Loan Modification vs. Short Sale

Faced with job loss, unforeseen debts such as medical bills, or another of the financial curveballs that life can throw at you, you may suddenly find your mortgage payments an unbearable burden. Particularly in today’s housing market, where many homes are worth less than the mortgages their owners have taken on, making payments after a financial hit can be too much to bear. There are options for those who are at a crossroads, and the important thing is to stay calm and consider these options.

Loan Modification Programs

Loan modification is a commonly considered option for the troubled homeowner, because it has the benefits of allowing them to continue making payments at a potentially reduced rate, and even in some cases can decrease the principal amount of the loan – a great boon for those whose mortgages are underwater, who are paying more than the home is currently worth. Loan modification statistics are sobering, however; less than ten percent of modifications result in lowered principals, and nearly fifty percent of modified loans are delinquent just one year later.

Short Sale Options

A short sale may be the best option for homeowners whose home has lost a significant amount of value; lenders who are hesitant to agree to restructured terms may accept the reduced payoff amount from a short sale in order to clear out the delinquent loan. In many cases it is a win-win; the lender getting value from a loan they might otherwise have trouble getting payment on, and the borrower being clear of their mortgage debt burden. If you are faced with a mortgage you can no longer afford, talk with your lender about possible options.