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Loan modification is a good first step for homeowners in financial trouble who want to keep their homes.  In the housing boom from 2004-2006, many people bought homes they could afford at the time with creative mortgages that offered low introductory rates or were adjustable every few years. When the rates were reset, the mortgage payments made the home unaffordable.  When the housing market tanked and sent housing prices spiraling downward, the homes became worth much less than the amount of the mortgage.  This limited the ability of many people to refinance.

Homeowners with the ability to pay the mortgage they agreed to when they got the loan are one intended audience for the Making Home Affordable plan set in place by President Obama in February, 2009.  Borrowers with Fannie Mae or Freddie Mac-backed loans held by participating lenders can qualify for loan modifications that hold payments to 31% of incomes.

How the President’s Plan Works

For someone whose payment has risen to 45% of their income, the lender must absorb the loss to reduce the payment to 38%; the government will pay the difference between 38% and 31%. To reach this goal, the interest rate can be reduced to as low as 2% for five years.  Participants are encouraged to work with HUD counselors to assess their housing situation.  The program is free.

Lenders receive incentives when they successfully complete a loan modification, but lenders are so understaffed in their departments that they are slow to respond to eligible homeowners.  At this point 360,165 trial modifications have been started and 571,354  offers made; this represents about 12% of the 3-4 million eligible homeowners expected to be helped. In July, President Obama chided the lenders and asked them to increase hiring to assure that at least 500,000 trial modification are in place by November, 2009.

The original plan was limited to mortgages that were 105% of the value of the home; but this was increased to 125% in July.   In hard hit areas of the country like Nevada, California, and Florida, where percentages of “underwater” mortgages are high, many are disqualified from participating in the program. Critics allege that, because the program does not mandate principle reduction and because lenders have been slow to respond, the program will fall short of its goal of how many people it will help.  The President admonished lenders and loan servicers to increase hiring to assure that 500,000 modifications are in progress by November, 2009.

Loan Modification Won’t Work for Some

Unfortunately, during the housing boom, some homeowners bought homes that are too expensive for them, perhaps by overstating their incomes.  Lured by easy credit terms during the housing boom, these homeowners now find themselves in homes too expensive to heat, maintain, and insure, as well as pay for.  Others have  lost their jobs in this period of high unemployment and may not be able to predict when they will be working again or if their salaries will remain the same.

A loan modification, especially one that doesn’t significantly reduce the payment, can only prolong the agony of foreclosure in these cases.   For people in this condition, as well as for people who don’t want to keep the home, there are better alternatives than loan modification to prevent foreclosure.

Express Home Buyers offers one solution to people who aren’t candidates for loan modification but feel trapped with a high mortgage.  We will buy your home fast – most sales close within two weeks of your accepting our offer.  Since we buy the home directly from you, you do not have to list your home with a real estate agent or deal with banks or lawyer to negotiate a settlement for you.  We even offer you a $2,500 cash advance to help you move to new housing.

We buy homes in Baltimore and Southern Maryland; the Metro DC area; and Hampton Roads, Richmond, and Northern Virginia. Learn more about “The Express Homebuyers Advantage” and make the call to sell your home quick!

If you are in financial distress and fear you will lose your home, you may feel frustrated and hopeless.  Some of the alternatives presented to you may seem pretty much the same: you will lose your home. You can do a short sale, let the bank foreclose, or file bankruptcy.  Your choices may have the same import as waiters on the Titanic asking diners sitting in water to their waists if they preferred coffee or tea.

Being in this situation is not what you anticipated when you scraped and saved for your home. However, if you can adopt the philosophy that homes and material things are replaceable, you can get through the situation and aim for a fresh start.  Short sales, foreclosure, or  bankruptcy can provide this. What you should aim for is the solution that has the smallest long term impact on your credit score and the greatest chance for you to move onto the next step with dignity.

Preserving your credit score is important. Not only is a good credit score necessary to get future credit and get it at a decent rate, it may impact your ability to rent or buy a house, get insurance, and even get a job. If you fall on hard times, you will take an inevitable hit.  Your concern should be with preserving your score as best you can. The means that in order of the least damage to your credit, it is short sale, foreclosure, and bankruptcy.

Short sale: If your home’s value is not enough to pay off the mortgage, you could ask your lender to authorize a short sale where you can sell the home for less than you owe.  This approach saves the lender time and money compared to a foreclosure and allows you have more time to plan your nest move as the process takes a while. You will lose 80 to 100 points on your credit request, but within 18 months the impact on your score should lessen.

Foreclosure: When the bank takes your home, you lose 200 to 300 points on score and can’t buy another home for at least three years.  Given the large numbers of foreclosures these days, foreclosure might have a relatively small social stigma and economic impact over time.

Bankruptcy: Bankruptcy will remove your debts or allow you to repay them over time, depending on whether you file Chapter 7 or 13 bankruptcy.  The number of points you lose depends on what your credit score was before you filed, but the event will stay on your record from 7 to 10 years. Despite the effect on your credit rating, this may still be the best choice if you are burdened down with a lot of other debts besides your mortgage.

Any of these methods can offer a fresh start to you if you are in trouble.  If you want to sell your home now, Express Home Buyers can offer exciting alternatives. Whether you are in financial trouble, face foreclosure, have a property that needs a lot of work, or have an inherited house, we can sell your house fast. Because with us, it’s Guaranteed2Sell.

You’ve probably been hearing a lot about short sales in the past few months- chances are you know someone who’s been through the process. And if you’ve been hit as hard by the current recession as many have been and have a home you’re having trouble affording, you may be considering a short sale as a viable option.

What’s a Short Sale?

Let’s assume you understand the basics of the concept, and are familiar with the broad strokes: basically, a short sale is what occurs when a lender agrees to accept less than the amount owed against a home because there is no longer enough equity to sell and pay all costs of sale.  Put simply, if your payments are in arrears and it’s looking more and more like the lender won’t be able to recoup the full cost of the home, a short sale may be their best way of their getting something rather than nothing.

It Isn’t Perfect, But…

There’s no question that a short sale is far from an ideal outcome for anyone who owns a home.  If you find yourself in dire straits with either foreclosure or a short sale looming as your only two options, which do you choose?  Consider which does more damage to your credit?  Opinions on this topic vary, but the bottom line is, they both do a lot of harm.  Foreclosure typically knocks between 200 and 300 points off your score, while short sales have been known to trim your credit rating by anywhere from 100 to 300 points.  Bottom line: your credit will suffer either way, although you have a slightly better chance of losing less money and credit rating if you work with a real estate agent and negotiate a short sale.

It’s a Way to Protect Your Credit Rating.

We understand how hard it is for anyone to be facing these possibilities; if you’d like to know more about this process or have any other real estate questions answered, please don’t hesitate to reach out to us. Express Realty Services has a fully-staffed short sale department; we can help you work through every facet of your short-sale negotiation.