If you’ve taken out a mortgage, then we hope you know how vital it is to make timely monthly payments on that mortgage. Life is not a fairy tale, and you really don’t want to miss a payment as not all mortgages have a happy ending. Sometimes people end up in mortgage default as they fail to pay their home loan in time. Below is what you need to know to avoid such an unfortunate situation.
What is a mortgage loan default?
According to Casey Fleming, mortgage adviser and author of The Loan Guide- How to Get the Best Possible Mortgage; “To default on one’s mortgage means not meeting the terms in the home loan agreement.” Late or missing payments are, of course, the most common problems; however; they’re just the violations that gradually take homeowners into a grim situation.
Not having homeowner’s insurance or not paying property taxes, or utilizing your property for illegal activities such as dealing drugs can also put you, as a homeowner, in default. In short, there can be many ways in which you can fall short on your mortgage.
What happens if you fail to pay the mortgage?
The usual time frame for a mortgage to be in default is 30 days past due; however, this time frame can vary according to the contract and the lender’s preference. Your lender will normally send you a notice of default and request you to make the payment once your payment is more than 30 days late. In case you don’t respond, your lender will generally send you more reminders, and even call you, to ensure that it wasn’t a mistake on your side.
These constant reminders can be unpleasant sometimes; however, if you ignore them, it can be the biggest mistake of your life.
As per Whitney Fite, president of Angel Oak Home Loans in Atlanta, “Communication is the key. Reach out to the servicer quickly to explore your options if you know you’ll have trouble making your payment on time.”
You should reach out before your payment is even due to make it an ideal situation for yourself.
In reality, mortgage lenders aren’t loan sharks. As a matter of fact, they might help you by lowering or even pause your payments for some time and be flexible with your payments.
According to Fleming, “If you speak to them, you can usually work something out.”
Instead of remaining silent if you speak up, you might entirely avoid a mortgage default, and this can be a good thing for many reasons: You’ll keep your good standing with your mortgage lender, and it will also reduce your financial stress as it will keep your credit score intact and won’t affect your ability to borrow negatively in the future.
When a mortgage default turns into a foreclosure
What happens if you remain quiet and don’t respond to those notices? A default can turn into something worse if your payments get 120 days late: a foreclosure. It’s the point where your lender takes custody of your home and will try to sell it to cover their losses.
Once the foreclosure proceedings are started by your lender, all you can do is just pack your stuff and leave the property.
As per Fleming, “It would be rare for a foreclosure to take more than six to nine months.”
Remember a foreclosure will remain on your credit history record for seven years, and that can make it harder for you to purchase a new home soon. Moreover, there is other bad news: Once your home is liquidated via foreclosure and resale, the lender could report you to the IRS for any loss they incurred because of lending you the money.
“The IRS considers the lender’s financial loss taxable income for the borrower,” says Fite. “Many people don’t realize this until the following January when they receive 1099 in the mail for many thousands of dollars.”
How to reduce chances of a mortgage default and foreclosure
The most important thing to remember is that you should not be scared of your lender if you think you’re facing financial problems and it’s getting hard for you to make regular mortgage payments, you should discuss the situation with your lender.
As per Fleming, “Mortgage lenders don’t want to foreclose.” He further added that “They are not in that business. They are in the business of collecting your payments. If they foreclose, their income stream on your mortgage stops.”
Because of that reason, if you’re in trouble in making your monthly payments, they would be willing to work it out with you. Approaching them in the first place is in your own benefit as they’ll be much more understanding, instead of waiting for them to call you.
At Lendova, we believe in providing affordable mortgage solutions for everyone. Please call us today so that we can provide you with a custom-tailored solution or please visit our website at www.lendova.com