What are the differences between a Short Sale and a Loan Modification?
There is a lot to consider when deciding whether a loan modification or a short sale is right for you. Consider these basic
Short SaleÂ involves SELLING your home. You list it for sale with a Certified Home Rescue ExpertÂ© realtor and find a buyer. Then your realtor, with the help of a professional team of attorneys, negotiates with your lender to accept the preferably market value offer and let you walk away owing nothing. It sounds too god to be true, but it works – just ask about my 99% success rate.
Loan ModificationÂ involves the homeowner working with their lender to change the terms of their mortgage loan to make it more affordable. Past due amounts and/or the difference in the new lower monthly payments are typically rolled into the loan.
|Issue||Loan Modification||Successful Short Sale|
|Credit Score||If you are falling behind, it typically reduces your credit score. Your lender may report it as a “partial payment” plan, which is considered negative by FICO.||Late mortgage payments will show, but after sale loan will be reported as paid or negotiated. Can lower score as little as 50 points if all other payments are being made. Typically will affect score for 12 to 18 months.|
|Credit History||If the borrower, in the process of obtaining a loan modification, has missed any mortgage payments or other payments, those will impact their credit history.||Short Sale is not reported on a credit history. The loan itself is typically reported as “paid in full, settled”.|
|Security Clearance||Borrowers behind on their mortgage payments will have shown a negative pattern of behavior as it relates to credit history. Could be cause for more detailed inquiry.||A Short Sale on its own not shown to challenge security clearance.|
|Future Employment||A loan modification temporarily reduces monthly payments, but reduces FICO score. In some cases, low credit score can challenge employment.||Short Sale is not reported on a credit history and is therefore not a challenge to employment.|
|Principal Balance||Lender changes the terms of the loan temporarily, but does not lower the principal balance. In fact, past due amounts and/or the difference in the new lower monthly payments are typically rolled into the loan.||Principal amount of loan is paid in full at closing.|
|Foreclosure||In a situation where a lender is unconvinced of a borrower’s long-term ability to make monthly payments and the borrower is behind on payments already, the lender may opt to begin foreclosure proceedings as soon as they are legally able.||Foreclosure process stops when a sales contract is approved by the lender. In a properly managed short sale, the home is sold at or close to market value, which tends to be higher than what the lender could net through foreclosure.|
There is a lot to consider when trying to decide what to do next. If you’re soon to be behind on your mortgage payments or you already are – call me. I can give you straight answers. I know it can be tough to feel like you’re bumping into a brick wall with your lender. They’re dealing with many, many files on thousands of homeowners in the same situation as you and they can only work so many hours in the day. But don’t let them be in control of your financial future.