Homeowners who would prefer to get out from underwater may prefer to do a short sale compared to a loan modification. A short sale means the bank will accept a reduced payoff and release the loan. If your home is worth dramatically less than the amount owed, it might make more sense to do a short sale and be relieved of the burdened debt.

Loan Modifications are changes to your loan agreement. Your payments get more affordable, but your loan balance is not reduced in any way. In fact, many loan modifications will adjust your payment back up after 3-5 years.

Here are other factors to consider:

1. After two to three years of maintaining credit, if prices remain stable, homeowners may qualify to buy another home with a mortgage and a payment that is affordable.

2. Both a loan modification and a short sale may affect credit. But either solution is generally better than a foreclosure.

3. Most of the short sale listings I sell in my area involve sellers who were denied a loan modification.

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