Short Sale Vs Loan Modification

Dave Peeples asked:

Should I do a Short Sale or a Loan Modification?

This very question is on the mind of millions of American’s as we speak. Short Sales and Loan Modifications are two terms that were mostly unheard of before. Now, they are everyday words. As credit tightens, housing slumps, and jobs disappear, more and more people will be forced to find alternative solutions to a mortgage that is not affordable. This article will serve as a means to provide information that may be useful in determining what the next step to financial improvement shall be.

Distressed home-owners should picture life without the burden of a mortgage debt that is all-consuming and overwhelming. Visualizing a life where there is no fear of answering the phone or checking the mail-box is a critical piece in preparing to regain control of their financial life. It will take perseverance and persistence to solve a deep and complex problem. The only way to get started is to be able to see the carrot at the end of the stick….financial relief!

Having said that, there are three different solutions to home-owners who may be behind on their mortgage:

Get the loan current and keep it current (Loan Modification) Short Sale Foreclosure

For the sake of this article, we are going to throw away the foreclosure option as it is never the best answer. That leaves us with Short Sales and Loan Modifications. A loan modification occurs when a lender agrees to change one or more parts of the loan terms in order to make the loan more affordable to the borrower (while still being able to repay the lender). The loan modification is best suited for borrowers who are behind on their mortgage but have a definitive plan for repaying their debts. Generally speaking, loan modification candidates have had a specific incident or occurrence that has caused them to be behind and is curable. The curability of the problem is significant. Without it, the lender will be unlikely to agree to new terms.

On the other hand. Short Sales are more appropriate for borrowers that are mostly hopeless for being able to afford their mortgage. This may happen due to a long term job less, extended illness, divorce, or even death of a partner. A bank is more likely to agree to a short sale if the borrower has made every effort to repay the debt and to sell the property. The lender wants to see an effort for the property to be sold for the most amount of money possible. Lenders like to see the property listed with a reputable Real Estate Company so that they know the seller has done everything possible to cure the problem.

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