Refinance vs. short sale

Posted by  on May 30, 2012

Many housing experts say they expect the number of short sales to increase during 2011. if you are struggling to pay your housing bills, does it make sense to pursue a short sale or try to refinance your mortgage? Here are some things to consider before you approach mortgage lenders.

Do you want to keep your home?

Maybe you bought a home when mortgage rates were a lot higher, but have since cleaned up your credit and think you can qualify for a better deal. Use a mortgage calculator to determine how much you might be able to lower the monthly mortgage payments each month based on current mortgage rates. Will you be able to lower the payments enough so that you can comfortably handle all your bills? Do you have a decent amount of home equity? Having at least 20 percent equity would allow you to avoid mortgage insurance (MI) payments. If so, refinancing could be the right choice.

On the other hand, selling could get you out from under hefty mortgage payments and allow you to avoid foreclosure. Many neighborhoods are plagued by falling home prices so it's important to do some research to find out what's happening around you. Living in an area with a lot of foreclosures may have dragged your home's value down so low that you actually owe more on a home loan that the property is worth. If that is the case, you won't qualify for a home refinance and may want to consider a short sale.

Talk to your mortgage lender

You will need to communicate directly with your mortgage lender or loan servicer to find out if doing a short sale is possible. Don't expect the process to be quick or easy. It may take several attempts to actually reach the right person to get approval for a deal. When the lender asks for information, promptly send it. Be sure to keep careful records of all phone calls and mailings.

What's in it for you and your lender?

While it won't look great on your credit report, a short sale could keep you out of foreclosure. This could allow you to start over in a less expensive rental and work toward rebuilding your credit and paying off other debt. Your mortgage lender would be able to recover some of what you owe on the mortgage and avoid the time and expense of going through the foreclosure process.

Marc Cormier, a real estate consultant and certified distressed property expert at the Tania Ivey Real Estate Group, said in a statement:

Avoiding foreclosure through a short sale can have significant benefits for a person's future financial stability. A successful short sale can reduce damage to one's future loan eligibility, credit rating, employment, security clearance and more--and it's important to work with a competent team.

Choose wisely

Take time to explore your options if you are having trouble making home loan payments. Do not ignore correspondence you receive from the mortgage lender that may indicate a foreclosure is imminent. The sooner you try to work out a solution to your mortgage problems, the better.


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