When we take out a 30-year loan, we have no way of knowing whether we’ll be able to make a steady, on-time repayment throughout that time. Any unforeseen situation can lead to financial hardship and default on loan payments.
The worst part is that even a single late mortgage payment can significantly lower a person’s credit score. For example, statistics show that a 30-day late payment on your credit report can lower your FICO score by 10-30 points, but if it is a 60 or 90-day late payment, the decrease can be as high as 60-110 points.
The lower your score, the worse your credit terms will be, so removing any negative marks from your report is a good idea. But will mortgage companies remove late payments if you ask them to? Can you handle this late marking yourself, or should you seek help from professionals? Let’s discuss these questions.
Can a late mortgage payment be removed?
Usually, this late mark will remain on your report for seven years and will hurt your credit score all that time. However, the good news is that you can remove it and have several options.
First, if that missed payment mark is inaccurate and you can prove it to the credit bureau, they will remove it from your report.
The second option is to negotiate with your mortgage company. You can call them or write a goodwill letter explaining why you didn’t pay your mortgage on time. In most cases, lenders will agree to a mutually beneficial arrangement because they don’t need a late mark on your report; they need the loan paid. We will discuss these options in detail below.
Does a late mortgage payment affect the credit?
You first need to know that your credit score is unique because it is calculated based on your credit history. That’s why you shouldn’t compare yourself to others’ scores, because someone can get as many as 50 points off, and someone can only get 20 points off.
Overall, there are a few facts to help you understand the impact of a missed payment on your credit score:
- The higher your credit, the more it will be affected by the late mark. For example, if you had 750 FICO points, you can lose up to 100 points.
- Even one such mark will have an impact on your FICO score. The average drop is 10-30 points.
- Missing multiple payments will have the worst impact on your credit.
Each such mark of over 30 days overdue will remain on your report for seven years unless you work to remove it. To avoid struggling with new credit during this time and to get your FICO account back, try deleting the late mark in one of the following ways.
Steps for mortgage late payment removal
Let’s start with the most straightforward way and the situation in which removing will be easiest. The credit bureau or creditors will erase it if you can prove it is inaccurate.
How to do this?
First, you need to download your credit report from one of the bureaus and read it carefully. Are there errors in your information? Are all the accounts listed correctly? Is your loan overdue, or was it a lender’s mistake? Finding out the answers to these questions is critical at this stage.
Second, you must gather all the evidence if an error is found. For example, if the lender wrote that you were overdue in March when you were not, and you have a check to prove you paid on time, you can send that information to the credit bureau for review.
If the late mark is correct and your credit report shows everything correctly, you need to move on to the following, more complicated options for removing the mark.
You can call your mortgage company, explain why you defaulted on repayment, and ask for the information about it to be removed from your credit report. Usually, the first person who answers is just a manager, who is not supposed to deal with these issues. Politely ask him to escalate the issue and talk to someone who can fulfill your request. Already with this person, you can discuss in more detail all the terms of removal of the late mark; most importantly, do not forget to keep all the agreements in writing with a signature from the company.
Another option is to write a goodwill letter specifying why you have not paid the loan on time. For example, if you were hospitalized or had another emergency that caused your missed payment, you can provide proof, and creditors will delete the note.
Other good reasons might include:
- Proof that you constantly pay your bills, there was just a one-time mistake, and you won’t do it again.
- Offer of exchange to the lender, such as you pay off the entire loan, and he removes the late mark.
You should understand that if all of the information on your credit report is correct, lenders are not required to remove it. It all depends on their desire and your arrangements.
What to do if you can’t pay your mortgage
Let’s say you don’t have any late mortgage payments yet, but you realize you can’t pay your loan on time. How do you make sure they don’t show up? Can some options help reduce your monthly payment or give you a few months to stabilize your finances?
Yes, they can, and the best solution for you is to use one of them to keep a late mark on your report. According to credit repair companies, it takes borrowers about nine months to rebuild their credit score after such an event, so it’s better to prevent late payments than to deal with the consequences.
Talk to a mortgage lender
All mortgage companies say the same thing – if you realize you can’t pay your loan, you should first call the lender and explain the situation.
The company number is always listed on your monthly loan statement, and you can also find it on the lender’s website. Before you call, think about the answers to the following questions:
- What is your situation?
- How long you can’t make payments on time, and why?
- What are your income, expenses, and assets (car, investment account, etc.) are.
This information can help the lender understand what a solution to your problem might be. For example, they might tell you how to refinance your loan, give you a couple of months’ grace period, or tell you where you can get a small loan to help you make your monthly payment.
The most common option for those with permanent negative situations (such as job loss) is loan modification. This means that you and the lender agree to change the terms of the loan or its duration, lower the interest rate, or add any delinquent payments to the amount you already owe. These actions aim to ensure you can afford to keep paying your loan without defaulting.
You only need to be aware that such a decision could hurt your credit score. However, it is essential to understand that this effect will be much less than any negative mark.
Talk to a professional
You can contact another loan officer if you don’t like the options the lender offers.
How can they help you?
- First, you will discuss your situation and your wishes. Perhaps you can apply for some assistance program, or you know that a damaging financial crisis will end in six months, and the best solution to your problem is to defer.
- After listening to you, the expert will talk about all the options. Then, together you will choose the one that suits you best.
- Next, the expert must guide you through the entire communication process with your servicer, including help with the paperwork you may need.
- The final support from the professional should be to analyze your income and expenses for the coming months and find options to improve your financial situation.
The most important thing for those who want to use this method is to find a qualified expert. In addition, it is imperative not to fall into the hands of scammers lest you end up with no money and a large home loan.
Avoid financial experts who:
- Ask you to pay money upfront, especially if it’s not just one consultation but a package of services at once.
- Guarantee that they will give you a positive result 100% of the time. No one can be sure that they can help you change the terms of your loan or make sure you do not lose your house; this is just an attempt to take advantage of your tricky situation.
- Ask you to sign documents that you don’t understand.
- Tell you to stop paying your loan.
- Suggest you lie to get better terms on your loan.
Always choose an expert with the proper education and successful cases you can verify. Be careful of scammers.
Assess your finances
Sometimes you think that you can no longer pay the loan because you have reduced income, but in practice, it turns out that everything is possible; it is important just to manage the money properly. In this situation, a financial planner can help you.
This person will not look at just one fact, such as a decrease in your income, but will consider the big picture and tell you if you can’t pay the loan anymore.
Most likely, all you have to do to solve the problem is change your financial habits and cut back on spending in some areas. Say, for example, it’s much easier and safer to give up going to restaurants and cooking at home than to negotiate to refinance your loan on more favorable terms.
If you intuitively realize that you are confused about your financial situation and no longer feel confident in your decisions, try turning to a financial planner at least once. This way, you will know exactly whether you need the help of such a specialist or whether you can manage your money and get out of a difficult credit situation.
Selling your home
Since a mortgage is a home loan, sometimes the only way out is to sell the house. However, it’s vital to understand that this may not be the best option because you must pay many steps to sell the house. This can be hard if you are already in a difficult financial situation.
Calculate if you can afford to pay the costs of selling your home as follows:
- Moving expenses.
- Home inspection and costs.
- Realtor fees.
- Fixing all breakages and cosmetic repairs.
In addition, be prepared for unforeseen expenses, which are also worth setting aside 15-20% of the amount of all previous.
Over the years, or because of accidents, the value of your home may drop so much that it no longer covers your debt. In that situation, you might want to consider a short sale – trying to sell your home for the highest possible price, with the condition that the lender will forgive the rest of the debt.
There are two situations in which this option is used:
- First, something has happened to the house that has significantly lowered its price and worsened the lender’s financial condition.
- The borrower can no longer repay the loan and has missed payments for several months in a row, so it is more advantageous for the lender to get at least most of the loan than to get nothing.
In that case, the home sale covers as much of the loan balance as possible. Next, the main problem is that not all lenders will agree to forgive the outstanding balance, so you may be forced to pay it off through wage garnishment.
Deed-in-lieu of foreclosure
Sometimes you can negotiate a voluntary transfer of title to your home to your lender – this is called a deed-in-lieu of foreclosure and is done to avoid foreclosure.
To use this option, you must first get the lender’s permission since not all mortgage companies will agree to this arrangement. However, if you can negotiate this, try a program called “cash-for-keys,” which assists in covering your expenses.
Also, if the price of the house is less than the amount you owe, you can ask the lender to waive the deficiency. The main thing, if he agrees, is to keep the waiver in writing and take his picture and a copy so that you have proof of your agreement.