarding natural hazard zones around the property.

Most real estate attorneys recommend including contingencies in the residential purchase agreement that will give buyers an out, and require any money held in escrow be returned to them (pending a review of the disclosures and the property). If your contract has this contingency in place, you should be able to cancel the transaction and walk away without losing anything but your time.

Should you sue a seller for failure to disclose after the sale?
Things get more complicated if you buy the property. That's when you may land in a courtroom, but a lawsuit could still be avoided, says Zuetel.

"The dissatisfied buyer can contact the seller to determine whether the parties can work out an agreement or settlement of the issues," he notes.

In fact, some purchase contracts will contain a provision that the buyer and seller must try mediation before the filing of a lawsuit, while other purchase contracts will require that disputes between the buyer and seller must be arbitrated, rather than litigated in court.

If you do end up suing the seller, you could seek monetary damages for the seller's failure to disclose information or misrepresentation of the property. The amount you sue for can include damages for the difference between the amount that the buyer paid and the fair market value of the property at the time of the sale, Zuetel says.

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Should I Use a Mortgage Broker or Find My Own Lender?

When shopping around for home loans, potential buyers often ask this question: "Should I use a mortgage broker or find my own lender?" The answer depends on your financial situation, your willingness to fill out paperwork, and your comfort level with the mortgage process.

"It's smart to compare multiple sources to determine the terms that work best for your personal financial situation," says Bruce Elliott, ORRA president and REALTOR® in Orlando, FL.

If there's ever a time to do your research, it's now.

So before you embark on the mortgage process, let's take a look at the pros and cons of hiring a mortgage broker versus finding your own lender.

Using a mortgage broker
A mortgage broker takes your mortgage application and shops it to various lending institutions to find you the best deal. The broker helps you navigate the process with your individual financial needs in mind.

"The mortgage process is so convoluted," says Stephen Rybak, a senior managing director at Guardhill Financial Corp. "Nine out of 10 lenders are offering the same rates. We're here to take care of people and make the process easy."

Using a mortgage broker offers some advantages:

• You have to fill out the mortgage application only once. After that, the broker contacts the lenders on your behalf.
• You have an advocate. The mortgage process can be a paperwork nightmare, especially for first-time buyers. A broker helps you with all of it, every step of the way.
• A broker has access to many different lenders. "We work with more than 50 different banks," says Rybak. "We know the best terms they can offer."
• If you have anything negative in your credit past, a broker can help. "A mortgage broker can also help borrowers who may have derogatory marks on their credit such as bankruptcy, foreclosure, or late payments history," says Elliott.

Using a mortgage broker has some disadvantages:

• Paying a fee for the broker's help. It depends on the specifics of the loan and the broker, but having a middleman can sometimes lead to higher fees and costs. Always carefully read all of your loan documents and ask about any fees you don't understand.
• A slower process. "Working with a broker may slow down your application process, because the broker has to shop around," says real estate expert Michele Lerner.

Going directly to a lender
If you feel comfortable shopping around, going directly to the source—whether it's a bank, credit union, or mortgage company—could be the better option for you.

Going directly to a lender has some advantages:

• You can be as hands-on as you want to be in finding the right deal for you.
• If you go with your own banking institution, you may qualify for customer loyalty rates. "Many of these institutions have special programs you may be eligible for, including a low down payment loan," says Lerner.
• If you use your bank, the paperwork is faster and easier.

Finding your own lender has some disadvantages:

• It's up to you to do all the shopping around, which can be overwhelming, especially if you're new to the process.
• You have to fill out a separate application every time. Instead of just one application package, you'll be applying from scratch with each institution you're interested in.
• You don't get as much guidance. At a bank, you don't get to choose the loan officer you work with.

Feel free to shop around
If you're still not sure, talk to a few mortgage brokers and get quotes from a few banks and see which appeals to you the most. There truly isn't a one-solution-fits-all answer.

Just remember that finding a mortgage interest rate is only the beginning of the process. Ultimately, you're looking for someone—broker or lender—who is going to help you through to closing day, so make sure you choose a mortgage partner you trust and feel confident in.

Home Buyer Blunders

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