Walking away from your mortgage (strategic default) leads to foreclosure, severely damaging your credit for years, potentially resulting in a deficiency judgment where the lender sues you for the shortfall, and may trigger taxable income from forgiven debt, making it hard to get new credit or housing. The lender can take legal action to seize and sell the home, and then pursue you for the remaining debt, fees, and costs.
A short sale will cause less damage to your credit score than a foreclosure. You may also qualify for a new Fannie Mae mortgage in as little as two years after the sale, versus up to seven years if you go through foreclosure. In some cases, you could receive relocation assistance.
Mortgage forbearance is a temporary pause or reduction in your monthly mortgage payment. These are typically short-term arrangements of 3 – 6 months. Your servicer may require you to show proof of financial hardship to qualify you for this option.
Three of the most common methods of walking away from a mortgage are a short sale, a voluntary foreclosure, and an involuntary foreclosure. A short sale occurs when the borrower sells a property for less than the amount due on the mortgage.
You will need to arrange this with your lender, who may allow for a period of up to 12 months. Some lenders may also allow for a reduced repayment instead of a full suspension, or a combination of both over the agreed period of time.
If you have trouble paying your mortgage, immediately contact your lender to discuss options like forbearance or repayment plans, seek help from a HUD-approved housing counselor for free guidance, and explore solutions such as loan modification, selling, or a short sale if staying isn't feasible, while carefully avoiding foreclosure scams. The earlier you act, the more options you'll have to avoid foreclosure and protect your credit.
The QPRI exclusion was first introduced in the Mortgage Forgiveness Debt Relief Act of 2007, and I.R.C. § 108(a)(1)(E) was added to the Internal Revenue Code. The exclusion was initially set to expire on January 1, 2021, but it has been extended many times, finally expiring on January 1, 2026.
A mortgage hardship is a significant, unexpected financial challenge, like job loss, disability, divorce, or major medical bills, that makes it difficult for a homeowner to make their monthly mortgage payments, prompting them to seek temporary relief options like forbearance or modification from their lender to avoid foreclosure.
If you lose your job, call your lender right away
You should contact your mortgage servicer as soon as you anticipate financial hardship, says Hala Garmo, regional mortgage manager for U.S. Bank. They can help you come up with a plan — after all, they have a financial incentive to keep you paying your mortgage.
To qualify for mortgage forgiveness, you generally need to prove significant financial hardship (like job loss or reduced income), have your mortgage on a primary residence, and apply through your lender for options like loan modification, short sale, deed-in-lieu, or specific government programs (e.g., HAF), providing extensive financial documents to show your situation, though lenders rarely forgive debt outright, preferring other relief.
The 3-7-3 Rule in mortgages isn't a loan type but a federal timeline from the TILA-RESPA Integrated Disclosure (TRID) rule, ensuring borrower protection by mandating disclosures within 3 business days of application, a 7-business-day wait between the initial Loan Estimate and closing, and another 3-day wait if significant changes (like APR) occur, giving borrowers time to review costs before committing to a loan.
The 2-2-2 credit rule is a guideline for building strong credit, suggesting you should have two active credit accounts (like cards or loans) for at least two years, with consistent on-time payments for those two years, often with a minimum credit limit of $2,000 per account, to demonstrate financial responsibility to lenders, especially for mortgages. It's a benchmark to show you can handle credit well over time, reducing lender risk and improving approval odds for major loans.
If you can't catch up on your past due payments or work out another solution, the servicer or lender can begin a legal action (foreclosure) that could end up with them selling your home. This process can also add hundreds or thousands of dollars in additional costs to your loan.
If you are unable to make your mortgage payment:
Yes, you can often pause mortgage payments through a process called forbearance or a repayment holiday, where your lender temporarily suspends or reduces payments due to financial hardship, but you must repay the missed amounts later through a lump sum, repayment plan, or deferral, so always contact your mortgage servicer immediately to discuss options like those from FHA, Fannie Mae, or your specific lender for assistance.
Pros and Cons of a 30-Year Fixed-Rate Mortgage. A longer repayment period qualifies buyers for lower payments or a pricier home. But the rate will be higher and you'll pay more interest over the life of the loan.
However, most lenders still require your score to be at least 600 for an insured mortgage, even with a co-signer. How long does it take to raise my score enough to buy a home? Raising your credit score enough to buy a home (typically up to at least 600–680) can take anywhere from about 3 to 12 months.