Short Sale Steps
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If you are having trouble deciding whether your property qualifies for a short sale or you want to stay in your home and request a mortgage modification, you should consult your attorney or professional advisor first. This article will give you some information to help educate yourself on the different options so that you are knowledgeable no matter who you decide to consult with.
Differences
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.
