Why a Short Sale is a Better Option Than a Loan Modification
One of the hardest things that you might experience is losing your home that you have worked so hard for. This is actually a problem that many property owners are experiencing nowadays, what with all the financial problems plaguing the country. The possibility of facing foreclosure or even bankruptcy does not only strip you off your ownership of your home; this also damages your credit score and subjects you to embarrassing situations.
While you might think that foreclosure or bankruptcy is the only way out of the financial pinch that you are in, you actually have better alternatives. The most commonly preferred options by most home owners facing foreclosure on their properties are the short sale process and loan modification. These two alternatives have helped a lot of property owners walk away from their financial hardships with their dignities intact.
If you are facing foreclosure on your home, you might be asking yourself whether to go with a short sale or to choose loan modification. While loan modification may be a viable option, a short sale has several benefits and advantages over the former. If you are still undecided on which alternative to choose, here are some of the differences, the benefits, and the advantages of a short sale VS loan modification.
What a Short Sale is all about
With a short sale, the lender accepts a cash payment on your property that is less than the amount of the remaining balance on your mortgage. For instance, if your mortgage balance is $250,000, the lender may accept a discounted payment of $200,000 from a buyer. If you no longer have the ability to keep making payments on your mortgage and if you do not have the desire to keep living in your current home, a short sale is the better option for you.
The process of short sales usually requires the assistance of a Realtor to help you sell your property. Your Realtor will help you find a buyer and negotiate the transaction with your lender. The lender will then approve and accept the offer made by a potential buyer once you and your short sale agent have reached an agreement. This is why it is very important that you look for a reliable, professional, and experienced Realtor that will assist you throughout the short sale process. Make sure that the short sale Realtor you are going to be in a business deal with is experienced in handling short sales.
Not being able to pay your mortgage may be a result of several things that happened to you. These may be due to a recent divorce, the death of your partner, extended illness, or if you have been jobless for a long period of time. The financial institution responsible for handling your mortgage is more likely to accept a short sale on your property if you have tried your best to make your mortgage payments. The most important benefit of a short sale is that the borrower is typically forgiven of their debt, and is no longer stuck with a loan that is more than the value of their property. After a short sale, a borrower can also typically qualify for a new loan on a property in only two years.
What a Loan Modification is all about
On the other hand, a loan modification is the process of a lender agreeing to change a part or some parts of your loan terms in order to make it easier and more affordable for you to repay your mortgage loan. This option allows you to keep your home by making regular payments. If you are only behind on your mortgage payments because of a single incident or a problem that can easily be resolved, then loan modification is a better choice. However, this also means that your loan terms are extended, which results in a longer period of paying for the loan interest.
The Differences and the Advantages of a Short Sale VS Loan Modification
Before you make a decision on whether to choose a short sale VS loan modification, or vice versa, you need to understand the differences between the two first. Taking a closer look at these differences will help you find out which is the better option that best suits your preference, your needs, and your current financial situation. This will also assist you in making the wisest choice.
- One of the major differences of a short sale VS loan modification is that you no longer have to worry about paying more on the mortgage of your property. Since you are signing away your contract and the ownership of your home, this means that your remaining mortgage balance is already paid for and can be forgiven.
- Another difference and advantage of a short sale VS loan modification is that you do not have to keep paying for the interest rate on your loan. Once your property has been sold through a short sale process, you no longer have to worry about interest rates or other fees. On the other hand, with a loan modification, you are extending the terms of your loan, which means that the longer your payment terms are, the more interest you have to pay for.
- Another advantage of a short sale VS loan modification is that the lenders are giving you the chance to recover from your financial hardships. With a short sale, you can walk away from your debts and not owe your lenders any more money. With a loan modification, you still owe your lenders a significant amount of money that they expect you to return. Aside from the mortgage balance you still owe them, you also have to pay for interest. This is not beneficial to the borrower if they are in a negative equity position. Having a loan that is greater than the value of the property is not beneficial, regardless of the interest rate or terms.
- Few loan modifications offer permanent solutions. The best analogy for this situation is like putting a band aide on a hemorrhage. The loan modification is many times only a temporary solution, and are usually just an attempt to buy more time in the property.
- Since you will be given the chance to get out of the financial pinch that you are in if you put up your property for a short sale, this means that within a couple of years, you will be able to afford purchasing a new home. This new home may even be better than the property you put up for sale. This is one of the advantages of a short sale VS loan modification, since with the latter; the value of your property may further decrease over time.
Now that you have a basic understanding of the differences, the benefits, and the advantages of a short sale VS loan modification, you may now choose which one is the best option for you.
For more information on short sales contact a specialist today!