FORECLOSURE: MODIFICATION VS REFINANCE
Is it better to modify or refinance my mortgage out of foreclosure?
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There are various factors to be taken into consideration:
Is there enough equity in your home to refinance?
Would a refinance payoff enough other debts to improve your cashflow?
How much would you save monthly on a modification vs a refinance?
Are you eligible for a principal reduction with a refinance?
Would your post refinance debt ratios qualify?
Is the foreclosure to far progressed in order to refinance?
Do your before and after debt ratios qualify for a modification?
Does the foreclosure lender offer principal reductions on modifications?
If you have significant consumer debts, other debts than your monthly house payments, refinancing may be a preferred solution for you. However, refinancing a foreclosure usually requires 50% equity remaining in your home after the refinance is complete. As well, closing costs and interest rates are significantly greater than that of an FHA, VA, or conforming refinance. It's really all about the bottom line. If you are considering either, a) refinancing out of foreclosure; or b) a modification with your current mortgage lender, chances are you have been negatively affected by the recession and need to make the best cash-flow adjustment you can for your self and family.
If you do not have sufficient equity in your home to refinance, and/or if you owe more than your house is worth, often the best thing to do is modify at the lowest rate your mortgage lender is willing to provide; and/or ask for any principal reduction you might be able to get.
If the recession has claimed you as a victim, your other debts that are not mortgage related, can often be renegotiated with a debt relief program. This might temporarily worsen your credit, but if done the right way, may help you re-establish and thus ultimately improve your credit sooner than otherwise. Improved cash-flow is often the key to correcting many things in a person's life, including a credit rating.
In summary, either option; modification or refinancing out of foreclosure might save your home. Ask yourself this. What will optimize your situation? What seems safest and most secure for you and your family? Try to be realistic about what those numbers are going to be at the end month.