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A lot of my CT short sale clients have either considered a loan modification or been turned down for one by the time they have made the decision to short sell.
In a loan modification the lender makes permanent changes to the terms of your mortgage resulting in a more affordable payment. Keep in mind that while a modification will reduce your payment, it will not reduce the amount you owe on the property.
IN FACT, IN ALMOST EVERY SINGLE INSTANCE, A LOAN MODIFICATION WILL INCREASE THE BALANCE OF YOUR MORTGAGE.
This is the main reason most loan modifications ultimately fail. Loan modifications are not a long term solution for anyone with heavy negative equity. However a loan modification may be a good solution for those who:
- Have a stable financial situation (including steady employment) to support the new payment amount indefinitely
- Do not have significant negative equity in the home, or;
- Are prepared stay in the home for many years to overcome a heavy negative equity situation
If you have significant negative equity in the home and see yourself needing or wanting to move within a few years time, a loan modification is not likely to be a good solution for you. A failed loan modification or a forced or desired move in the near future will ultimately lead you right back around to the same choices you face today: Foreclosure, deed in lieu, or a short sale.