Loan Modification:

The goal of a loan modification is to reduce a homeowner`s mortgage payments and make them more affordable.

This is accomplished by implementing one or more of the following:

There are several different type of loan modifications. Many lenders require borrowers to make three payments in order to show “good faith” and then deny them for a permanent modification once the trial is complete. The Lenders report these decreased payments to the credit bureaus.

Remember even if you do receive a loan modification and can afford the new lower payment this probably will not solve your long term problem. It does not help that your home is worth less than what you owe. If you truly want to stay in your home, regardless of its value, then a loan modification might be the better option.

Short Sale: Many distressed homeowners have been trying to keep up with their mortgage payments since 2006 and most of the time this is the wrong way to think. The Short Sale provides a way to sell your home and get on with your life debt free. The goal of a short sale is to sell the home for less than the mortgage balance and convince the bank to forgive the difference. One of the biggest benefits with a short sale is the forgiveness of all debt. Homeowners who would prefer to get out from underwater may prefer to do a short sale in-lieu of a loan modification.

Short Sale vs. Foreclosure

Foreclosure Vs Short Sale on Credit Score

Foreclosure: Credit score can lower as much as 300 points; usually minimum of 250 affecting you for over three years

Short Sale: Mortgage will be reported on your credit score as either paid or negotiated lowering your score as little as 50 points and affecting you for only 12 to 18 months.

Foreclosure Vs. Short Sale on Implications on Credit History

Foreclosure: Remains on your credit history for 10 years or more

Short Sale: Usually reported as paid in full and is not reported on your credit history; Depending on how lender reports it

How long will I have to wait to purchase another home?

Foreclosure: You may end up waiting 24-72 months before a mortgage lender will offer an interest rate that is acceptable

Short Sale: Most mortgage lenders report that they may get a reasonable interest rate in less than 2 years. Fannie Mae guidelines allow a short seller to apply for a new loan immediately if payments were kept current and had no 60-day late payments

Foreclosure Vs. Short Sale on Deficiency Judgments

Foreclosure: In all foreclosures, with the exception of those states without deficiency, the bank has the right to file a deficiency judgment against you

Short Sale: The Lender may give up the right to pursue a deficiency judgment against you (in the state of California if the home was your personal residence and was financed through purchase money, there is no deficiency judgments)