If you’re struggling to make your mortgage payments, or you’re already in default, there are things you’ll need to know and ways to resolve issues with your lender or servicer. Many people find it embarrassing to talk with their servicer about payment problems, or they’re hopeful that their financial situation will improve so they’ll be able to catch up on payments. But contact your lender or mortgage servicer right away to see if you can work out a plan.
After closing on your loan to buy your home, you make monthly payments to your loan’s servicer. The lender is the company that you borrow the money from and the servicer is the company 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 find yourself facing financial problems that make it hard to make your mortgage payments, talk to your lender or servicer right away to see what options you might have. Because if you don’t pay your mortgage on time, or if you pay less than the amount due, the consequences can add up quickly. For example, the lender or servicer can add late fees and extra interest to the amount you already owe, making it harder to dig out of debt. And even one late payment can negatively affect your credit score. Your score affects whether you can get a new loan or refinance your existing loan — and what your interest rate will be.
When you’re behind on your mortgage, the lender or servicer can move to declare your loan in default and serve you with a notice of default. Default is the first step in the foreclosure process. Once your loan is in default, the lender 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.
If you can’t catch up on your past due payments or work out another solution (link to that section), the lender or servicer can start legal action to sell your home in a foreclosure proceeding. This process can also add hundreds or thousands of dollars in additional costs to your loan, making it even harder for you to keep up with payments, make your back payments, and keep your home. 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.
The longer you wait to contact your mortgage servicer, the fewer options you’ll have. If you’re having trouble paying your mortgage, don’t wait for a notice of default before contacting your mortgage servicer — the company that accepts your monthly payments.
- Consider contacting a free housing counselor. You can get free, legitimate help from a counselor who can explain your available 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.
- 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?
- Review your mortgage servicer's website. See what options might be available for people in your situation. Read more about ways to avoid foreclosure.
- Contact your servicer to discuss ways to resolve your situation and avoid losing your home. The servicer may be more likely to delay the foreclosure process if you’re working with them to find a solution. If you don’t reach your servicer on the first try, keep trying.
Whenever you’re dealing with the mortgage servicer or lender, it’s important to
- 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 on any requests made on a call with a letter.
- You can email your follow-up, but also send your letter by certified mail, “return receipt requested,” so you can document what the servicer got.
- Keep copies of your letter and any documents you sent with it.
- 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. If you choose to rent your property, be sure the rental income is enough to help you get and stay caught up on your payments.
You may want to calculate how much equity you have in your home. To do this:
- Get the appraised value of your home from a licensed appraiser. You will 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”).
- Figure out the total amount of 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 the loans from the appraised value or fair market value of your home. That number is your equity.
If you’re struggling to make your federally backed mortgage payments because of the pandemic, payment forbearance may still be available. To learn more about your relief options and deadlines, visit consumerfinance.gov/housing, the federal government’s centralized resource for information from the Consumer Financial Protection Bureau, HUD, the VA, and USDA.
There are several ways you might be able to catch up on your payments and save your home from foreclosure. Your mortgage servicer might agree to
- Reinstatement. This can help if the problem stopping you from paying your mortgage is temporary. With reinstatement, you agree to pay your mortgage servicer 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 the problem stopping you from paying your mortgage is temporary, this can help. With forbearance, your mortgage servicer 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 so you catch up. The 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 small number of 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 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
- forgiving, or canceling, part of your mortgage debt.
If you have a pending sales contract, or you can show that you’re putting your home on the market, your lender or servicer 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. But if selling your home doesn’t get you enough money, you need to have enough equity in the home to cover paying off the mortgage loan balance plus the expenses involved with the sale.
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 lender must approve and agree to accept the money you get from the sale, instead of going ahead with foreclosure. Your lender will work with you and your real estate agent to set the sales price and review the offers. Your lender will then work with the buyer’s real estate agent and lender to finalize the sale. In a short sale, he lender agrees to forgive the difference between the amount you owe and the what you get from a sale. Go to the IRS’ site to learn about the tax impact of a 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 mortgage servicer or lender might agree to a deed in lieu of foreclosure. That’s where you transfer your property title to the servicer, and the servicer cancels 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’ve used your home as collateral on other loans or obligations. It could also impact your taxes, Go to the IRS’ site to learn about the tax impact of a 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 just two years. With a foreclosure, it’s seven years. 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 keep 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 reduce the chance of a problem:
- Get a letter from your 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. You also can 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 2022, everyone in the U.S. can get a free credit report each week from all three national 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 or car — that you might otherwise lose. Learn more about bankruptcy. In Chapter 13, the court approves a repayment plan that lets you use your future income toward payment of your debts during a three- to five-year period, rather than give up the property. After you have made all the payments under the plan, the court says you no longer have to pay certain debts, for instance, those related to property settlements in divorce.
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.
To learn more about Chapter 13, visit the U.S. Trustee Program, the organization within the U.S. Department of Justice that oversees bankruptcy cases and trustees. Consider consulting a lawyer to help you figure out the best option for you.
If you’re having a hard time reaching or working with your loan servicer, talk to a certified housing counselor. To find free and legitimate help:
- Call the local office of the U, S. Department of Housing and Urban Development or the housing authority in your state, city, or county for help in finding a legitimate housing counseling agency nearby.
- Visit gov or the HomeownershipPreservation Foundation. Or call the Homeowners Hope Hotline at 1-888-995-HOPE (4673).
- If you have a mortgage through the Federal Housing Administration (FHA) or Veterans Administration (VA), contact them. You may have other options instead of foreclosure available to you. Visit the joint site of the Consumer Financial Protection Bureau (CFPB), Federal Housing Finance Agency (FHFA), and S. Department of Housing and Urban Development (HUD). They’re working together to help homeowners and renters during the coronavirus pandemic and might have other options for you
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
- help you prepare for discussions with your loan servicer
Scammers may pose as supposed housing counselors and demand an up-front fee or retainer before they “help” you. Don’t pay anyone who charges up-front fees, or who guarantees you a loan modification or other solution to stop foreclosure. Those are signs it’s a scam.
- Avoid companies that promise they can help you stop foreclosure. No one can guarantee they’ll stop foreclosure. That’s always a scam.
- Scammers will pretend to offer help, too. But they’ll take your cash and won’t deliver. Learn more about the ways scammers offer phony promises of help related to your mortgage.
- You don't have to 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. They cannot 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
- 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.
If you see a scam, fraud, or bad business practice, report it to the FTC at ReportFraud.ftc.gov