Since the Covid economic downturn, a frequently asked question is, “Do you think I should I sell my house before I get behind on my mortgage payments?”
In many cases, Yes. Absolutely!
How does selling before I have a late payment affect my credit?
When you are current with your mortgage payments, you’re in the best possible position regarding both your equity and your credit rating. Even if you have no equity and need to sell as a short sale, avoiding foreclosure will be better for your financial future.
While most mortgage payments are due on the first of the month, banks do offer a grace period. If you pay within that period – usually 10 to 15 days – there will be no late charge and no harm to your credit.
Getting behind on your mortgage payment triggers two events:
- First is the “late payment” or “missed payment” blot on your credit report.
- Second is the financial cost. Late fees will be added each month in an amount equal to 3 to 6 percent of your monthly payment. Unpaid interest will also accrue.
Missing one payment makes every subsequent payment “late.”
Late payments remain on your credit report for 7 years. Your credit report will continue to decline with each late or missed payment – 30 days to 60 days to 90 days and so on. Unless you catch up with all the late payments and fees, these late notations will continue to snowball.
Interestingly, the higher your credit scores are when you pay late or miss a payment, the more your score will drop as a result.
When is the best time to sell if I can’t make my payment?
As soon as you know you’ll miss the next payment is the time to either sell your house before you get behind on payments or call your lender to arrange for forbearance – or both. The fastest way to sell your property and get out from under your mortgage is by selling for cash.
Like with anything, what exactly you do is a personal decision and no one can make it for you. These are some facts and options but ultimately all decisions are up to you… as long as you haven’t fallen behind on your payments yet.
What are the benefits of selling before my payments are late?
If you can’t make your next mortgage payment and need to sell your house quickly, the fastest and easiest method is to sell it for cash.
Selling quickly for cash may net a lower selling price than listing it the traditional way, but there are some significant trade-offs:
- Your credit report won’t get hit by late payment marks
- Cash sales can be completed in a matter of days rather than weeks
- Cash buyers take your home ‘as-is’ so no cleaning or repairing
- Inspection problems aren’t an issue for cash buyers
- Appraisals aren’t necessary when selling for cash
- No agent fees to pay
If you prefer to wait and list the house in hopes of receiving more for your equity, then contact your lender to ask for forbearance before you miss a payment.
If you’re in forbearance, the decision to sell or not sell is still yours. Getting their money back is the bank’s only concern.
Are there other options besides selling my home before I get behind on my payments?
While you could attempt a mortgage loan modification at that point, either a cash sale or forbearance are much faster and more likely to save your credit rating.
Sometimes a personal loan from a family member or friend is an option depending on your circumstances.
If you can’t decide whether to try and sell your home quickly before your upcoming payment is due, call us. We’ll be happy to discuss the situation with you and show you a few other options that may be available. And of course, you can talk to us with no obligation.