Loan Modification or Short Sale: Selling a Bad Property vs. Modifying a Bad Loan

At the beginning of the real estate crisis, loan modification became the buzzword to fix all failing mortgages and to stop foreclosure. More than a year into the process, many banks and borrowers found that their loan modification failed. Borrowers may not be able or willing to pay the reduced debt amount or borrowers may need additional time at reduced interest rates to continue to make payments. Troubled borrowers should consider short sales in conjunction with their decision to modify their loans.

Real Estate Short Sale Pros and Cons

The biggest pro of a short sale in real estate is the freedom from a bad investment. Borrowers, who execute a short sale, no longer have to pay a high mortgage rate/payment and no longer have to worry about the potential damaging hit of a foreclosure on their credit rating. While their credit rating might take a small hit, it is nowhere near as bad as having to file bankruptcy or having their property repossessed. The public embarrassment alone of the auction of a home could be enough incentive for borrowers to at least pursue a short sale vs. a loan modification.

Shorts sale are tough, however. Banks do not want to grant short sales because it means they will have to report a loss, probably a rather significant one, in their next quarter on this loan. In this vein, banks put borrowers through the ringer before they even consider granting a short sale. Buyers must provide extensive financial information and must prove to the bank that without a short sale, they will not be able pay the bill or that their home is so far underwater the mortgage will not be recouped for many years. Both burdens are on the borrower and short sales are at the lender’s sole discretion. The major cons of the short sale is simply getting it done and of course, the displacement from a family home.

Loan Modification Pros and Cons

Loan modifications require similar proof, but since they are the flavor of the month, it is much easier to obtain a modification. Borrowers, who truly cannot pay their mortgage or who are behind 30-60 days, should immediately call their mortgage company. More than likely these buyers will be able to obtain a loan modification. Modifications come in all shapes and sizes. While debt forgiveness is rare, many banks will allow the borrower to only pay the interest for a set amount of time or even to pay nothing for up to six months.

The con to the modification approach lies in the fact that it is only a modification and it is only temporary. After a year the borrower could be right back at the beginning with an even higher mortgage and an even lower property value. Loan modifications can be effective in markets where property values and employment rebound fairly quickly. In markets where property values remain depressed and people have a hard time finding work, modifications only serve to delay the inevitable. In many instances, borrowers would be better served to pursue a short sale.

Borrowers often try to stay in their home at all costs. Many first seek to modify their home loan in hopes that property values will increase or their ability to pay will materialize. These borrowers should critically analyze a short sale, in addition to a modification.


Help With Credit Card Debt: 0% Balance Transfers, an Opportunity to Reduce Personal Debt

In the United Kingdom personal debt has soared to around £1.5 trillion and nearly 107,000 people were declared insolvent in England and Wales.

Personal Debt

In Scotland increasingly unmanageable levels of personal debt have meant that the number of people declared insolvent has increased by 75 per cent.

It is unsurprising then with these shocking figures that many are looking for ways to reduce debt.

What is a 0% Balance Transfer?

It’s when one credit card repays money owed on other credit or retail store cards.

For example: the money owed on credit card A is £5,000 at 16 % interest and on credit card B the money owed is £3,000 at 18% Interest.

Some credit card companies (let’s call them credit card company C) will offer new customers the chance to move their existing debt (£8,000) to the new card at 0% interest. This 0 % offer usually comes with a time limit attached to it. This can be anything from three months to eighteen months.

A substantial saving can be made over the life of the 0% offer. However there are several pitfalls to be aware of.

Credit Rating

If frequent credit applications are made it will have an adverse effect on a person’s credit rating damaging their ability to obtain new credit. So while it’s reasonable to seek out the best offers make sure card applications are spread out.

It is essential that if the 0% offer is for balance transfers only, do not spend on the card, as a higher rate of interest will kick in defeating the purpose of obtaining a new card.

However some cards will also offer a 0% offer on purchases but it may not be for the same length of time as the balance transfer offer. A person looking to pay off a substantial amount may have to repeat the above process several times before their debts are cleared. It can be done, although in the Credit Crunch, financial constraints have made it much more difficult. Be very careful.

Rate for Life Credit Card

An alternative to the time limited balance transfer offer is the Rate for Life offer. For many this is a much less complicated way of transferring a balance from a card with a higher interest rate.

It is quite simply an offer, at a unchanging reduced rate of interest, until the amount transferred is repaid. At the time of writing there are offers ranging from 5.9% to 6.9% from a number of companies. For many, although they are still paying interest, the offer comes with more peace of mind.

Of course there are other things to consider before applying for a Rate for Life card. There may also be a one-off fee, which could be 1%, and higher amounts transferred may mean a slightly higher interest rate being levied.

Other points to look at are: required income levels, a time limit in which to carry out the balance transfer and many card companies will not allow an existing customer to apply for a new card.

Balance transfers can be an excellent way of reducing payments to credit card companies but also can be confusing. It is highly recommend that people considering this seek reliable debt advice before proceeding.

Securing Your Future Credit

It seems that in the United States we have grown accustomed to easy credit. Want to buy a car? No problem! Time to buy a house? Great get it financed 100% there’s no sense in saving any money towards a down payment. The 90’s and early 2000’s was a time of easy credit that was basically handed out to us, no questions asked. That time has passed.

Fast forward to today you want to purchase a home? Great! Where is your down payment as well as good credit score? Don’t have it? Sorry your not approved. Now that you actually need a credit score to qualify for a loan and things such as a house or car there are things that can be done.

For Americans that have credit blemishes, credit massacres, or no credit at all there is a solution. A way that you are basically guaranteed credit. These are called secured cards. I know, I know you have heard of secured credit cards, and you don’t want the kiddy secured card you want the grown up gold or platinum card right? Well if your reading this and are one of the people with blemished, bruised, or massacred credit your simply not ready for one of those cards. But don’t get down on yourself there are some great secured cards out there that will help you increase your credit score, and it time many can be changed from a secured card to an unsecured card.

Now there are lots of secured cards out there, but which one should you choose? You want to make sure that you choose a card that reports to all three major credit bureaus. What’s the point of working on building your credit if your card only reports to Trans Union but you purchase from a car dealership that pulls an Equifax report? All your hard work will have been wasted. Usually when you get a secured card from a bank they report to all three bureaus. The good thing about using a secured card from an actual bank is that generally with about a year of good standing with them the secured card will roll into an unsecured card with them. So if your looking for a secured card through a bank like Wells Fargo, or Bank of America simply go to their websites and apply.

Of course there are plenty of reputable companies out there that offer secured cards as well. Companies such as Orchard Bank. The good thing about deciding that your going to get your secured card from a card company as opposed to a bank is that they will generally open a card account for less money than a bank will. Generally if your going to open an account through a company you want to keep the account open for approximately a year, and apply for a unsecured card. Once you get the unsecured card you can close your secured account. Remember however never close an unsecured account once its open or your credit score could be affected by your debt to credit ratio.

So lets touch base here with the “secured” part of your secured card. A secured card basically means that you are putting up your own money as collateral. Most banks or credit card companies will open a secured card for somewhere between $200-$300. This means if you open an account and send the bank $300, then your credit limit will be $300. Now this is not a debit card. You have this money in your secured account, but you still have to make payments on your purchases every month. The Secured money is simply to protect the bank or card company. If you fail to make a payment, the money that you owe will be taken out of your secured account, and your card will be closed.

No building credit is not fast. Its something that is going to take time. Its going to take commitment. Commitment to yourself. Because when you build your credit you are building your future. A mortgage rate can vary widely based on your credit score. Someone with excellent credit can easily be paying $500 a month less than a person with poor credit purchasing the same home. And again these days credit is not easy to get, so why not give yourself a little credit with your own secured credit card.

What is “In Store Credit” and How Does it Work?

Have you ever returned an item to a store for a refund and was offered “In Store Credit” instead? In-store credit means that instead of giving the customer a cash refund, he is given credit towards a future purchase in that particular store. A credit means that the store owes the customer money, which will be applied to anything bought at that store in the future.

For example, let’s say you were given a shirt for your birthday that you really don’t like. The shirt is worth $20 and still has the tags, but you don’t have the original receipt showing what was paid for the shirt. Instead of handing you the $20 refund in cash, the store clerk may decide to issue a gift card or a piece of paper with a $20 credit instead. The next time you visit the store, the gift card or paper acts like a coupon and will take $20 off the price of the new items.

Some stores won’t issue a cash refund even with the receipt and prefer to give out store credits. Small shops, thrift stores, and specialty shops are a few examples of stores that might not give out cash refunds, especially on sale or clearance items.

Store credits are also used at places that take “used” items, such as books, CDs, and DVDs. Instead of getting cash for these items, the store will offer customer a credit to be used against an other item in the store. This keeps a customer’s business in the store instead of shopping somewhere else for books or DVDs.

There’s a number of reasons why a store may issue in-store credits instead of a cash refund

* If you don’t have the original receipt, store credits limit the liability of the store in case the item was stolen. This way, the store has not lost cash, and is only out the wholesale price of the new item which is far less.

* Cuts down theft. A person is less likely to steal from a store if he or she knows that he won’t get cash for ‘returning’ stolen merchandise.

* Stores also know that an “in-store credit” will keep the customer in their store looking for a replacement item instead of taking their business somewhere else.

It’s important to remember that store credits are like cash and should be kept in a safe place until you are ready to shop again. If you’ve lost your gift card or paper credit slip, there’s no way to get that money back.