fix money
Many people in mortgage debt become frantic in finding a solution
to stave off the threat of foreclosure. While there are several options
available, most people tend to pursue the most popular or well know
option.
Loan Modification Considerations
Loan modifications are a great option for resolving mortgage debts, but the truth is that very few people will qualify. Lenders hold very strict qualification standards for approving loan modifications because the nature of the transaction is highly sensitive. For example, a homeowner must be able to prove that they are experiencing a financial hardship that may prevent them from maintaining their current mortgage, but also be able to prove that they have the financial ability to maintain a modified payment term. This is a very fine line to walk for most people, which makes it a risky move for lenders.
Because lenders hold such stubborn approval standards for loan modifications, most people pursue them and lose valuable time only to be denied in the end. While there isn't a list of guidelines for a homeowner to review before pursuing a loan modification, there are a few general rules of thumb. First, a homeowner must be seeking the modification on a primary residence. Investment or rental properties do not qualify for modifications. Second, a homeowner must carry a monthly mortgage payment that is at least 31% of their gross monthly income. Last, a homeowner must also be able to demonstrate their financial situation was unforeseeable and due to extenuating circumstances, rather than fiscal irresponsibility.
Other Alternatives
While mortgage modifications should always be discussed with a lender as the first line of recourse, homeowners should also consider other alternatives while waiting on an answer from the lender. Short sales can be a good way to resolve mortgage debts if a homeowner (a) doesn't qualify for a loan modification and wants to resolve their debts or (b) cannot afford to stay in the home even with the help of a loan modification. Selling a home through a short sale can absolve the homeowner of the mortgage debt while minimizing credit damage.
A deed in lieu of foreclosure is generally a last resort option and to be considered only when other options have failed and foreclosure is imminent. A homeowner can sign over the title to the home to the lender in exchange for being relieved of their liability over the mortgage debt. It should be noted that lenders may approve this transaction but also hold the homeowner responsible for paying the deficiency balance on the home. This amount is equal to the difference in what the lender sells the home for and the actual amount previously owed on the home. Further, if the lender forgives the homeowner of liability over the deficiency balance, the homeowner would need to report this waiver to the IRS.
