10 Jan 2015

Mark Zawaideh

When Should You Switch to a Short Sale from a Loan Modification?

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Have you considered having a loan modification on your home? Many homeowners start seeing the adjustment and wonder if they could switch from the load modification to a short sale. It’s easy to question the decision since many loan modifications start at a fixed rate of interest for the initial 5 years and then will convert to an adjustable-rate mortgage.

This is problematic when the 6th year becomes a much higher payment than the fixed five-year rate as. Here is a look at whether or not to switch to short sale from a loan modification.

Problems with loan modifications

After homeowners are teased with the five-year fixed interest and then see an increase in their monthly payments at year six, they typically ask the bank for help and are told that there are no alternatives.

Typically, the bank is more concerned with you making timely mortgage payments rather than helping you find alternatives. Instead you should talk to a short sale agent who can help you switch to a short sale or a lawyer who handles short sales.

How to make the switch

It’s not hard to switch from a loan modification to a short sale. If the borrower has been approved for a financial hardship from the lender and the borrower can no longer afford the current mortgage payments under the loan modification terms, the loan could go into default. The bank doesn’t want a negative asset on the books and will be eager to make a new loan to borrowers with equity.

You’ll want to find a short sale agent, list the home as a short sale, find a buyer and submit the offer before the lender is going to approve the short sale. The hardest part is finding a buyer willing to pay market value that is able to close on the transaction.

Once a short sale is approved, the borrower is qualified to buy a home in another three years through an FHA loan so this option is great for a financially struggling seller.

For sellers that have done a loan modification, it’s not too late to do a short sale.

Topics: Short Sales/Foreclosure News