Millennials have grown into America's largest group of homebuyers. But many of these 20- and 30-somethings are having trouble with their mortgage payments.
Among homeowners age 34 and under, 40% say they've been late on a mortgage payment, according to FINRA Investor Education Foundation's 2018 National Financial Capability Study. Meanwhile, just 7% of homeowners age 55 and older report being late.
"A late credit card payment can be explained to a bank," says Melissa Cohn, executive vice president of Family First Funding, a mortgage brokerage based in New Jersey. But "if you made a late mortgage payment over the past 12 months and want to get more credit, it would be very difficult to get any."
A late mortgage payment can mean a big hit to your credit score, and to your ability to borrow more money at a reasonable interest rate. Over time, a habit of missed payments could lead to more serious consequences, too: It could, for example, put you at risk of foreclosure.
Here's how to set yourself up to stay on track.
The best time to take steps to avoid missing mortgage payments is before you even purchase your home. Make sure the mortgage you're signing up for is reasonable, given your situation.
A bank's assessment of what a homebuyer can afford to borrow can be overly optimistic. It may not factor in expenses like child care, home repairs, or lifestyle, says Jeff Levin, president of Specialty Lending Group, a boutique private lending firm. The result: a monthly payment that strains your monthly budget.
Buyers "need to take real life expenses into consideration and not just what the bank says they can afford," he says.
Experts say there are several strategies you could use to make sure your payment is right for you. You can buy a more affordable home or delay your purchase to save a bigger down payment. That extra time lets you increase your savings or even potentially grow your income.
Often surprise events like a job loss or medical diagnosis are what put homeowners in a situation where they miss, or are late on, payments. Indeed, around 40% of Americans would struggle to cover an unexpected $400 expense, according to the Federal Reserve.
That's why having savings earmarked for emergencies is so important.
"They need to have six months of mortgage payments saved in the bank for a rainy day," Levin says. You can slowly build this rainy day fund by automating a set amount to be diverted into your savings account every pay period, for example.
If disaster strikes and it looks like you're going to be late with your mortgage payment or miss it entirely, don't hide from reality hoping it will go away. Be proactive and contact your lender to let them know what's going on. Sometimes lenders will be understanding and work out a payment plan with you.
"If people have a death in the family or lost a job, banks have shown a willingness to work with borrowers in temporary situations," Levin says. "Most mortgage companies will make arrangements if people are a month behind."
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