Recently, many homeowners across the nation have found that they are unable to make regular mortgage payments. This puts them in danger of losing their homes, damaging their credit and losing equity. If you find yourself in this situation, you will want to mitigate the damage as much as possible so you can begin credit repair steps that will help you qualify for a mortgage again in the near future.

Debt Negotiation Options for Mortgages

Many financial lenders give their mortgagees three options when they cannot make their monthly payments. They can either work with the bank to determine a loan modification that protects both parties from significant loss, use a short sale to settle their debts with the lender or face foreclosure. More often than not, loan modification is the best option because it helps mortgagees protect their investments and repair their credit quickly.

Why Loan Modification Is Better Than Foreclosure

Having a foreclosure on your credit history is a red flag to financial institutions that you might not be able to make timely payments on future loans. This makes it difficult for you to secure another mortgage or any other type of credit.

Those who face foreclosures can also lose all of the money that they have put toward their property. Even those who have made years of regular mortgage payments could lose it all when a lender opts to foreclose.

Loan Modification Vs. Foreclosure

A loan modification does not carry the aforementioned burdens of a foreclosure. Instead of losing the property and all of the money that you have invested in it, you enter a debt negotiation with the lender and agree to new terms. This might mean lowering your interest rate, extending the term of the loan or reducing the principal to make your monthly payments more affordable.

A loan modification also helps you avoid negative marks on your credit history. While you might already have a few missed payments from the period leading up to the loan modification, you can mitigate the damage by finding a repayment option that works for your budget so you can get back on track.

Why Loan Modification Is Better Than Short Sale

Short Sales are a way for people to avoid foreclosures, which is definitely a plus.
When you go with a short sale, the bank allows you to sell the home to repay the debt. The good thing about this is that the bank will accept an amount smaller than the principal. However, they cause more credit damage than a loan modification and can leave you without any of the assets invested in the property.

Loan Modification Vs. Short Sale

When you choose debt negotiation through loan modification, you get to keep the property by making affordable payments. You avoid the bad marks on your credit history. A short sale is usually better than a foreclosure, but loan modification has some definite advantages on both.

Using Loan Modifications to Keep Your Home

You might be able to qualify for a loan modification, even if you are not behind in your payments. Increasing foreclosure rates have helped many lenders recognize that they can actually reduce losses with other alternatives. Instead of going through the money and hassle of selling the property on their own or accepting a short sale, lenders might prefer to retain relationships with their current mortgagees so they can continue collecting regular payments throughout the term of the loan.

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