Should I do a Short Sale or a Loan Modification?
This very question is on the mind of millions of American’s as we speak. Short Sales and Loan Modifications are two terms that were previously unheard of for most, yet they are now everyday words. As credit tightens, housing slumps, and jobs disappear, more and more people will be forced to find alternative solutions to mortgages which are no longer affordable. This article will serve as a means to provide information that may be useful in determining what the next step to financial improvement shall be.
Distressed home-owners should picture life without the burden of a mortgage debt that is all-consuming and overwhelming. Visualizing a life where there is no fear of answering the phone or checking the mail-box is a critical step in preparing to regain control of their financial life.
Having said that, there are three solutions for homeowners who may be behind on their mortgage:
- Get the loan current and keep it current (Loan Modification)
- Short Sale
For the sake of this article, we are going to throw away the foreclosure option as it is never the best answer. That leaves us with Short Sales and Loan Modifications. A loan modification occurs when a lender agrees to change one or more parts of the loan terms in order to make the loan more affordable to the borrower (while still being able to repay the lender). The loan modification is best suited for borrowers who are behind on their mortgage but have a definitive plan for repaying their debts. Generally speaking, loan modification candidates have had a specific incident or occurrence that has caused them to fall behind and is curable. The curability of the problem is significant. Without it, the lender will be unlikely to agree to new terms.
On the other hand. Short Sales are more appropriate for borrowers that have little hope of being able to afford their mortgage, and those who have no desire to keep their homes. For homeowners experiencing hardship, this may happen due to a long term job loss, extended illness, payment increase or mortgage adjustment, divorce, relocation, death of a partner (for a list of acceptable hardships please read Short Sales: Who Qualifies). A bank is more likely to agree to a short sale if the borrower can demonstrate a verifiable hardship. The lender also wants to see an effort for the property to be sold for the most amount of money possible. Lenders like to see the property listed with a reputable Realtor who is a specializes in short sales, these agents are highly trained best suited to assist you in your efforts as they know the short sale process inside and out and will do everything possible to cure the problem.
Make Sure Your Realtor Is A Short Sale Specialist
Short Sales made up over 40% of all home sales last year and this number is expected to increase in 2011. In light of this fact many real estate agents have rushed out to take one or more short sale educational courses and upon completing these courses immediately begin promoting themselves as short sale specialists. What these agents fail to realize is that these transactions are highly complex and require a very specific knowledge and skill set which can not be acquired through an educational course. We at The Opland Group have been actively involved with short sales for over 11 years now, we’ve trained with former loss mitigators, that is the individuals who work for the banks and negotiate these sales, and in this time have assisted countless homeowners in avoiding foreclosure. Our rate of success is more than triple the national average and this in part has lead to our recognition as the premier short sale specialty group in Columbus and Central Ohio.
Short Sale or Loan Modification
These are unprecedented times in our country’s economic history. Unfortunately, foreclosure and financial distress is reaching into the lives of millions of American homeowners. If you or anyone you know is experiencing hardship we want to let you know we are here to help, and are happy to assist you in discussing your options and determining which solution is best for you. All consultations are free and completely confidential.
If you’re having trouble deciding whether your property qualifies for a short sale or you want to stay in your home and request a mortgage modification, give us a call. This article will give you some information to help educate you on the different options available so that you are knowledgeable no matter who you decide to consult with. Before you start down the path to a mortgage modification you should understand that the majority of these requests are denied and thus it’s a good idea to speak with a Realtor who specializes in short sales so you have a back up plan should your modification not be approved. The Today Show did a segment on Mortgage Modifications revealing that just 5% of borrower requests were approved, while MSNBC did a story on a couple and their Mortgage Modification experience which further discusses the topic. The take away from these stories is you need a back up plan, and the best back up would be to have the money to bring the loan current should your request be denied however, if this is not an option a short sale is the second best alternative.
Let’s briefly discuss the differences between a short sale and a mortgage modification. A short sale is when you owe more on your mortgage than your property is worth in today’s market. In a short sale situation, you decide to sell your home and the lender agrees to take less money than you owe on the loan. In a short sale transaction, normally you hire a Realtor to try and sell your home, negotiate with your lender and find your buyer. Of course, the lender must approve the offer and closing costs, which are usually presented on a HUD 1 closing statement.
A mortgage modification is similar to a refinance except that it is not a new loan. You are asking the lender to change the terms of your existing loan by modifying the interest rate, reducing your payments and/or extending the term of the loan. In a refinance, you are paying off the old loan with the new loan and you must have equity in your property. Mortgage modifications are not based upon your credit score like a refinance.
Most of the time to qualify for a mortgage modification you must be in default or behind in your payments and show a financial hardship such as loss of income, loss of job, death, divorce, etc. Mortgage modifications work best if you have a variable interest rate loan. Mortgage modifications can be negotiated by mortgage brokers and attorneys and some other types of businesses such as certified HUD home counselors. There are a lot of unscrupulous people trying to take advantage of distressed homeowners right now so check the credentials of the person who is helping you. If they ask for a large upfront payment (other than an attorney), they could be crooks so watch out. You can also try and negotiate with your lender on your own. Although I recommend hiring a professional to help you.
Both short sales and mortgage modifications are ways to save your home from going to foreclosure. If the short sale, you are selling your home and walking away not owing the lender any money on the loan. In a mortgage modification, you are keeping your home and attempting to lower your interest rate and monthly payments so that you can afford them and keep your home.
Both take some time to get approved, and there is no guarantee that your lender will approve them. The processes are frustrating and can take anywhere from 30 to 90 days or longer.
The paperwork that the lender requests is also similar. In a short sale, the difference would be you have an offer to purchase your home and probably a listing with a Realtor which would need to be submitted and approved by the lender. Some of the other similar documentation that you will need to provide the lender in both a short sale and a mortgage modification are as follows:
- Authorization letter if you are using a third party such as a Realtor, mortgage broker or attorney to negotiate for you. The letter should authorize your lender to release your loan balance information to the third party and/or their employees.
- Hardship letter explaining the reason for your request.
- Last two paycheck stubs verifying income.
- Last two year™s tax returns.
- Last two years 1099 or W2 forms.
- Borrowers Financial Statement.
Both are options to consider if you are facing foreclosure. Other options may include a forbearance, deed in lieu of foreclosure, repayment plan and as a last resort a bankruptcy. If you are in default on your mortgage, your credit will have an impact but depending on which option you choose, it may be a lesser impact. Again, I recommend discussing these options with a qualified and reputable home counselor, Realtor, attorney or mortgage broker first before you make any decisions for your particular financial situation.
If you are a homeowner who feels they might qualify for a loan modification or short sale please give us a call as we’d be happy to assist you in your efforts to understand your options and in determining which option is the best for you! All consultations are COMPLETELY CONFIDENTIAL and ABSOLUTELY FREE.
The Opland Group Specializes in Real Estate Sales, Luxury Home Sales, Short Sales in; Bexley 43209 Columbus 43201 43206 43214 43215 Delaware 43015 Dublin 43016 43017 Gahanna 43219 43230 Grandview Heights 43212 Hilliard 43026 Lewis Center 43035 Marysville 43040 43041 New Albany 43054 Pickerington 43147 Powell 43065 Upper Arlington 43220 43221 Westerville 43081 43082 Worthington 43235