Forbearance
Under a forbearance agreement,
your lender may allow you to reduce or suspend payments for a short
period of time. At the end of the forbearance period, you will begin
making regular payments plus an additional amount of the past due
payments each month until you are caught up.
PRO:
You remain in your home. A temporary reduced
or suspended payment provides time needed to save money, pay off
other bills, find employment or additional employment, or recover
from injury or illness.
CON:
At the end of the forbearance period, your
payment will be higher due to the past due amounts owed. Your
mortgage payments could be 20% - 25% higher for a period of 1-year
or more.
Loan Modification
If you can make payments on your
loan, but don't have enough money to bring your account current,
your lender may be able to change the terms of your original loan to
absorb your delinquent payments and make the payments more
affordable. Your loan could be permanently changed by adding the
missed payments to the back end of the existing loan balance,
lowering the interest rate or making an adjustable rate fixed, or
extending the number of years you have to repay your loan.
PRO: You remain in your home.
CON: Because of additional debt such as credit cards, car
payments, medical bills, and student loans, most people do not
qualify for a loan modification. If you purchased your home with
little or no money down or your home has depreciated in value at a
rate at or near the national average, you may not quality.
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Short Sale
If you cannot bring your loan
current, afford to make payments moving forward, or are unable to
sell the property for the full amount of the loan, your lender may
accept less than the amount owed as full payment.
PRO:
Under the terms of a short sale, your lender may forgive your
mortgage debt in its entirety according to the terms outlined in
The Mortgage Debt Relief Act of 2007.
Fannie Mae has announced a
reduced mandatory waiting period
to establish credit history to 2 years after the completion of a
short sale. This mandatory waiting period after a short sale is
lower than the required 5-7 years following a foreclosure.
CON:
You must sell your home.
Deed-in-lieu of foreclosure
If you are unable to bring your
loan current or sell your home in a reasonable amount of time, your
lender may agree to have you voluntarily transfer the deed to the
property to them to help avoid the impact of a foreclosure on your
credit rating.
PRO:
By voluntarily transferring the deed, you save your lender
tens-of-thousands of dollars in foreclosure proceedings. If you are
willing to do this, Fannie Mae has
reduced the mandatory waiting period
to establish credit history to a minimum of 4 years. This mandatory
waiting period after a deed-in-lieu of foreclosure is lower than the
required 5-7 years following a foreclosure.
CON: Although a
deed-in-lieu of foreclosure may have less impact than an actual
foreclosure on your ability to establish homeownership in the
future, if you are going to cooperate with your lender and take a
proactive approach, a short sale is generally the better option.
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