What’s the difference between HAMP loan modification and HAFA short sale?

Well, they are both part of the government stimulus plan called Making Home Affordable and are aimed at offering assistance to financially strapped homeowners. The goal is to give borrowers an alternative to foreclosure by either modifying their home loan to more affordable terms or allowing them to sell their home for less than the amount owed. When is one program a better option than the other?

The HAMP loan modification plan provides a standard method of changing the loan terms for struggling borrowers so that the new monthly payment will be affordable and sustainable. The homeowner must meet certain standard approval criteria, and this includes their monthly income, monthly expenses and bank balances must all pass an approval formula. A Waterfall Method of Modification is used which utilizes interest rate reductions to as low as 2%, extended loan terms to 40 years and sometimes principal reduction.

The HAFA short sale program is a streamlined process for those borrowers who are either turned down for a HAMP loan modification, who miss 2 or more trial mod payments or who decide that keeping their home is not an affordable option. This plan also has approval requirements, including the home must be the primary residence and the loan amount must be less than $729,750. The benefit of the HAFA program for the homeowner include a $3000 move out allowance and it prohibits the lenders from pursuing any deficiency balance from the homeowner.

Both the HAMP and HAFA program offer real benefits to homeowners, and can help a borrower avoid foreclosure by providing a dignified solution with fewer credit and legal ramifications. Homeowners need to take a hard look at their finances and decide what the smartest course of action for them is – whether trying to hold onto their home or deciding to sell and get a fresh start. It always helps to work with knowledgeable and experienced professionals who can provide information and guidance during this stressful and confusing time. The Mike & Michelle Team has closed many short sales and knows how to use the government plans to benefit the homeowner.

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