Loan Modification and Foreclosure Loan: The Differences

If you are a homeowner having trouble keeping up with the payments on your mortgage, you may be one of thousands of people who are trying to save their homes through either loan modification or a foreclosure loan. Here are some facts to help you to decide which one is the best for your situation.

Foreclosure Loan

A foreclosure loan is based on a company or bank buying your existing home mortgage from your mortgage lender and allowing you to pay them through the new loan. Homeowners in a possible foreclosure situation are sometimes approached by companies that specialize in this type of loan. They vary from those that only help you get up to speed on your current mortgage to those that take over the entire mortgage.

If you chose to use a foreclosure loan, make sure you work with a reputable company to avoid fraud and potentially losing your home. Do your homework before getting a foreclosure loan.

Loan Modification

A loan modification is a way to change the terms of your primary home loan. It can be used to reduce or otherwise adjust how you make your monthly payments. A loan modification can help you prevent losing your home when you can’t keep up with the terms of the current mortgage. It isn’t a new loan or anforeclosure loan, but it is a permanent way to change the terms of your current loan on your home. In order to get a loan modification, you have to go through either your own mortgage company, or another company that will help you renegotiate the terms of your mortgage into something you can afford.

Some of the benefits of a loan modification for a person having problems paying their current mortgage can be to lower the interest rate, reduce the loan balance, postpone or reduce any outstanding fees, and alter the terms of the mortgage. Some of these opportunities are only offered to those with adequate credit, and may not be available to many people in a situation where they are about to lose their homes.

Best Option

Determining which one of these options is best for you if you are having problems making payments on your home may depend on your situation. Both a foreclosure loan and a loan modification will allow you to stay in your home without having to declare bankruptcy, but a foreclosure loan is more risky than loan modification. The foreclosure loan has many fees and costs associated with setting it up, and you may not have enough income to accomplish that. It is also a permanent new loan, whereas the modification loan is an alteration to get the homeowner up to speed so they can resume normal payment on their original mortgage.

A loan modification is usually the safest option if you are having problems paying your mortgage payments. Only consider a foreclosure loan if you can’t qualify for a loan modification.