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I Can't Pay My Mortgage, What Are My Options?

Realizing you might not be able to pay your upcoming mortgage payments can be stressful. Whether your source of income has changed or your life circumstances have made it difficult to stay on top of your mortgage, the prospect of losing your home is not only frustrating but devastating.

Fortunately, there are many options worth exploring when you realize you can’t pay your mortgage. As long as you act quickly, there are several alternatives that can either postpone your payments or help you with the money you owe.

What Happens When You Fall Behind?

Several things will happen when you initially fall behind on your payment. First, you will be charged a late fee once the payment becomes 15 days late. After the 30-day mark, your loan will go into default, at which point your lender will report the overdue payment to the three major credit bureaus.

Once your loan is defaulted, your credit score will be negatively impacted. This can further affect your ability to apply for personal loans, vehicle financing, or additional mortgages in the future.

…And if You Don’t Catch Up?

If you are unable to catch up with your mortgage payments after failing to pay for at least 120 days, your house will be subjected to foreclosure. During foreclosure, the lender will remove you from the property and take possession of your home, which will subsequently cancel your loan.

The lender will then sell the home in an effort to recoup their losses on the loan. However, even after you lose your home, you might still have financial obligations towards the property. If the sale of the home doesn’t cover the balance of your loan, the lender might require you to pay a deficiency judgment fee to make up the difference.

Options for Falling Behind on Mortgage Payments

One of the few upsides to foreclosure is that it doesn’t happen immediately. Even if you’ve missed a mortgage payment or you are concerned that you won’t be able to make one in the future, you still have some time to put a contingency plan into action before losing your home entirely.

Forbearance Mortgage Plan

One of your options when you need help with mortgage payments is forbearance. With forbearance, your lender will reduce or suspend your monthly payments for a predetermined period of time. At the end of the forbearance period, you will usually have to pay back the amount of money you owe as a lump sum.

Forbearance is a great option for people whose finances have been temporarily limited. However, if you’ve lost income or are living in a house that you can no longer afford, forbearance will only be a temporary solution that still requires you to repay your mortgage in full.

Loan Modification

A loan modification allows you to permanently change some of the terms of your loan so that you can afford your payment. This is a conversation that will occur between you and your lender. A loan modification can incorporate options like extending your mortgage repayment period, adding your missed payments to the overall loan balance, or lowering your interest rate.

Requests for a loan modification are reviewed on a case-by-case basis, and it’s wise to be proactive to show your lender that you’re looking for a solution. Providing proof of your income and payment history to demonstrate how you have been handling your finances is also helpful.

Repayment Plan

If you are able to make payments on your mortgage but you have past payments that you are having difficulty repaying, consider a repayment plan. With this option, you and your lender will come up with a predetermined plan that spreads out the money you owe on the mortgage across payments over time. This could raise your monthly payments slightly, but the missed payments will not impact your credit score severely or cause you to incur additional fees over time.

Short Sale Plan

A short sale is an option in which the homeowner still loses the home but it doesn’t have as severe of an impact on the homeowner’s credit score or finances. In a short sale, the homeowner and lender come to an agreement stating that the lender will buy back the home.

The best part is that the agreement means that the homeowner will not have to put additional funds towards the remaining loan amount. Since both parties agree that the loan is essentially fulfilled or paid off, the homeowner’s credit score will not be lowered as drastically as it is in the case of foreclosure.

Temporary Programs Due to the Covid-19 Pandemic

With widespread financial stress and trouble caused by the COVID-19 pandemic, the federal government and private lenders have provided several options for homeowners who won’t be able to make mortgage payments because of the loss of work or other coronavirus-caused financial hardship. Here are two of the most well-regarded programs made available to homeowners as a result of COVID.

The CARES Act

In March 2020, the government passed the Coronavirus Aid Relief and Economic Security (CARES) Act for homeowners whose loans are backed by government entities like the FHA, VA, Fannie Mae, or Freddie Mac.

The CARES Act allows borrowers who are facing financial hardship due to the impact of COVID-19 to have more time to make their mortgage payments. Under the CARES Act, lenders are required to lift forbearance penalties or fees and suspend payments for up to twelve months for borrowers who have lost income due to the pandemic.

To see if you’re eligible under the CARES Act, find out who backs your mortgage and contact your lender. Lenders are legally required to tell you what privately-owned or government-backed entity supplies your loan.

Non-Federally Backed Mortgages

Homeowners with a privately-backed mortgage still have options for assistance in times of financial trouble as a result of the pandemic. Contact your lender to see what options are available to you. Private lenders like Bank of America, Quicken Loans, and Ally Bank are offering deferred payment or forbearance programs to lenders who have been negatively impacted by COVID-19.

Options for Avoiding Foreclosure

The process of foreclosure doesn’t just cost you a home. It can damage your credit score severely and require you to come up with funds to help cover the loan costs even after the property is no longer yours.

If you contact your lender promptly and show records of financial responsibility, you will most likely be able to come to an agreement that allows you to stay in your home while working for your financial situation.

 

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All material is presented for informational and educational purposes only and should not be construed as individual financial, investment, or legal advice or instruction. ZeroMortgage does not guarantee the quality, accuracy, completeness or timelines of the information in this publication. While efforts are made to verify the information provided, the information should not be assumed to be error free. Some information in the publication may have been provided by third parties and has not necessarily been verified by ZeroMortgage. ZeroMortgage, its affiliates, and subsidiaries do not assume any liability for the information contained herein, be it direct, indirect, consequential, special, or exemplary, or other damages whatsoever and howsoever caused, arising out of or in connection with the use of this publication or in reliance on the information, including any personal or pecuniary loss, whether the action is in contract, tort (including negligence) or other tortious action. ZeroMortgage does not provide tax advice. Please contact your tax adviser for any tax related questions.

This page last updated: March 21, 2022