Money problems can come out of nowhere. Whether you or a family member have lost a job, accrued costly medical bills or are experiencing other financial setbacks, the fear of losing your home because you can’t make your mortgage payment can be terrifying and overwhelming at a time when things are already looking down.
Fortunately, more and more people have the option of considering either a loan modification or short sale in order to avoid foreclosure. While these solutions both have their downsides, they are also entirely better than losing your home to the bank. They each have their own purpose and one is often a better solution than the other, depending on your specific needs and situation. Here, we’ll break them down for you and then compare them one-on-one.
What is a Loan Modification?
A loan modification primarily aims to reduce or lessen your mortgage payment, making it more affordable and within your financial reach. Payment reduction methods include reducing the principal balance, extending the terms of the loan, reducing the interest rate, combining unpaid interests to the principal, or any combination of the four. It allows you to stay in your home while getting some relief from oversized payments.
What is a Short Sale?
A short sale allows you to sell your home for less than the amount you owe. The goal is for the lender to take a payoff price rather incur a total loss; which is what they’ll get if they foreclose on your home. It’s important to note here that many lenders agree to this deal only as a last resort, but it is a viable option and many banks are willing to take a small loss through a short sale rather than a total loss through foreclosure.
Loan Modification vs. Short Sale
A loan modification is usually advantageous when compared to a short sale, especially if you still want to stay in your home. Remember, the main goal of a loan mod is to reduce your mortgage payments in order to make it more affordable.
A short sale, on the other hand, can be beneficial if your home’s value is a lot less than the amount you owe and you just want to get your head above water and be relieved of the burden of mortgage debt. Often, this can be helpful to consumers who are on the verge of bankruptcy and drastically need to reduce their debts.
At the end of the day, either solution is better than having your home foreclosed by the bank; a legal action with consequences that could haunt and affect your credit for years.
However, because both processes can be very complex, we don’t ever recommend pursuing them without seeking legal counsel first.
At Vokshori Law Group, our problem-solving experts have helped countless homeowners just like you to weigh their options and find the perfect solution for their mortgage payment troubles. To set up a Free Consultation, call 213.986.4323 or visit us at https://voklaw.com.