In today’s economic crisis many homeowners who are struggling with their mortgages are comparing the cost of a loan modification versus a foreclosure on their home. Before deciding which option is best in your situation, it is crucial you understand the pros and cons of both a foreclosure and loan modification.
A loan modification is when your current mortgage lender changes the existing terms of your original loan agreement. The purpose of a loan modification is to grant the homeowner with a lower and more affordable payment than what was originally agreed upon. But a loan modification’s purpose is not only to help reduce your monthly payments, it is also the most effective way to help homeowners avoid foreclosure. So if you are one of thousands who are currently behind on your mortgage, upon completion of the modification your loan will be brought back to current and hopefully include a lower monthly payment as well.
On the other hand letting your home go into foreclosure can and will have an overwhelming outcome.
Even if you feel that you absolutely do not want to stay in your home, foreclosure should still be your last option out. Packing your belongings and abandoning your property does not mean you are no longer liable for the mortgage. Your home will eventually be sold by your lender at auction to help satisfy the existing debt. The problem with this is many times the auction’s sale will not be enough to fully pay off the existing loan on your former home. So because of this the amount still owed on the loan will become a judgment that will stay on your credit report for the next seven years.
With that said if your full intent is to save your home for you and your family, your best bet may be to consider a loan modification.
Loan modifications are designed to help homeowners who are struggling to catch up on their payments to become current, and also lower their monthly amount to a more affordable payment. Since recent changes through Obama’s new gov’t programs it seems easier than ever to achieve a modification on your own. But it is important you have knowledge about this process and are able to present yourself in an honest and professional way.