If you can't make your mortgage payments, your lender can foreclose on your home. Foreclosure is a process that can begin immediately and will result in your losing your home. Most lenders, however, will allow you to miss a couple of payments before starting foreclosure proceedings. If you're at risk of missing a mortgage payment, contact your lender immediately.
While the process of foreclosure can take several months, be aware that the process itself will be a costly one for you if you intend to keep your house. Lenders may charge late fees of 5% or more for every payment missed plus you'll wind up paying additional fees for your lender to recover associated legal fees.
Lenders typically will work with you through the hard times if you are upfront with them about your unfortunate circumstances. See if your lender will lower your payments or allow you to skip a payment for a few months until your financial crunch improves.
You may be faced with selling your house as a means to avoid foreclosure. By doing so, you'll keep the equity you have built up in the house while also protecting your credit score (see related link).
So what to do if you're faced with foreclosure? After you've missed making your mortgage payments, your lender will file a "notice of default" with the local courthouse. Then you'll receive a letter telling you that the foreclosure process will begin unless you make the payments missed. The notice of default is typically picked up by the credit bureaus so your credit score will be impacted. It also may trigger con artists to contact you with the latest foreclosure "rescue" scams. Be aware!
From the filing of the "notice of default", you typically have about 90 days to make the missing payments or risk having the lender take the next step: a "notice of sale". This notice sets forth a date for the sale of the house, usually within the next 30 days.
If you make up the missing payments plus any additional charges for late fees and legal fees, you'll have avoided foreclosure and you may be able to keep your original mortgage loan. Some lenders insist that you refinance with another lender.
But if the worst case scenario happens and the foreclosure occurs, it doesn't mean a permanent scar on your financial picture. Within a few years, you may be able to get another mortgage at a good rate, if you re-establish your creditworthiness by consistently paying bills on time and watching your debt.