Are you struggling to make your mortgage payments, or are you already in default? Many people find it embarrassing to talk with their mortgage servicer or lender about payment problems, or they hope their financial situation will improve so they’ll be able to catch up on payments. But your best bet is to contact your mortgage servicer or lender right away to see if you can work out a plan.
When you buy a house, you get a mortgage loan with a lender. But after you close on the loan, you might make monthly payments to a loan servicer that handles the daily management of your account. Sometimes the lender is also the servicer. But often, the lender arranges for another company to act as the servicer.
If you don’t pay your mortgage on time, or if you pay less than the amount due, the consequences can add up quickly. If you find yourself facing financial problems that make it hard to make your mortgage payments, talk to your servicer or lender right away to see what options you might have.
Depending on the law in your state, after you’ve missed mortgage payments, your servicer or lender can move to declare your loan in default and serve you with a notice of default, the first step in the foreclosure process.
Here’s what might happen when your loan is in default:
- You could owe additional money. The servicer or lender can add late fees and extra interest to the amount you already owe, making it harder to dig out of debt. The servicer or lender also can charge you for “default-related services” to protect the value of the property — like inspections, lawn mowing, landscaping, and repairs. Those can add hundreds or thousands of dollars to your loan balance.
- Default can damage your credit score. Even one late payment can negatively affect your credit score and that affects whether you can get a new loan or refinance your existing loan — and what your interest rate will be.
- The servicer or lender can start the process to sell your home. If you can’t catch up on your past due payments or work out another solution, the servicer or lender can begin a legal action (foreclosure) that could end up with them selling your home. This process can also add hundreds or thousands of dollars in additional costs to your loan. That means it will be even harder for you to keep up with payments, make your back payments, and keep your home.
- Even if you lose your home, you might have to pay more money. In many states, in addition to losing your home in foreclosure, you also may be responsible for paying a “deficiency judgment.” That’s the difference between what you owe and the price the home sells for at the foreclosure auction. A foreclosure will also make it tougher for you to get credit and buy another home in the future.
If you’re having trouble paying your mortgage, don’t wait for a notice of default. Take the following steps right away to figure out a plan of action.
- Consider contacting a free housing counselor to get free, legitimate help and an explanation of your options. Before you talk to a counselor, learn how to spot and avoid foreclosure and mortgage counseling scams that promise to stop foreclosure, but just end up stealing your money. Scammers might promise that they can stop foreclosure if you pay them. Don’t do it. No one can guarantee they can make the lender stop foreclosure. That’s always a scam.
- Research possible options on your servicer’s or lender’s website. See what actions might be available for people in your situation. Read more about ways to avoid foreclosure. To prepare for a conversation with your servicer or lender, make a list of your income and expenses. Be ready to show that you’re making a good faith effort to pay your mortgage by lowering other expenses. Answer these questions:
- What happened to make you miss your mortgage payment(s)?
- Do you have any documents to back up your explanation for falling behind?
- How have you tried to fix the problem? Is your problem temporary, long-term, or permanent?
- What changes in your situation do you see in the short term and in the long term?
- What other financial issues may be stopping you from getting back on track with your mortgage?
- What would you like to see happen? Do you want to keep the home?
- What type of payment arrangement could work for you?
- Contact your mortgage servicer or lender to discuss the options for your situation. The longer you wait, the fewer options you’ll have. The servicer or lender may be more likely to delay the foreclosure process if you’re working with them to find a solution. If you don’t reach them on the first try, keep trying.
- Keep notes of all your communication with the servicer or lender. Include the date and time of any contact whether you met face-to-face or communicated by phone, email, or postal mail, the name of the representative you dealt with, what you discussed, and the results. Follow up with a letter about any requests made on a call.
- Keep copies of your letter and any documents you sent with it. Even if you email your follow-up, also send your letter by certified mail, “return receipt requested,” so you can document what the servicer or lender got.
Meet all deadlines the servicer or lender gives you. Stay in your home during the process. You might not qualify for certain types of assistance if you move out.
With the end of the COVID-19 federal public health emergency, most federally backed pandemic-related assistance plans are not open to new applicants. To learn more, visit consumerfinance.gov/housing. But you may still have options for help. There are several ways you might be able to catch up on your payments and save your home from foreclosure. Your mortgage servicer or lender might agree to
- Reinstatement. Consider this option if the problem stopping you from paying your mortgage is temporary. With reinstatement, you agree to pay your mortgage servicer or lender the entire past-due amount, plus late fees or penalties, by an agreed-upon date. But if you’re in a home you can’t afford, reinstatement won’t help.
- Forbearance. If your inability to pay your mortgage is temporary, this can help. With forbearance, your mortgage servicer or lender agrees to lower or pause your payments for a short time. When you start making payments again, you’ll make your regular payments plus extra, make-up payments to catch up. The lender or servicer might decide that extra payments can be either a lump sum or partial payments. Like reinstatement, forbearance also won’t help you if you’re in a home you can’t afford.
- Repayment plan. This could be helpful if you’ve missed only a few payments, and you’ll no longer have trouble making them each month. A repayment plan lets you add a portion of the past due amount onto your regular payments, to be paid within a fixed amount of time.
- Loan modification. If the problem stopping you from paying your mortgage isn’t going away, ask your servicer or lender if a loan modification is an option. A loan modification is a permanent change to one or more of the terms of the mortgage contract, so that your payments are more manageable for you. Changes could include
- lowering the interest rate
- extending the term of the loan so you have longer to pay it off
- adding missed payments to the loan balance (this will increase your outstanding balance, which you will have to pay in the future — maybe by refinancing)
- forgiving, or canceling, part of your mortgage debt
If you have a pending sales contract, or if you can show that you’re putting your home on the market, your servicer or lender might postpone foreclosure proceedings. Selling your home may get you the money you need to pay off your whole mortgage. That helps you avoid late and legal fees, limit damage to your credit rating, and protect your equity in the property. Here are some options to consider.
Traditional Sale. You need to have enough equity in the home to cover paying off the mortgage loan balance plus the expenses involved with the sale. Your equity is the difference between how much your home is worth and what you owe on the mortgage. If you have enough equity, you might be able to sell your home and use the money you get from the sale to pay off your mortgage debt and any missed payments. To determine whether this is an option for you, calculate your equity in the home. To do this
- Get the appraised value of your home from a licensed appraiser. You’ll have to pay for an appraisal, unless you had one done very recently. You also could estimate the fair market value of your home by looking at the sales of comparable homes in your area (known as “comps”). But be sure you’re looking at reasonably equivalent “comps,” considering various factors (including maintenance and up-to-date features or remodeling).
- Have you borrowed against your home? Figure out the total amount of the outstanding balances of the loans you’ve taken using your home as collateral (for instance, your mortgage, a refinancing loan, or a home equity loan).
- Subtract the amount of those balances from the appraised value or fair market value of your home. If that amount is more than $0, that’s your equity and you can use it to consider your options. Know that if your home’s value has fallen, your equity could be less than you expect.
Short sale. Selling your home for less than what you still owe on the mortgage is called a short sale. Before you can list your home as a short sale, your servicer or lender must approve and agree to accept the money you get from the sale, instead of going ahead with foreclosure.
- Your servicer or lender will work with you and your real estate agent to set the sales price and review the offers. Your servicer or lender will then work with the buyer’s real estate agent to finalize the sale.
- In a short sale, the servicer or lender agrees to forgive the difference between the amount you owe and what you get from a sale. Find out if the lender or servicer will fully waive the difference — and not separately seek a deficiency judgment. Get the agreement in writing. Go to the IRS website to learn about the tax impact of a servicer or lender forgiving part of your mortgage loan. Consider consulting a financial advisor, accountant, or attorney.
Deed in lieu of foreclosure. If a short sale isn’t an option, you and your servicer or lender might agree to a deed in lieu of foreclosure. That’s where you voluntarily transfer your property title to the servicer or lender, and they cancel the rest of your mortgage debt.
- Like with foreclosure, you will lose your home and any equity you’ve built up, but a deed in lieu of foreclosure can be less damaging to your credit than a foreclosure.
- A deed in lieu of foreclosure may not be an option if you took out a second mortgage or used your home as collateral on other loans or obligations. It could also impact your taxes. Go to the IRS website to learn about the tax impact of a servicer or lender forgiving part of your mortgage loan.
Short sales, deeds in lieu, and foreclosures affect your credit. With a short sale or deed in lieu agreement, you still might be able to qualify for a new mortgage in a few years. Because a foreclosure is likely to be reported for seven years, a foreclosure can have a greater impact on your ability to qualify for credit in the future than short sales or deeds in lieu. Sometimes it might not be clear to lenders looking at your credit report whether you had a short sale, deed in lieu, or foreclosure. That may prevent or delay you from getting a new mortgage. If you negotiated a short sale of your home or a deed in lieu agreement, here’s how to lessen the chance of a problem:
- Get a letter from your servicer or lender confirming that your loan closed in a short sale or a deed in lieu agreement, not a foreclosure. Send a copy of the letter to each of the nationwide credit bureaus: Equifax, Experian, TransUnion. Use the letter if questions arise when you try to buy another home.
- Order a copy of your credit report. Make sure the information is accurate. The law requires credit bureaus to give you a free copy of your credit report, at your request, once every 12 months. Visit AnnualCreditReport.com or call toll-free: 1-877-322-8228. Through December 2023, everyone in the U.S. can get a free credit report each week from all three nationwide credit bureaus (Equifax, Experian, and TransUnion) at AnnualCreditReport.com. Also, everyone in the U.S. can get six free credit reports per year through 2026 by visiting the Equifax website or by calling 1-866-349-5191. That’s in addition to the one free Equifax report (plus your Experian and TransUnion reports) you can get at AnnualCreditReport.com. If you find a mistake, contact the credit bureau and the business that supplied the information to correct the error.
- When you’re ready to buy another home, get pre-approved. A pre-approval letter from a lender shows that you’re able to go through with buying a home. Pre-approval isn’t a final loan commitment. It means you met with a loan officer, they reviewed your credit report, and the lender believes you can qualify for a specific loan amount.
If you have a regular income, Chapter 13 bankruptcy may let you keep property — like a mortgaged house — that you might otherwise lose. But Chapter 13 bankruptcy is generally considered the debt management option of last resort because the results are long-lasting and far-reaching. A bankruptcy stays on your credit report for 10 years. That can make it hard for you to get credit, buy another home, get life insurance, or sometimes, get a job. Still, it can offer a fresh start for people who can't pay off their debts. Consider consulting a lawyer to help you figure out the best option for you. Learn more about bankruptcy.
If you’re having a hard time reaching or working with your loan servicer or lender, talk to a certified housing counselor. To find free and legitimate help
- Call the local office of the Department of Housing and Urban Development (HUD) or the housing authority in your state, city, or county for help in finding a legitimate housing counseling agency nearby.
- Visit the Department of Treasury for links to states’ housing programs or the Homeownership Preservation Foundation. Or call a HUD-approved housing counselor at Homeowner Help at 1-888-995-HOPE (4673). Housing counseling services usually are free or low cost. A counselor with an agency can answer your questions, go over your options, prioritize your debts, and help you prepare for discussions with your loan servicer or lender.
- If you have a mortgage through the Federal Housing Administration (FHA) or the Department of Veterans Affairs (the VA), contact them directly. You may have other options instead of foreclosure available to you. Visit consumerfinance.gov/housing, the federal government’s centralized resource for information from the Consumer Financial Protection Bureau (CFPB), FHA, HUD, and VA. They might have other options for you.
- Don’t do business with companies that promise they can help you stop foreclosure. They’ll take your cash and won’t deliver. No one can guarantee they’ll stop foreclosure. That’s always a scam.
- Don’t pay anyone who charges up-front fees, or who guarantees you a loan modification or other solution to stop foreclosure. Scammers may pose as supposed housing counselors and demand an up-front fee or retainer before they “help” you. Those are signs it’s a scam. Learn more about the ways scammers offer phony promises of help related to your mortgage.
- Don't pay any money until a company delivers the results you want. That’s the law. In fact, it's illegal for a company to charge you a penny ahead of time. A company can’t charge you until it’s given you
- a written offer for a loan modification or other relief from your lender — and you accept the offer and
- a document from your lender showing the changes to your loan if you decide to accept your lender's offer. And the company must clearly tell you the total fee it will charge you for its services.
Learn more about the ways scammers offer phony promises of help related to your mortgage.
If you see a scam, fraud, or bad business practice, report it to the FTC at ReportFraud.ftc.gov.