The Options: Pros & Cons
Modification
Utilizing the existing mortgage company to refinance the debt or extend the terms of the loan. This may allow the homeowner to catch up at a more affordable level. To qualify, you must prove to the lender you have fixed the problem that caused the late payment.PRO: This process will enable you to remain in your home. The statistics show that out of the millions that have tried only about 12% have been successful. Of those 12% an astonishing 62% have failed within 6 months.
CON: Due to increased debt and bills most people do not qualify and most loan modifications seem to be of little help. Because of this, more than 60% of all loan modifications made are delinquent within 90 days. Due to depreciation most properties have lost so much value they are worth much less than what is owed.
Forbearance
Lender may be able to arrange a repayment plan based on the homeowner's financial situation. The lender may even be able to provide a temporary payment reduction or suspension of payments. Information will be required from the lender to show that you are able to meet the new payment plan requirements.PRO: You are able to remain in your home as the suspended payment or temporarily reduced payment provides you with additional time to catch up, find employment, or recover from a financial crisis. You must prove to the bank that you have completely cured what originally caused your hardship.
CON: You will have a higher payment at the end of the forbearance period due to the amounts that were past due or suspended. This could increase your payment as much as 10-20%
Short Sale *(most popular)
A short sale is when your lender(s) accept less than what is owed on the existing loans discounting the balance sufficient enough to pay all the seller sales costs without the need for any out of pocket expense to the homeowner. The bank(s) will pay most all closing costs including real estate commissions, property taxes, HOA fees, transfer taxes and natural hazard disclosures.PRO: You are able to remain in your home for a longer period of time, saving money. Under terms properly negotiated the lender will, reduce the loan balance, pay all the seller closing costs, and forgive any outstanding/remaining balance. Your credit will suffer less than if you go to foreclosure.
CON: You must successfully sell your home. Selling your home will be the only way to wipe out the negative equity and allow you to move forward.
Deed-in-lieu of Foreclosure
Give the property back to the bank instead of the bank foreclosing. Banks generally require the home be well maintained, all mortgage payment and taxes must be current. Most loan applications ask if this has ever happened.PRO: By voluntarily giving your property to your lender you are able to avoid foreclosure procedures, a deed-in-lieu of foreclosure has a slightly less impact on your credit than a foreclosure but not much.
CON: Mandatory waiting period for a new Fannie Mae loan is 4 years, only slightly less than the 5-7 year waiting period after a foreclosure. Your remaining time in the property is considerably less than that of a short sale as you must move out upon signing the property over to the bank. If you have a 2nd mortgage, different investor, this is not an option. Taking a proactive approach with your bank to do a short sale will give you more time in the property and impact your credit less.
