Should I Do a Short Sale or Loan Modification
I get this question a lot, should I modify my loan or should I do a short sale on the property. The answer I will give you has a distinct advantage. There are several choices for a homeowner looking to get from under the heavy burden of a large mortgage payment. Everyone’s personal situation can be different and unique in many ways.
The answer I will give any homeowner wanting to decide whether to do a loan modification to lower their house payments or a short sale is to do both. This answer may surprise and confuse a lot of homeowners and professionals alike. The main reason why the answer is both is because, it is to the homeowner’s advantage to have the property listed for a short sale while the loan modification is under review because it allow the home to have more exposure on the market. If you will, look at the loan modification process as a time period of your lender reviewing and assessing you, your financials, and your property distinct attributes. You may be reviewed for a loan modification and be approved based on your individual and personal situation. Likewise, just because your neighbor across the street from you with a similar house received a loan modification last month does not necessarily mean that your will too. Some homeowners assume that if someone in their area or neighborhood received a modification, and they had some similarities with the person receiving the loan modification then they will also get approved. There are many factors that can make 1 of 2 homeowners that applied for the same government modification in the same subdivision with
similar homes get approved for a loan modification, and the other one gets declined. Take for example, their salaries, their employment history, their financial obligations, have they been modified before, how likely are they to stay on an approved loan modification program, in some cases what is their payment history with their current lender, the property value, the location, their housing to income ratio, just to name a few reasons. Now what listing the property for sale can do is, it will give the house some decent exposure on the market which could leads to some solid offers of purchase for the homeowner. Just in case the homeowner gets denied for the loan modification they could easily fall back on any short sale offers fairly quickly, and sell the home. A lot of lenders will close on a short sale in about 60 days from start to finish, which is pretty good. In addition to that The will extend your sale date once you have it up for a short sale, and another thing, you do not have to pay while you are waiting to sell your property on an approved short sale request from your lender. Last but certainly not least, let's assume that you completed the short sale of the property, you will then start being reported as "Balance satisfied less the full amount" which is much better for your credit reporting. That is so much better than a foreclosure or a bankruptcy. Now think about all of those benefits, and you can clearly see why this option is so much better.
Now let look at the same scenario the other way around. Let say the homeowner is trying to lower the house payments which usually takes up to about 4 months in some cases. Lets take the worst case scenario, if the borrower gets denied for a loan modification. The borrower will have to hold on to the property and try to sell it at the point of denial which will easily be many months after the start of the application process before the denial is known; which at that point the borrower has to now list the
property for sale with a realtor, and wait for the offers to roll in, if any when he/she could have been doing that all that time while it was under a modification review; the borrower might have to continue to make payments until the property is excepted for a short sold by the lender, if it is accepted That is will cost more time and probably more money. So this option is at a disadvantage when compared to the option of applying for a loan modification and listing the property for a short sale with a local realtor simultaneously, with your lender’s o.k. You are not obligated to sell your property just because you received an offer for a short sale, but you can still list it for sale just in case you decide to move in that direction. You can advise the prospective buyers that you are looking to do a loan modification with you lender 1st in order to try to hold on to the property, but you are looking at a short sale as your 2nd option in case you are denied for a loan modification. Many buyers will understand in these tough times why you are doing so, or they can move on while you wait on your next offer. It’s that simple. I
