When new homeowners sign their closing papers, included in that thick stack of documents that seem to take forever to get through is one that lays out a mortgage payment schedule. Those who follow that schedule will have no problem, and those who find they can't do have options--as long as they're proactive and communicate adequately with their lenders, according to housing counseling agencies affiliated with the Chicago Community Land Trust.
"It's important because you have essentially signed a note that stating that you will pay 'X' amount of dollars by this certain date," says Peter Nelson, housing counselor at Northside Community Development Corp. That note "specifies that if you pay after a certain date, they have a right to charge you a percentage of the mortgage payment as a late charge."
Paying your mortgage in a timely manner helps establish strong credit, which is helpful both in applying for other types of loans but also specifically to your current housing lender, says Ofelia Navarro, head of home counseling at Partners in Community Building (and board secretary for CCLT). "That's important because if some day you want to refinance or participate in a special program they have, [regular payments] are the kinds of things they're going to be looking at," she says.
Making additional payments to principal--for example, some homeowners try to squeeze in a 13th full payment every year--can reduce the time of your loan a surprising amount, as much as five or even 10 years, Navarro says.
Deducting your mortgage as an automatic payment from your bank account ensures you don't forget, and adding an extra payment beyond the required amount helps to pay down your mortgage faster, Nelson agrees, but that doesn't help if you're running short of funds. In that case--if you lost your job, or face reduced income, or a health crisis--he urges homeowners to contact their lenders to try to work something out.
"If you go a couple months without communication, they might assume you're unable to keep up with your mortgage and issue foreclosure papers," he says. But if you do contact them, "They might do reduced payments for a couple of months and make up the difference later."
Once a homeowner misses three consecutive payments, Navarro says, "Your lender can and will file for foreclosure, and once that happens, they can demand you make the full payment, all of your arrears and your late fees, before they stop the foreclosure process."
Those facing financial stress should consult with local nonprofit housing organizations like Northside who handle foreclosure mitigation services, to gain information and potentially help in applying for a loan modification, Nelson says. Homeowners can pay a slightly lower amount each month in exchange for extending the term of the note, he says. "That's good for folks who have experienced reduction of income."
Navarro agrees that HUD-certified counseling agencies can be very helpful in guiding distressed homeowners through the process of contacting their lender and finding the right department that can tell them what programs might be available to mitigate their situation. "They may not only be at risk for their mortgage but also with their utilities and other payments," she says. "Housing counseling agencies can look at their situation as a whole, and not just their mortgage situation."
Short term, the lender might have "homeless prevention funds" to bridge temporary shortfalls, while longer-term lenders might be willing to suspend payments for as long as six months due to persistent unemployment, Navarro says, "until they're able to get back on their feet and find a job." If the homeowner ultimately is not able to stay in the home, good communication can lead to "non-retention solutions" such as short sale, "to help them have the least amount of impact on not only their credit but their life," she says.
Communication remains key even if foreclosure proceeds, Nelson says. The state of Illinois is reasonably forgiving in providing "lots of time to work on things, as long as you show up to court dates and file responses," he says. "Not only does that bode well for them in the courts but it also can extend that foreclosure timeline."
