This seems like a no-brainer, but like so many things in the mortgage industry it can get rather murky.
Most of us have obligations that require some form of monthly payment. A typical scenario involves a car payment that’s due on a certain date, let’s say the first of the month.
Many installment agreements also include a 10 day grace period and a penalty for late payments. A grace period is simply a period of time during which a payment can be made, after the date it’s officially due, without incurring a penalty.
Let’s assume you have a $300 monthly installment payment on a car loan. In accordance with the installment agreement the payment is due by the first, but because there’s a grace period, as long as the payment is made on or before the 10th there’s no late fee. However if the payment is received after the 10th, there’s a $15 late fee added to the $300 payment for a total amount due of $315.
If the payment is made on the 11th and the borrower is assessed the $15 late fee, is the payment late? Yes and no. Under the installment agreement the payment is late because it was not “paid as agreed” (not received on or before the first day of the month).
But for mortgage underwriting purposes the payment is NOT consider late, because in tabulating delinquencies we only count payments that are at least 30 days past due. If the payment is due on the first, it’s not counted as late for mortgage and credit reporting purposes until the 31st day after the due date. Again, a mortgage lender does not count a payment as late unless the borrower fails to make the payment during the 30 day window immediately following the date it’s due. So indeed, the answer is yes and no – the payment is late in one context, yet in another it isn’t.
If you think you may have “late” payments appearing on your credit report because you failed to make the payment on or before the due date, or within the grace period, you may be concerned about an issue that does not exist. Many qualified people don’t apply for a mortgage falsely thinking their credit report is riddled with late payments when in fact it’s not.
If you’re uncertain as to how a financial event in your life will impact your ability to get a home loan, don’t assume, talk to a mortgage professional. You may be pleasantly surprised. And always remember, we’re here to help you, not to judge you. As we always say, “In Life Stuff Happens! And In Military Life Stuff Really Happens!!”
See you at the next Post.