Choose Your Option: Short Sale vs Loan Mod vs Refinance
The past several years have been a game changer for the housing market. Every homeowner has been affected in some way or another and it calls for action. Whether your home is underwater, meaning your home is now worth less than what you owe to the lender or you are paying interest rates that are above market rate, you should start exploring your options to adjust to the current market conditions for the betterment of your financial health. The three big options are short sales, loan modifications and refinance. Which option is the best choice for you?
Keep in mind that this article should not dictate what the best result is for your specific situation. We strongly believe in contacting your trusted HUD counselor and/or real estate professional for a consultation.
Here are the three main options for your home: Refinance, Loan Modification, Short sale.
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.
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.
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 the very basic pros and cons of the three options for homeowners. One thing is for sure: Those who do not make any move at all may suffer a loss in some way shape or form.
Short sales have been the popular choice for homeowners as the opportunity to walk away with little to no liability appeals to many homeowners and it has been deemed as the best long term solution.
Homeowner’s are walking away from their negative equity situation and planning for another home where they can begin taking advantage of the low home price opportunities that are out there.
If you are living in Washington state and would like to discuss options, please contact our specialists for a free consultation through our short sale tab HERE or feel free to contact me directly at Peter@seattleshortsaleblog.com
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