A homeowner that has fallen behind on their mortgage payments have options that they must consider. The first option is to ask their lender for a loan modification. The lender will want to review your tax return, bank statements, pay check stubs (historical financial statements if self employed), a hardship letter, a list of all your assets (car, other real estate, furniture, ect) and much more. The process is similar to when you applied for the loan (Well, if you did not get a stated income loan from 2003 to 2006) and much much more!
A major determining factor if you are qualified for a loan modification is your debt-to-income ratio and your hardship letter. If your debt-to-income is not within +/- 31%, then you could be turn down for the loan modification. This is part of the reason why so few loan modifications have been approved over the last three years. If you qualify and you are able to live more comfortable, then I would accept the loan modification.
If the bank’s offer does not lower your monthly mortgage payments enough to live comfortably, then I would not accept the loan modification. If you are facing a foreclosure, then accepting the loan modification might postpone the trustee sale and buy some time before you would have to move out.
As an alternative, you should consider a short sale which is where your lender agrees to take a loss between what is owed on your mortgage and the sales price. The benefits of a short sale as apposed to a foreclosure is as follows:
- Your lender can’t come after you for a judgment and try to garnish your wages. (Must make sure the agreement released the note and the deed of trust)
- Your credit score may be impacted as little as 50 points vs. 250+ with foreclosure (in some cases no impact).
- You may be able to obtain a new Mortgage, immediately in some cases.
- You will be eligible for Fannie Mae-backed Mortgage after only 2 years vs. 5 years with Foreclosure.
- A short sale is not reported on Credit History vs. 10+ years of reporting with foreclosure.
- A foreclosure may impact your current or future employment, short sale will not.
- A foreclosure may impact a security clearance, a short sale will not.
- You can receive $3,000 or more at closing to help with moving costs.
- You can sleep better at night & know your family is protected!
As you can see, the benefits of a short sale are much better than just letting the home go into foreclosure. My best advice for you is that you need to hire a licensed professional that understands the short sale process to help you with the negotiation process with your lender. We have helped hundreds of people short sale their homes and we would love to have the opportunity to help you as well! We offer a FREE NO OBLIGATION CONSULTATION where we can discuss your situation in total privacy. Call TODAY!!