Short Sale or a Loan Modification - Which to Choose???

One of the hardest things that some people may have to experience is losing the home that they've worked so hard for.  This is actually a problem that many homeowners are experiencing not because they were approved for a home they simply couldn't afford but because of any number of things - a change in employment, medical needs, divorce, or job transfer or termination. The possibility of facing foreclosure or bankruptcy not only strips you of your home ownership, it also damages your credit score, and in some cases can permanently prevent you from obtaining certain government jobs. 

Unfortunately, many people think foreclosure or bankruptcy is the only solution to get out of the situation they're in.  But actually, there are much better alternatives.  The two most preferred alternatives to foreclosure or bankruptcy are the short sale process and loan modification.  These two alternatives have offered many homeowners the ability to walk away from their financial obligations with some dignity.

If you are trying to decide which route to go - a short sale or a loan modification, here is a brief explanation of each:

A Short Sale - The lender accepts less than what is owed on the note from a qualified buyer. In other words, let's say that your mortgage balance is $200,000.  The lender may accept a discounted sales price of $175,000 from a buyer.  In most cases, though not all, the borrower is not held responsible for the difference.  If you cannot continue to make the mortgage payments and you do not desire to continue living in your home, then a short sale is a better option. 

The short sale process is often a lengthy process and requires the assistance of a Realtor® to help you sell your property.  The Realtor® will list the property for sale, find a buyer, and negotiate the transaction with your lender.   Once you and your Realtor® have negotiated an acceptable offer by a potential buyer, the contract offer is then submitted to your lender for approval. 

It is important that you find a reliable, experienced, and professional Realtor® that knows and understands the short sale process.  Your Realtor® should be working closely with the financial institution holding your loan to make sure all the necessary paperwork is filed and documented. 

A short sale will lower your credit score but, it won't trash it.  If you work hard to restore your credit, you should be able to qualify for a home loan in a few years.

A loan modification is the process of the lender agreeing to change a part or some parts of the terms of your loan to make it easier and more affordable for you to repay the loan.  This will allow you to keep your home, making regular payments.  If the reason you're behind on the mortgage is due to a single incident or if it's a problem that can be easily resolved, then a loan modification is a better choice. 

A loan modification will extend the terms of your loan, increasing the period of paying for the loan interest.  In some cases, the loan modification may put the homeowner in a negative equity situation - you may end up with a loan that is greater than the value of the property.  If want to remain in the home and have no need to move elsewhere, this may be a better option for you. 

Hopefully this has shed a little light on the choices you have if you're trying to decide which route to choose. The sooner you take action, the better.   You don't want to face foreclosure.