Loan Modification Or Short Sale? What is Best For You?

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When a homeowner is faced with an unaffordable mortgage cost two essential choices exist for the homeowner in today's shop (apart from foreclosure):

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How is Loan Modification Or Short Sale? What is Best For You?

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Option 1: Loan Modification
Option 2: Short Sale

Which is best for you?

Is a loan modification for you?

A loan modification is best for homeowners that have a temporary financial hardship or have an adjustable rate loan, seeing themselves unable to make the loan payments under current terms of the loan. A loan modification focuses on changing the interest rate or length of the terms of the loan (extending it up to 40 years) to make the current loan more affordable.

Reduction in the whole that is owed rarely occurs. So if you are upside down in your mortgage - you will remain so. In high foreclosure states such as California, Nevada, and Florida which have experienced a essential price drop, homeowners may find themselves with negative equity that may take years to recover. A loan modification will not solve this problem, and may be forced to do a short sale anyways if they need to sell in the future. There are some essential drawbacks as well to loan modifications, so select determined before you pursue this approach.

Loan Modifications:

1. 53% of all loan modifications fail after 6 months
2. Strict qualifications may not make you eligible
3. Most loan modification fellowships charge money and offer no guarantees
4. You will remain upside down on your mortgage if you currently have no equity
5. Interest rates are fixed for only 5 years - branch to hereafter inflationary rates
6. 33% of all loan modifications succeed in Higher payments
7. May or may not succeed in reduced interest rate and loan terms

Is a short sale for you?

The sale of a home using a short payoff is most suitable if the home is truly doesn't make sense to keep, with either unaffordable payments, or essential negative equity. A home bought in San Diego, California in 2005 for 0,000 is only worth 0,000 today. Job loss, allowance of income, illness, divorce, or just a bad loan, are all valid reasons that homeowners are selling today. When the house is worth less than the mortgage balance, the sale of the home will not pay off the existing debt. One of two scenarios must happen: 1) The homeowner comes out of pocket to pay the shortfall whole for the existing debt to be fulfilled/extinguished or 2) The existing mortgage possessor (bank) agrees to take a loss on their debt to allow the home to be sold (granting a "short payoff").

With the high negative equity situations, banks are electing to grant the short sale to sell the house. The banks are not required to do this - their other choice when homeowners have stopped paying them, is to foreclose. Ultimately if the financial numbers work, it is cheaper for a bank to short sale rather than foreclose.

Why a Short Sale?

1. Enables the sale of the house without money advent out of pocket for closing
2. Allows for financial salvage during the short sale process
3. Releases you from your negative equity (upside down) position
4. Capitalizes on the bank's current motivation to grant a short sale
5. May forgive taxes owed from the short sale
6. Provides quicker credit recovery
7. May allow you to buy an additional one home - at today's business agreement prices!

Closing Short Sales can be tricky - banks don't make it easy. Most successful short sale are done using a team of real estate experts, but most importantly, a expert bank negotiator should be on the team. Nine out of ten unsuccessful short sales (ending in foreclosure) commonly are real estate agents trying to negotiate their own deals.

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