Foreclosure is definitely one of the hardest things anyone has to face. Imagine losing your home, a place your children grew up in, and the place you thought you’d have for years to come. The economic situation in the entire country has left families and individuals homeless and others are on the verge of losing it all.

For the families and homeowners who still have time to save their homes, there are two solutions that might just save your home – Refinancing and Loan Modification.

The complexity of the foreclosure problem means that there are differences in each loan or mortgage. The circumstances of the delinquent borrower are also factors in deciding which solution is best for you. However not all applicants will get approval for refinancing or loan modification.

Which would be best? There is no exact answer to this question because every mortgage is different so what may be better for your neighbor might not work for you. However, each of these solutions has its own advantages and disadvantages.

Refinancing:

In a refinancing strategy, your old loan is replaced with a new one where terms are changed to one you can handle and pay. For example interest rates can be lowered or payment terms extended from 15 years to 30 years. This is seen by many as a more permanent solution compared to modifications.

While there are various advantages to refinancing mortgages, there are also challenges in the strategy. You have to pay for closing fees to your new lender that can be quite a huge amount for a family already facing foreclosure. It’s also difficult to get approval because of a lot of requirements you have to meet. Declining market value for your property, for instance is a major no-no. A property appraisal is required in your application. Underwater mortgages are almost immediately denied. Loss of income is an automatic red flag for your potential lenders as well.

Loan Modification:

Loan modification is more forgiving in that it takes the delinquent lenders’ hardship into consideration. In some cases, the lender can lower the principal it self to reflect the decreased market value of the property. In negotiating new affordable monthly payments, lenders will consider your living expenses so you can pay your mortgage but still have money to pay your utilities. Loan modification also helps you keep your credit score where it is.

Another advantage is that while processing your loan modification, the foreclosure process is halted and you get another chance to keep your home. In the new government loan mod program, desperate borrowers are counseled by financial experts so they can avoid getting into foreclosures in the future.

There are only a few disadvantages to loan modification. Many of the lenders do not offer the government loan mod program (HAMP) but they have their own in-house strategies. Borrowers can only apply to the program if they can prove their hardship like a loss of family, loss of income, etc. Lastly, the borrower cannot increase the loan and take out equity.