Terms like fixed rate, APR and refinancing programs are pretty common knowledge to most home owners. When you introduce some of the terms commonly used in conjunction with a short sale or loan modification, most homeowners aren’t as knowledgeable.

This is one of the primary reasons why home owners often take a long time to get started on a solution that can help them with solving their problems associated with their delinquent mortgage.

The good news is that you don’t have to be a financial expert to know enough about loan modifications or short sales to have a working knowledge of them. Below are just a few of the important terms related to loan modification.

• Debt-to-Income Ratio: May sometimes also be referred to as DTI. Your debt to income is the ratio that you spend each month on bills vs your monthly income. FHA guidelines state that your DTI guidelines should be 29/43%..

• Deed-in-Lieu: May also sometimes be referred to as Deed-in-Lieu-of-Foreclosure. This means that rather than a foreclosure, the lender agrees to accept you to deed the property back to them in exchange for not foreclosing on the property.

• Fair Market Value: This is what the lender will arrive at where they will be willing to sell the hosue in a short sale. Fair market value is determined by ordering a broker price opinion — also called a BPO from a local Realtor.

• Foreclosure: Depending on what state you live in, the foreclosure process will be different.When you are foreclosed on, your home is sold and the lender gets the proceeds of what the home sells for.

• Forbearance: In a forbearance agreement, your lender agrees to revise your payment plan to help you hopefully get current and catch up on any arrears in payments. Forbearance may involve any number of options including lowering your monthly mortgage payment or even agreeing to suspend your mortgage payment for a period of time.

• Principal Balance Reduction: When a lender agrees to reduce the amount of money that you owe as a way to reduce your mortgage payment, this is called a principal reduction. Principal reductions are not usually the first offer from a lender for a loan modification – they are not a very popular option.

• Short sale: Short sales are a popular way for people to avoid going into foreclosure. In a short sale, you sell the home for less than its fair market value, and give the proceeds to your lender as payment for the home. Just one of the reasons that many people choose to short sell their home vs let it foreclose is that you can buy a home after short sale in a shorter time period than you can after a foreclosure.

If you are considering selling your home with a short sale, or you are looking for other ways to prevent foreclosure on your Arizona home, please speak to one of our short sale realtors in either our East Valley or West Valley Phoenix locations.