The odds are pretty good that if you are reading this, and are debating getting a home loan modification; then you most likely have found yourself in some financial situation not to your liking.  You’re not alone.  There are several options available to you, and not just the bank foreclosing on your home.  Though whatever option you choose is going to have a noticeable affect on your credit rating, so you’re going to want to look at each option carefully and consider the implications to your credit.

Having bad credit can affect every aspect of your life. Finding a job, buying anything that costs more than what you have in cash, having a credit card, even some cable companies do credit checks. Poor credit raises your cost of living because it raises the interest rates you’re charged, IF you manage to get a loan.  A bad credit report will also haunt you awhile, seven to ten years is the usual.  So if possible you’re going to want to choose the route with the least amount of credit damage.

First there is FORECLOSURE.  Foreclosure numbers jumped up about 7% between June and July of 2009, and a startling 32% from the year before.  Put even more plainly, about 350 homeowners received a notice of foreclosure in July of this year.  Not only is this a new record, but it shows how serious the current foreclosure crisis really is.  For those truly new to the term, foreclosure is when the bank seizes your home and sells it because you couldn’t keep up with your mortgage payments.  It also causes the most havoc to your credit.

Second there is the option of SHORT SELLING.  A short sale is when the homeowner sells the property, but the proceeds from the sale fall short of the balance owed on the loan.  People who own homes that have lost equity often fall into this category.  A short sale can have a major negative impact on your credit rating, and it can still leave you in debt.  However, it looks better on your credit report than a foreclosure because it shows you took some action to rectify your situation.

A third option, and the best, is a HOME LOAN MODIFICATION.  A home loan modification is a renegotiation of your initial mortgage.  This modification can reduce your interest rate; change your rate from variable to fixed, or even both.  It can extend the duration of the loan (usually up to between 30 and 40 years).  It can even lower the principal for borrowers whose homes have lost their value.  Any one of these changes can mean the difference between the homeowner keeping their house or losing their house.

While not perfect for your credit rating, it is the better of the three.  Because the home loan modification was most likely done with the mortgage in a state of delinquency, those late payments are going to show up on your credit report, and affect your overall credit score; just not as adversely.

Ideally, if you know you are going to miss a mortgage payment, and haven’t actually missed it yet, you can apply for a home loan modification BEFORE the problem begins.

The sooner you take action, the safer your credit score is going to be.

To learn more about home loan modification visit Legal Loan Bailout