If you have a history of being late on your mortgage payment, you might still be able to refinance. However, this will depend on a number of different things, such as how late the payments were, when they occurred, and the type of loan you’re getting.
Lenders will be looking at how many days you were late and how often this occurred. They’ll also review the last time a late payment occurred. If the delinquent payments happened more than 12 months ago, there’s a good chance you’ll still be able to qualify for a rate-and-term refinance or a cash-out refinance.
However, specific requirements will vary for different types of loans. We’ll go through the most common types as well as provide additional tips on what you can do to improve your chance of landing an approval.
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What is considered a late payment?
Late payments that could affect your ability to refinance are those that are reported as 30 days past-due to the credit bureaus. In most cases, this will not occur until a full 30 days have passed from your due date.
Most mortgages have a due date of the 1st of each month, with a grace period up until the 15th during which no late fees will be assessed. Payments received after the 15th could be charged a late fee. However, as long as you make your minimum required payment before the 1st of the following month, you should not be reported as being 30 days late.
Late payment guidelines for common loan programs
The lender you choose and the type of loan you’re applying for will determine whether you can still refinance with late payments. Below are the program requirements for some of the more common types of loans.
Conventional mortgage loan
You will not be eligible for a refinance if, in the past 12 months, you have one or more 60-day late housing payments appearing on your credit. Fannie Mae considers that to be an excessive delinquency, a guideline that many lenders follow under conventional loan guidelines.
This does not apply to timeshare accounts that are reporting as a mortgage.
Jumbo mortgage loan
Qualification requirements vary from lender to lender. However, since jumbo loans are typically more difficult to get, it is not uncommon for lenders to allow no more than two 30-day late mortgage payments within the past 12 months.
Federal Housing Administration (FHA) loan
FHA loans generally allow for no more than two 30-day late mortgage payments in the previous 24 months.
Veterans Administrations (VA) loan
Most lenders will not issue a VA loan if a borrower has more than one 30-day late payment in the past 12 months. However, this can vary depending on your circumstances and the lender you choose.
How late payments can affect your ability to refinance
Late housing payments can affect your ability to refinance in several ways. Not only can it result in your loan application being denied, but it can also result in a lower credit score. Even if you can get approved for a refinance, having bad credit can lead to higher interest rates, additional fees, and a longer loan review process.
Late payments can result in a loan denial
In many cases, having too many late housing payments can result in an automatic denial. This can happen regardless of the strength of the other areas of your application, such as your credit score, debt-to-income ratio, assets, or the amount of equity you have in your home. If you are denied for this reason, you can ask how long you must wait before you can become eligible.
It can impact interest rates and fees
Late payments in your credit history, regardless of whether they occurred on a mortgage, credit card, or other type of loan, negatively impact your credit score and can affect the monthly payment you get on a refinance. This is because borrowers with lower credit scores will not qualify for a lender’s best interest rates. Additional fees can also apply, even if you meet the minimum credit score requirements.
Fannie Mae’s pricing matrix is one example of how borrowers with lower credit scores can get charged additional fees. Although the chart also contains a number of other variables that can impact the loan’s pricing, a low credit score in and of itself can result in additional closing costs between 0.125% and 4% of the loan amount. On a loan amount of $500,000, an additional 4% in fees would equate to $20,000 more in closing costs.
It can take longer to get approved
All things being equal, lenders tend to issue approvals more quickly for borrowers who have excellent credit and a solid payment history. On the other hand, borrowers who have bad credit typically wait longer to get approved. This is because there would be more items to verify and the lender must ensure that any derogatory information meets its lending criteria.
Lenders must review the severity of the late payment, what type of account it occurred on, and how long ago the late payments were made. Other derogatory information that a lender reviews can include public records, collection accounts, and charged-off accounts.
Can I remove late payments from my credit report?
If you are unable to refinance because of your mortgage payment history, it might be possible to remove these late payments from your credit history.
If the late payments are accurate, you can ask the mortgage lender for a goodwill removal. You may need to escalate this request past any frontline manager. It also helps if you have an otherwise solid relationship with the bank, such as having multiple other products or loans with a history of timely payments.
Ultimately, the removal of any late mortgage payment from your credit is up to the bank, but it helps if you can make a case that it was due to extenuating circumstances that aren’t indicative of your typical behavior or ability to make timely payments.
Other options if I don’t qualify for a refinance
Refinancing can lower your monthly mortgage payment, or in the case of a cash-out refinance, allow you to tap your home equity for funds to use for other purposes such as debt consolidation, home improvements, educational expenses, and more.
If you’re not able to refinance but still need funds, here are some alternatives you can consider.
Home equity loan or line of credit (HELOC)
Home equity loans and HELOCs are second mortgages that can be easier to get qualified for. This is because lenders rarely sell these loans on the secondary market, and therefore have a greater ability to dictate their own requirements and issuance of credit policy exceptions.
To get a HELOC, you’ll typically need at least 20% or more equity in your home, although this figure can vary from lender to lender. You can read our article to learn more about the differences between a refinance and a second mortgage.
Home equity investment
A home equity investment is an alternate way to pull equity from your home. In exchange for funding, you agree to give an investor a percentage of your home’s increase in value after a certain period of time.
These loans have lower credit score requirements and can be easier to get approved.
Personal loans can include credit cards, lines of credit, and a closed-end term loan that gives you a lump sum of funds. These types of loans can have more flexible requirements and tend to place less emphasis on the timing or severity of late mortgage payments.
What can you do if you will be late on a payment?
If you know that you’ll be late on a mortgage payment, it can be beneficial to notify your lender. Although rare, some lenders may be willing to work out an alternative payment plan with you.
If this happens, you may be able to sign a loan modification agreement, a document that stipulates the new terms of your loan moving forward. You may also have options for deferring payments under a hardship plan.
These options will vary greatly on a case-by-case basis, but notifying the lender can sometimes prevent late payments from being reported to your credit. Lenders may also be willing to waive or reduce late fees.
Refinance with Late Mortgage Payments
If your credit shows a late mortgage payment, it could still be possible for you to do a mortgage refinance. This will depend on a variety of factors, such as the lender you choose, your loan program, and the frequency and severity of the late payments. If you’re told you don’t qualify, you can check with other lenders or consider alternative financing options.