Many homes are obtained on a mortgage instead of being bought straight off. However, mortgage proposes a long-term financial obligation. While at the current state you are in you’re confident that you can meet all your payment dues, unfortunate instances in the future such as being laid off from work, getting sick, and being struck by an economic run down could prevent you from doing so. For cases like these, you can prevent foreclosure on your home using at least two immediate solutions – short refinance and short sale.

Short refinance pertains to the process of reducing your principal balance with your first lender through a short payoff. This means that you’re going to secure a second loan on your home based on its current value. This process is most applicable to borrowers whose properties have reduced its market price since the time they have bought the property.

To avail of a short refinance, you need to negotiate with your first lender and have them agree to short payoff. If they do, you will then talk with a new lender to provide you with a new FHA loan, provided that you qualify for one.

Short sales are somewhat different. So what is a short sale? Here, you’re actually surrendering ownership of your home. Borrowers who find no option other than selling their property because they could no longer pay off its monthly mortgage would go for this one. Mortgagors rarely have full ownership of their property so they would have to ask for approval from their lender first if they would like to resort to this option.

Lenders usually consent to a short sale because they would rather obtain the full payable on the property instead of pulling it out from the borrower and acquiring it as an asset. Borrowers who need immediate cash against their homes would go for this option as the new buyer would normally pay the selling price in full only after a few days of processing – otherwise known as buying a short sale. It would be the buyer who would put a price tag the property though, which is usually at 75% of its current market value.