The three big options for homeowners are short sales, loan modifications and refinance. What have you seen that actually worked?
Options: Refinance, Loan Modification, Short sale.
Refinance
Basics: Refinancing is when you are paying off your old loan with a new loan with lower interest rates.
- The goods: This option is suitable for those who plan on staying in their home for awhile and/or those who are in an adjustable mortgage rate situation and want to solidify a fixed interest rate.
- The bads: You will be paying closing costs when you refinance and in order to refinance, you must have equity in your home.
Loan Modification
Basics: A Loan modification is typically when you modify the current loan to make payments more affordable via lower interest rates and/or extending the duration of the loan (30yr to 35yr).
- The goods: Loan mods can be a means to prevent foreclosure when you are delinquent on payments. Lowering payments could result in a more affordable living situation.
- The bads: Back in 2010, the Today Show reported loan mods helped only 5% of applicants. Yes, it does lower payments and prevent foreclosure but it does not lower the 5 hidden costs of homeownership. The home may still be above your affordability level. In the long run, a loan mod would prolong the problem and not fix it as you are simply extending the term of the loan thus paying more payments/interest and not building equity.
Short Sale
Basics: A Short sale is when you sell your property for less than what is owed and negotiate the difference with your lender.
- The goods: A short sale allows the homeowner to walk away from their home and in most cases, be forgiven of the remaining balance owed to the lender(s). Normally there are taxes involved with the forgiven balance. However, until the end of 2013, the Mortgage Forgiveness Debt Relief act grants immunity on primary residences.
- The bads: A short sale will put a ding on your credit score and it will take about 90-120 months to complete one.
These are just the basics but would love to know what your experience is on each of these options.
Thanks
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Comments
A refinance is the best option as it will keep your credit score clean (as a short sale will hamper the ability to obtain bank financing in the near future). This is not an option if the property is under-water. There are some great loan modification programs provided by the Obama Administration to help adjust loans where the property values are much lower than the loan balance.