Why Might a Short Sale Be Preferred Over a Loan Modification?

Why Might a Short Sale Be Preferred Over a Loan Modification?

Homeowners who would prefer to get out from underwater may prefer to do a short sale in-lieu-of a loan modification. A short sale means the bank will accept a reduced payoff and release the loan. If your home is worth dramatically less than the amount owed, it might make more sense to do a short sale and be relieved of the burdened debt. Here are other factors to consider:

• After 3 years of maintaining credit, if prices remain stable, homeowners may qualify to buy another home after a short sale with a mortgage and a payment that is affordable.
• Both a loan modification and a short sale may affect credit. But either solution is generally better than a foreclosure.
• Many loan modifications call for an adjustable rate payment than could increase every year after the initial 5 years of fixed-rate payments have passed.
• Most of the short sale happened after sellers were denied a loan modification.