Mortgage delinquencies are rising at an alarming rate, especially with first-time home buyers, military members, and veterans.
If you’re going through a financial crisis, you might be considering the idea of simply stopping payment on your mortgage. It is an option that some homeowners consider in difficult times, but it is a bad decision all around.
The reason: It will affect your credit for years to come and is likely to result in the loss of your home.
So don’t adopt the tactic of pooh-poohing your payment and hoping for the best. There’s a better way to go about it.
Not all homebuyers could afford their mortgage in 2024
The number of serious mortgage delinquencies—which refer to loans that are more than 90 days past due but are not in active foreclosure—rose to the highest level in nearly two years in 2024, according to a monthly report by Intercontinental Exchange.
Overall, about 2.2 million mortgages were either delinquent or in active foreclosure as of the end of 2024.
In particular, first-time homebuyers, military members, and veterans were among those who skipped payments most frequently. In their research, they examined the rise in basis points, which is a one-hundredth of a percentage point.
For example, the report took a look at Federal Housing Administration loans, which are typically used by first-time homebuyers. Delinquencies on FHA loans rose 74 basis points last year, while also being 2.5 percentage points higher than where they were before the COVID-19 pandemic.
Meanwhile, delinquencies on Veterans Affairs loans, which are made available to military service members or veterans, rose 80 basis points in 2024.
The FHA and VA delinquencies are “likely to serve as canaries in the coal mine for mortgage performance in this cycle,” the company noted in the report. It will likely be a “growing conversation in 2025.”
So, what happens to these folks if they can’t make their mortgage payments?
What happens if I don’t pay my mortgage?
If you don’t pay your mortgage, it will set you on the path to foreclosure, which means losing your house.
A mortgage is a legal agreement in which you agree to pay a certain amount to a lender for a certain number of years. Failing to pay violates that agreement.
Consequences of missing payments
Mortgage payments are due on the first of each month and are considered late after the 15th of the month. That’s when late fees, penalties, and correspondence from the loan servicer begin.
“First off, you’ll get a letter in the mail from your servicer, which says you owe X amount and it must be paid by this date,” says Mary Bell Carlson, an accredited financial counselor known as Chief Financial Mom. The letters will outline any penalties and late fees and will often include an offer of help.
“The bank is not in the business of owning homes—that’s not what they want to do,” she says. “They’re not looking to take over your house.”
She adds that lenders want to work out solutions to keep you in your house and avoid lengthy foreclosure proceedings.
Meanwhile, be wary if you receive a call or an email from someone saying they’re your lender and you haven’t paid. It’s probably a scam, says Carlson. Your lender will send notifications through the postal service.
Will not paying my mortgage damage my credit score?
After 30 days of nonpayment, your loan will default. The mortgage servicer will probably file a notice of default with your local government and report the nonpayment to the credit bureaus, which will negatively affect your credit score.
“The credit is the first thing that gets hit. Your credit will take a nosedive if you stop paying your mortgage,” Carlson says.
“If you just close your eyes and stop paying, your credit is going to dissipate, and it takes years for those things to fall off.”
A low credit score may affect your future ability to get a mortgage or to rent.
“No one is going to want to rent to somebody who has just declared bankruptcy or has been foreclosed on, because that’s going to be a huge red flag,” Carlson warns.
As you continue to miss payments, penalties, interest, and correspondence from lenders will accumulate. Eventually, you’ll get a notification that the foreclosure process is underway.
How long will it be before foreclosure?
The foreclosure process differs in each state, so the process and its length might vary. Carlson says the process often begins in earnest after about six months of nonpayment.
She adds that lenders will work on solutions to avoid foreclosure from the time of the first missed payment to about six months later. But if they don’t hear from you by then, be prepared to lose your home.
“At the six-month point, they say, ‘OK, all options are off the table at this point. You’re unwilling to work with us, we’re going to start foreclosure,’” says Carlson.
When this happens, the entire loan becomes due and repayment plans are no longer an option.
The time frame varies by state, but sometimes as quickly as six months after the first missed payment, a lender can list the home for sale or hold an auction. A homeowner will have to vacate.
What do I do if I’m struggling to pay my mortgage?
If you’re having difficulty making mortgage payments, there are options. Some will help keep you in your house, while others will protect some of your credit. But don’t bury your head in the sand and simply stop paying.
“Communicating with your lender is the key,” Carlson advises. “So if you cannot pay, the communication methods need to—and must be—open to communicate that to your lender and discuss the options you have.”
Here are a few of the common options if you want to stay in your home:
- Forbearance: A lender allows a borrower to pause payments for a period of temporary hardship, sometimes waiving late fees or penalties. Interest will often still accrue. At the end of the forbearance period, the missed payments become due. Forbearance is a good option if the financial situation is a short-term setback.
- Loan modification: Changing the terms of the loan and payments is possible. Often, this involves a divorce, job change, or an unexpected increase in expenses. Loan modifications are a tactic to deploy if you want to stay in your home but can no longer afford the current payments.
- Repayment plan: If you are a few payments behind and think you can catch up, one option might be a repayment plan, allowing you to make a lesser payment temporarily, until your finances are back on track.
Some alternatives if you don’t want to stay in your home and would rather walk away:
- Deed-in-lieu: In exchange for partial or total debt forgiveness, you voluntarily give ownership of the home back to the lender. This is usually when foreclosure is imminent, and you can no longer afford the payments and do not want to sell the property yourself.
- Short sale: If you want to sell the home yourself and owe more than it is worth, you could ask your lender for a short sale. The property usually sells for less than the balance of the mortgage.
These options might hurt your credit, but not as badly as a foreclosure.
Dina Sartore-Bodo contributed to this report.
