A Guide To The Different Benefits Of A Loan Modification Versus A Short Sale
Are you having problems paying your mortgage bills each month? Perhaps you recently lost your job, and your monthly income has plummeted, or maybe you are receiving treatment for an illness or facing a costly divorce. Regardless of the reasons behind your financial challenges, several solutions can help to manage the problem.
To help deal with the no-longer affordable monthly mortgage payments, it may be beneficial to take specific considerations into account. You have the option of giving up your home and attempting a short sale and receiving cash immediately. However, if you would rather keep the house, it is possible to apply for mortgage loan modifications to lower the monthly payment amounts to a more affordable amount. Each of these options has benefits, but they also have challenges that need to be examined. This article will discuss the different benefits of a loan modification versus a short sale.
1. The Loan Modification
As a means of addressing foreclosure crisis across the United States, the federal government offered a Home Affordable Modification Program, also known as HAMP. According to HAMP, homeowners who are having difficulty meeting their mortgage payments can petition the mortgage lenders for relief in the form of smaller monthly mortgage bills.
Lenders can also reduce the homeowner’s payment amounts in different ways including the reduction of interest rates, reworking the terms of the property loan, and forgiving a portion of the homeowner’s principal balances. Certain lenders may even provide the homeowner with a break from the mortgage payments offering the struggling individual with the opportunity to regain control of finances and mortgage payments.
The primary benefit of the loan modification is that the homeowner will not lose their house and their financial credit rating will not suffer. In fact, it will continue to operate and present the homeowner with a good rating unlike ceasing making mortgage payments.
Unfortunately, there are certain disadvantages to HAMP, and these must also be taken into account before opting for the loan modification. According to the HAMP guidelines, for an individual to qualify, they must have obtained the mortgage loan before or on the 1st of January, 2009. Furthermore, the person must not owe more than $725,000 on their primary residence.
It is also necessary for the person to be employed for HAMP to apply. This is a significant challenge as many homeowners trying to modify loans will have lost their jobs. This means that if you do meet the eligibility requirements, there is no guarantee that the lenders will offer you the loan modification option.
For individuals who cannot qualify for a mortgage loan qualification, short sales may be the best option. By utilizing a short sale, it is possible for the seller to accept a lower bid for the property in the hope that it will increase the chance of selling the home quickly. In the majority of cases, a lender will take a loss on short sales; however, some lenders agree to this option as a means of avoiding the hassle of foreclosure.