Learn How To Refinance Inherited Property
Many people have the good fortune to be remembered by loved ones who pass on with an inheritance that includes real estate. Sometimes a property is left to just one person, but sometimes a property is left to two or more family members. Very often, the person or people who inherit real estate need to refinance that real estate for a number of reasons.
Why would you need to refinance an inherited property?
When a person passes away and leaves a property to one or more people, the property first goes into an estate that has to be distributed out after paying any expenses or debts of the estate. For example, if you are left a home worth $200,000 but there was a $100,000 loan on the property owed by the person who died, that $100,000 loan needs to be paid off before you will get title and own the property. With the increased use of reverse mortgages in recent years, it is just as likely as not that a property will have a mortgage on it when the owner dies.
Estates cannot get mortgage loans, so any property in an estate that has a loan on it from before the owner died needs to get paid off. Even if there is no mortgage, there are often expenses of the estate that need to get paid. Usually mortgage lenders will work with the attorney handling the estate to establish a plan for paying off the loan through sale of the property or refinancing by one or more of the heirs.
Mortgage Refinancing: Take The title and refinance at the same time
If you are an heir to a property and you would like to keep that property, you can refinance into a new mortgage loan and take title to the property from the estate at the same time. Technically, this transaction can be both a refinance loan and a purchase mortgage at the same time depending on whether or not there are other heirs involved.
If you are the only heir to a property, of course it would be ideal if you just received a deed to the property and had a new home with no mortgage on it. But if you do need to obtain a loan to acquire the property, you can treat this transaction as a refinance transaction and as a result you probably will not need any money to complete the transaction. You can finance up to 75% of the value of the home if needed (and up to 85% in some cases through the FHA Program and you will be able to keep any proceeds of the loan that do not go to pay off expenses of the estate.
Mortgage Refinancing inherited property with additional Heirs
If you have inherited a property with one or more additional heirs and you want to own the property for yourself, you can agree to refinance and use the proceeds of that refinance to pay each heir the value of their share. This transaction is technically a refinance and a purchase, but since you have at least one share of ownership in the property, you can usually use that share of ownership as your down payment or equity into the transaction so you will not need to make a cash deposit at closing.
Note: This article is only about mortgage options for inherited property and is not legal advice. Consult an attorney for answers to any and all legal questions.
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