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One of the most common things I hear when a prospective client contacts
us for a mortgage refinance 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 reply "Oh I pay everything on time, I just got
behind this one month on the mortgage".
It breaks my heart to tell them that in many cases, it already is too
late. The reason is simple if you really think about it: If your home
is your biggest investment, your greatest potential asset and your
largest current liability, there is nothing more important than showing
that you are able to make the payment on it every month. If you are in
a cash crunch, you're better off missing or underpaying almost any
other payment, such as a credit card bill, even your utility bill,
instead of missing or even delaying your mortgage payment, because
missing one mortgage payment can cost you tens of thousands of dollars
over the years.
When you miss a mortgage payment, your credit score may not go down
dramatically. But your mortgage credit quality will take a serious
beating, and you'll carry it around for years. When you start out with
a mortgage, regardless of what your FICO credit score is, you are rated
an "A", meaning you make your mortgage payments on time. If you miss a
payment, and even if you're just late enough to qualify as 30 days
late, the lateness is recorded and you will become an "A-" or a "B".
Just one mortgage lateness can keep you out of the refinance market for
up to two years by automatically locking you out of the lowest payment
programs such as Option ARMs or low-rate fixed mortgages, and you can
forget about stated income programs, you will now have to prove where
every penny comes from and you'll need more of them too. If it sounds a
bit like high school, it is, but this time its for keeps. Keep missing
or delaying payments, and you'll quickly see your mortgage quality
decline to a "C" or "D", which could prevent you from refinancing
entirely by eliminating your eligibility from even standard rate
programs. I have seen customers who started out at 6% wind up at 10% or
more solely because they chose making payments on cars or credit cards
over making their mortgage payment on time.
This hurts the most when you refinance or are ready to buy a new house,
because you are usually borrowing more money than you were previously,
either to pay off bills or make home improvements, or because you're
getting a bigger house. So not only are you moving to a higher balance,
but your now derogatory mortgage credit will force you into a high
rate. If you need the cash to pay off bills and improve your credit
urgently, or to purchase a home in a new area because you are
relocating for work, you can wind up in a horrible Catch 22, very often
disqualified for financing entirely, or with financing so unaffordable
that you would rather not.
So what can you do about this? If you do better with automatic
payments, sign up for direct debit payment with your lender, or arrange
for your bank to automatically pay your mortgage every month on a
specific date which far enough ahead of the due dates for your other
bills that you won't be tempted to pay something else. The day after
payday is a great day to do it. And the date should be far enough ahead
of your due date that the bill is paid and posted on time. It might
hurt that first month, but it will even out once you get used to the
new schedule.
And if you are even thinking that you might miss a mortgage payment,
call up a loan officer, and not one who works for your current lender,
and get refinanced today. Not only will this put a little extra cash in
your pocket and help you pay off your other bills, but it will usually
allow you to go a few extra weeks without making another payment out of
pocket. In fact, for qualified borrowers, we even have Zero Payment
& Zero Interest for 90 Day loans which are perfect for people who
are at risk of missing their next payment. Because there are no
payments for up to 90 days, this is a very popular product amongst our
customers. Option ARMs and Fixed-Rate Option ARMs (Hybrids) are also
excellent products for people who are having trouble making ends meet
temporarily, but expect to get back on their feet within a few month
sor a few years, respectively. Loans generally take 15 days to close,
so you really need to think ahead a little bit, which is hard for all
of us. But instead of freezing up, or scrambling around looking for
money, call up an experienced professional and get out of that jam
before you get into trouble. You're better off dealing with the issue
in the present instead of regretting the past. And no matter what, make
sure you satisfy your mortgage payment obligation. Everything else on
your credit report can be repaired, negotiated, but not your mortgage
lates. Don't wind up in a situation like many of my callers are in,
ready to dance but too late to the party, plan ahead and as always,
protect your financial future today! |