Short Selling Your Home May Be Financially Much More Beneficial Than A Loan Modification

The home we live in may be our most cherished posession. Memories are made with our families, our friends, and our neighbors. We may have even re-decorated, and poured our hearts in to our gardens. But when times are tough we have to face some real decisions. Moving is difficult and we dread the possibility of packing up our collectibles and re-establishing ourselves in a new place.

But if If I told you that reduced mortgage payment and the temporary monthly payment reduction is actually costing you upward of $17,000 a year EXTRA by staying in the house, would you believe me? So to understand the loss or gain associated with a loan modification versus a short sale let’s do the math. Let’s take a San Diego example.

A loan modification is attractive for many people because of the emotion attachment to the house. After all, it is your home, not just some investment to be dumped at a whim. But what if I told you that financially it will cost you about a half a million dollars just to hold that home instead of selling it through a short sale?

What if lenders are not granting short sales at that time? You will still not have made any money on that house, you will have paid out $30,339 in interest and principal – AND YOU WILL GET NONE OF IT BACK. The bank still might take your home.

So lets look at the scenario where you got out today in a short sale, and bought another house in 1 year, which is possible if you are aggressive with your credit repair. Sell the house for $200,000 ” thats $200,000 forgiven. Expect a credit hit, but in one year houses will still be dirt cheap. In San Diego houses are still experiencing a decline in prices. So say in one year that house is now worth $175,000 and you buy a similar one in the same neighborhood with 10% down. Your loan would be $157,500. For comparison sake lets assume the interest is 6.5%, fully amortizing for 30 years. Your total interest paid for the life of the loan would only be $200,244. To pay off the entire loan over 30 years you would end up paying $357,244. Thats a savings of $552,993.00 – a half a million dollars!

So by moving on, particularly if you are facing a financial difficulty, you will not only get out of your negative equity situation (and essentially be losing money), but you will save over $500,000 by getting out and getting back in.

What would you do with that money? Pay for college education for your kids? Save up for retirement? Pay off other debts?

So by moving on, particularly if you are facing a financial difficulty, you will not only get out of your negative equity situation (and essentially be losing money), but you will save over $500,000 by getting out and getting back in. What would you do with that money? Pay for college education for your kids? Save up for retirement? Pay off other debts? Let me ask you, does it financially make sense to stay in the home? I know you love it, but separate out the emotions from the finances. What ultimately will be better for you?