Short sale vs. reverse mortgage

by Francine Huff
December 6th, 2010

Reverse mortgages have helped many senior citizens remain in their own homes free of monthly mortgage payments. But in order to get a reverse loan you need to have enough equity in a home to qualify. If you’ve seen your home equity drop as the housing market has struggled, you might not meet the requirements to get a reverse home mortgage. So what do you do if you can’t make the monthly payments and are at risk of foreclosure?

Underwater mortgage

Getting out from under a mortgage may be the best solution to your financial problems. But if you’ve lost so much equity that you are underwater, or owe more on a mortgage loan that your property is worth, you may have to consider a short sale.

Why short sale?

A short sale occurs when the mortgage lender agrees to accept a lower payoff amount than what is owed. The main incentive for a mortgage lender to do this is to recover more than they can in a foreclosure sale. The lender can also avoid the time and expense associated with foreclosing on a property.

Short sales require a lot of documents to be processed, so be prepared to have your finances scrutinized. You also will be expected to provide a hardship letter that details how you ended up having serious financial issues. Also, depending upon your situation you may owe taxes on the amount of forgiven debt.

Review your options

If you aren’t sure of how to proceed to straighten out your finances, find a reputable housing counselor. If you are over 62 and a homeowner, even if you can’t be helped by a reverse mortgage there may be other options available to you. If you decide to pursue a reverse loan, you can begin comparing quotes here.

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