When someone wants to refinance their mortgage, one of the most common things they say is, "I just missed a mortgage payment, and I want to refinance before it's too late." When I ask them about their credit, most of them say, "Oh, I pay everything on time. I'm just behind on my mortgage this one month."
It breaks my heart to tell them that in many cases, it's already too late. When you think about it, the reason is simple: if your home is your biggest investment, your biggest possible asset, and your biggest debt right now, there is nothing more important than showing that you can pay the monthly payment on it. If you're short on cash, it's better to miss or underpay almost any other bill, like a credit card bill or even a utility bill, than to miss or delay your mortgage payment, which can cost you tens of thousands of dollars over time if you don't make it.
If you don't pay your mortgage on time, your credit score might not drop by a lot. But your mortgage credit score will take a big hit, and you'll have to deal with it for a long time. No matter what your FICO credit score is when you first get a mortgage, you get a "A," which means you pay your mortgage on time. If you don't make a payment on time, even if it's just enough days late to count as 30 days late, it will be noted and you'll get a "A-" or a "B." Just one mortgage payment late can keep you out of the refinance market for up to two years by locking you out of the lowest payment programmes like Option ARMs or low-rate fixed mortgages. You can also forget about stated income programmes, since you'll now have to prove where every penny comes from and you'll need more proof than before. It's kind of like high school, but this time it's for good. If you keep missing or delaying payments, your mortgage quality will quickly drop to a "C" or "D," which could make it impossible for you to refinance because you won't be eligible for even standard rate programmes. I've seen people who started at 6 percent go up to 10 percent or more because they chose to pay for cars or credit cards instead of their mortgage on time.
This hurts the most when you want to refinance or buy a new house because you usually have to borrow more money than you did before to pay off bills, make home improvements, or get a bigger house. So not only are you moving to a higher balance, but your mortgage credit has gotten worse, which means you will have to pay a high rate. If you need the money quickly to pay off bills and improve your credit score or to buy a home in a new area because you're moving for work, you can get stuck in a terrible Catch-22 situation where you can't get financing or can't afford it enough to not want it.
So, what are you going to do about it? If you do better with automatic payments, sign up for direct debit payment with your lender or have your bank pay your mortgage every month on a certain date that is far enough ahead of when your other bills are due that you won't be tempted to pay something else. It's a good idea to do it the day after you get paid. And the date should be far enough ahead of your due date to make sure the bill is paid and posted on time. It might hurt for the first month, but once you get used to the new schedule, things will get better.
And if you even think you might miss a mortgage payment, call a loan officer, but not one who works for your current lender, and get refinanced right away. This will not only give you a little extra money and help you pay off your other bills, but it will also usually give you a few extra weeks before you have to pay again. In fact, we have loans with no payment and no interest for 90 days for people who qualify. These loans are great for people who might not be able to make their next payment. Our customers love this product because they don't have to pay for it for up to 90 days. Option ARMs and Fixed-Rate Option ARMs (Hybrids) are also great products for people who are temporarily having trouble making ends meet but expect to be back on their feet in a few months or a few years. Loans usually take 15 days to close, so you need to plan ahead, which is hard for all of us to do. But instead of freezing up or rushing around looking for money, you should call a professional and get out of that situation before it gets worse. You should deal with the problem now instead of thinking about how bad it was in the past. And make sure you pay your mortgage every month, no matter what. Your mortgage lates can't be fixed or negotiated, but everything else on your credit report can be. Don't end up like many of my callers, who are ready to dance but too late to the party. Instead, plan ahead and always protect your financial future today.
