3 Reasons to Choose Loan Modification over Short Selling

In today's real estate market, short selling is becoming more and more popular. Investors are flocking to buy short sales because they represent a significant savings on real estate. However, if you are a homeowner, a short sale may not be your best option. Another option called loan modification could be the better option to go with. Loan modification involves working with your lender to alter your existing loan. Here are a few reasons that you should consider choosing loan modification over short selling a house.

1. Keep Your House

This is probably the biggest benefit of doing a loan modification. In many cases, you have been in your house for a number of years with your family. You do not want to have to explain to your kids why you are moving to a small rent house or an apartment. Your house may not be perfect, but it is your home. You have many memories there and leaving unexpectedly can be devastating for your family. There is a good chance that you did not want to stay in this particular home forever anyways. However, you want to leave the house on your own terms. 

If you choose to do a short sale, you can eliminate the mortgage problem, but you also have to move somewhere else. You will probably not be able to buy another home immediately, so you could have limited options with rental property. Loan modification allows you to keep the house and avoid any embarrassing foreclosures.

2. Help Your Credit

First of all, let's be clear that neither of these two options is very desirable to have on your credit file. However, loan modification is the lesser of two evils here. Many experts say that a short sale shows up the same as a foreclosure on your credit file. Both a short sale and a foreclosure can possibly lower your credit score by as much as 300 points. When you choose a short sale, it may as well be a foreclosure as far as the credit bureaus are concerned.

A loan modification is still not very good on the credit, but it will be better than a short sale. You will undoubtedly need your credit in the future when you try to buy something again. Therefore, preserving your credit somewhat by doing a loan modification is most likely the best option. It will save you money on interest in the future and help you get approved for loans.

3. Lenders Prefer Loan Modifications

When you run into trouble with your mortgage, you are basically at the mercy of the lender to help you out. It is up to them if they want to help you out of your situation or not. If they want, they could simply just foreclose on the property. Of these two options, lenders usually prefer doing a loan modification. It keeps you in the mortgage and keeps a monthly payment of some kind coming to them. Ultimately, this is what they want to accomplish.