Refinancing Inherited Property and Estates

January 30, 2013 by 12 Comments

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.

Mortgage loans cannot be issued to estates.  Any existing liens on a property in an estate will need to be settled.  Even if there is no mortgage or property liens, there are often other expenses that need to be paid off before the estate is distributed.  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 with a mortgage, you may need a loan to acquire the property.  This transaction can be treated as a refinance and as a result you probably will be able to complete the transaction at minimal cost.  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.
Refinancing a property with multiple 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.

It’s vitally important that you consult with both a lawyer and a loan officer if you inherit property that needs to be refinanced.  They will be able to make you aware of any applicable state and federal laws, and will be able to guide you on your best course of action.  

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  •' Artamise Lee says:

    I’m inquiring about remodeling my grandfathers home. He passed back in January and my mother is passed since 2007. I have two aunts who are still living and we all agreed that it would be ok for me as the granddaughter to continue to stay here since it’s paid for and I’m doing all the work. No will was left, but we wanted to know how to go about financing the project. Thank you….

  •' Joe Eckhardt says:

    I have a house I inherited free and clear. Everyone I talked to says they will not give me a mortgage until I own (have new title) for two years. I want to take advantage of the rates now, to pay for my child’s education. Where can I get a mortgage.

  • Joe, I’ve had a loan officer reach out to you via email.

  •' Amy Dawn Beasley says:

    I have a home that I have been living in since 2007 it was my dads he passed in 2006 . My siblings and I agreed I could stay there rent and mortgage free until I sold the home and the n we would split it 6 ways. Well one of my siblings now has decided he wants his portion of the home and now I need to know what my options are

  •' Brian Mack says:

    I inherited a home from my moms death don’t have good credit and the house appraised for 77,thousand and the mortgage is 99.322 really need advice.

  •' Karen Austin says:

    I inherited a house that was given to me by my aunt, she transferred everything to me however, the home is really in a bad condition and needs a lot of work. As a first time home buyer how do I go about getting a refinance loan to do renovations. The house is free and clear of debt.

  • I don’t think this is something we would be able to help you with. I’m afraid you would probably want to speak with an estate attorney. This is not legal advice.

  •' Andrew Penner says:

    Hi Karen, we’ve seen situations like this before, and would love to try and help you. Would you mind if I had one of our mortgage experts reach out to you via email to discuss the details of your home renovations?

  •' Don Harper says:

    This is a similar situation. My parents have quit-deeded a home to me as an early wedding present. The home is paid for and the deed processed at the court house this week. So I’ve been the owner for a few days, and the house needs extensive repairs before it can be lived in. I’ve already taken out home owner’s insurance in my name. I’ve planned on spending between $75k – $100k to rehab it. The current unrepaired value is approx. $165, so it would definitely appraise but the banks won’t lend on it because they say I must own it for at least 2 years before I can do a cash-out refinance (mortgage). I have good credit and salary and need to have the house done as soon as possible (the roof needs to be replaced-leaking, estimates averaged $12k). What would my options be for obtaining a large amount to repair the house soon? A HELOC was the same scenario, must have title for 24 months. I live in Georgia. I need to figure how how to get the money quick so I can repair the roof at the absolute least. Thank you for your time.

  •' Rose Weaver says:

    We inherited my moms completely paid for house at her passing in May. It is to be split equally between us five children. We are letting one sibling have it for $150000 and she has two shares since one brother gave her his share. She is in the process to get a cash out refinance to pay the other three of us off. She started this process on July 16. Loan officer says it can take until September 26 though it’s already gone to the underwriter. Does this normally take two months?! She’s only borrowing $96000 on an appraised $182000 house. Does a quit claim deed need to be signed?

  •' Carter Wessman says:

    If the home doesn’t have to go through probate then the only reason why it would take two months is because of the turn times of the lender. There should be no need for a quit claim because you can refinance in her name and get everyone else off the deed.


  •' nadine thompspn says:

    Both parents are deceased , i am one of 3 siblings.. i live in the home mortgage free. the home is in desperate need of repairs. What do i need to do to use the equity in the home to make repairs?

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