When heirs receive an inherited property, it may create conflict among the group as one heir may wish to maintain ownership of the real estate while others want to sell their share of the inherited property and receivpropere cash. This issue typically results in the heir who wants to maintain ownership looking for a way to refinance the inherited property to buy out the other heirs (beneficiaries, siblings). If the heir who wants to keep the property doesn’t have cash to buy out their sibling’s interest in the inherited house they must pursue some type of refinancing for the inherited property. The heirs must come to an agreement on the value of the real estate and what amount of funds each heir will receive prior to refinancing the inherited property.
Refinancing inherited property generally isn’t as easy going to the bank to receive a conventional mortgage. Inherited property is typically in the name of the estate (probate) or trust. Getting a mortgage on an inherited property isn’t possible in most situations as banks will not provide a loan to a borrower who isn’t on title of the property. Refinancing a property with multiple heirs isn’t the type of loan request a bank wants to fund.
How to Refinance an Inherited Property to Buy Out Heirs (Beneficiaries, Siblings)
Experienced private money lenders, also known as hard money lenders, have the expertise and understand how to refinance an inherited property to buy out heirs. These types of loans are commonly referred to as estate loans, probate loans, trust loans, inheritance loans or estate inheritance loans. Though the names are different they all do the same thing and provide a cash out refinance on inherited property.
The hard money lender is able to provide a loan directly to the estate or trust and then have the heir who wishes to maintain ownership of the property assume the loan. The proceeds from the loan will go to the heirs who are selling their share of the inherited property.
Hard money lenders are typically able to lend up to 70% of the current value of the inherited property. Their interest rates are higher than conventional bank loans but hard money lenders have much more flexibility and are able to approve and fund loans very quickly.
Once the refinance on the inherited property is completed, the title of the property can be transferred from the estate or trust to the heir who now owns the property. At this point the heir will be able to apply for long-term and lower interest rate loan from a conventional lender.
Property Tax Considerations on Inherited Property
When refinancing inherited property it is advised to consult an attorney or tax professional to ensure that the transfer of the property from the trust or estate to the heir is done in a way that preserves the existing tax assessment value with the parent to child exclusion. Ensuring that the property is not reassessed for property tax purposes can end up saving the heir who maintains ownership of the property thousands of dollars each year.
Inherited House with No Mortgage
Inheriting a house with no mortgage provides the maximum amount of equity to divide among the heirs or siblings. This is essentially a home equity loan on the inherited property.
Inherited Property with an Existing Mortgage
Inherited property with an existing mortgage can be borrowed against but the existing mortgage(s) will have to be paid off which will reduce the amount of equity that can be pulled from the property.
If the inherited property has a reverse mortgage it will be necessary to refinance the reverse mortgage. Reverse mortgage lenders can be very aggressive and may start to threaten foreclosure as soon as the reverse mortgage borrower is deceased or moves out of the home.
Where Can I Obtain a Refinance Loan on an Inherited Property?
North Coast Financial are hard money lenders who specialize in refinancing inherited property in California. Outside of California, heirs and beneficiaries can search for private hard money lenders who are able to make loans directly to a trust or estate.