It is a fact universally acknowledged that housing has multiple problems and the solutions always remain elusive. Taking out a mortgage loan to purchase a house is perhaps the biggest responsibility on your shoulders as your home will be pledged as collateral to the loan. When it comes to repaying the mortgage loan in easy and affordable monthly payments, there are some who fail to do it on time and this gives rise to various financial and legal issues. The thumb rule that the lenders follow while lending a mortgage loan is to foreclose your house and sell it off in the event of a mortgage default. But who wishes to let go of his fond house? Loan modification, refinance, short sale can be a way to eliminate your mortgage responsibilities and get back on the payments. If you’re wondering how to do a mortgage loan modification, you need not worry as the entire process involves negotiating with the mortgage lender.
Which option should you choose- Loan modification or short sale?
When you’re not in sync with your monthly mortgage payments, your thoughts might be wondering among a loan modification and a short sale. But which option you would choose depends on your current financial situation, your desire to keep your home with you and the willingness of the bank to let you take resort to the options. The situation gets even more complicated when the bank doesn’t accept the present value of your home. When you actually want to stay in your home, loan modification is certainly a better option than short sale.
Trying to modify your home loan – The factors to consider
When a mortgage owner defaults on the monthly payments, his main aim is to reduce the monthly installments and make them affordable. This can be obtained by lowering the interest rate on the mortgage loan, extend the term of the loan, reduce the principal balance or by adding the unpaid interest to the principal of the loan. You should ensure the fact that most loan modifications aren’t approved and homeowners take this decision just to delay the foreclosure. There are HAMP which are private modifications that the banks offer and some other lenders demand at least 3 payments in order to show good faith and then deny them for a permanent loan modification. You should also stay cautious about the lenders who report decreased payments to the bureaus which result in a dropped score.
When you might prefer a short sale over a loan modification
Homeowners who rather prefer to get out of the underwater situation may opt for short sale in lieu of a loan modification. In a short sale, the bank will accept reduced payments and release the loan. If the worth of your home is dramatically lower than what you owe on the loan, short sale would make a better sense. Here are some factors to consider.
- 2 years to 3 years after you complete a short sale, you can again become a good homebuyer who may get a mortgage loan or any kind of new credit at an affordable rate.
- Both loan modification and short sale will affect your credit score but any solution will certainly be better than a foreclosure.
- Most short sale listings involve the sellers who were denied by loan modification.
Therefore, when you’re wondering about whether to opt for loan modification or short sale, you should consider the above mentioned options. Take the best decision so as to get rid of your secured debt and secure a debt free future.