February 24, 2023 by Leave a comment

Inheriting a house can be a life-changing event, but the financial decisions and responsibilities associated with managing a loved one’s estate can be a big hassle. One option to consider is to refinance your newly inherited property. 

By refinancing an inherited house, you could potentially lower your monthly mortgage payments or make necessary updates or repairs by accessing built-up equity. 

Here’s what you need to know when it comes to refinancing your inherited property. 

Inheriting a House With a Mortgage

When a person dies, their mortgage doesn’t suddenly go away. A mortgage is a lien against the property as security for the money borrowed to purchase the house. 

The mortgage lender still needs to be repaid, and not making payments could lead to foreclosure. 

If there’s a co-borrower or co-signer on the loan, then the responsibility falls on that party. If there isn’t one, then it goes to the executor of the estate. 

The executor of the estate is named by the creator of the will and is responsible for taking care of any remaining financial obligations and ensuring beneficiaries receive their assets. The executor will typically continue to make mortgage payments using funds from the estate.

If the home is left to you as the sole heir, there are several options: 

  • Assume the mortgage and continue to make payments
  • Pay off the debt
  • Sell the property 
  • Refinance 

If the home was left to several heirs, you and the other co-heirs will need to work with the executor of the estate (if there is one) and the mortgage lender to determine what will happen with the property.

The mortgage may also include a due-on-sale or due-on-transfer clause that requires full repayment of the loan when there’s a change in ownership. 

However, lenders are prohibited from enforcing this clause in certain situations, such as divorce or legal separation, if the borrower dies and transfers property to children, or if the property is transferred to a living trust and the borrower is the trust’s beneficiary.

Inheriting a House With No Mortgage

You may also be in the situation where you’ve inherited a house with no mortgage. With no mortgage payments, you own 100% of the equity in the inherited property. 

You can tap that equity and put it to good use; however, you’ll need to contact a lender and meet their requirements for a new loan.

Calculate how refinancing might affect your monthly payments with Total Mortgage’s Refinance Calculator and see how much you can save.

How to Refinance an Inherited House

Refinancing an inherited property can be done in several ways. Remember that while you decide on refinancing your inherited house, you must continue to make monthly mortgage payments. 

Here are several refinancing options to consider.

Probate Loan 

A probate loan can be thought of as a cash advance that the lender provides while the estate is going through probate. The lender will receive your inheritance after probate proceedings. 

When you apply for a probate loan with a lender, you’ll need:

  • The amount requested and the purpose
  • Order for probate
  • Inventory and appraisal/property address
  • Petition for probate
  • The death certificate

Once your application has been submitted, the lender will review it. It can take up to two weeks for the cash to appear in your bank account. 

You may also take out a probate loan based on the available equity in the home. This can be used to buy out other beneficiaries. 

Rate-and-Term Refinance 

A rate-and-term refinance allows homeowners to change the term and/or the interest rate of the existing loan by replacing it with a new mortgage. 

The biggest goal with this type of refinancing is to lower monthly payments or to shorten the term of the loan without changing the principal balance. This option is only viable if you are the only heir to the inherited home. 

Before you begin shopping for lenders, the house and mortgage must be in your name. Once transferred to you, you are free to refinance. 

Here are the basic steps to refinance an inherited house:

  • Check your credit: Most lenders look for a FICO score of at least 620; however, this varies from lender to lender.
  • Shop multiple lenders: You’re more likely to find the best refinance rate with the lowest fees if you comparison shop.
  • Apply to refinance your mortgage: You can even apply with multiple lenders within a short period. The impact on your credit score will be minimal. 
  • Compare Loan Estimate documents: This should also tell you how much you’ll need for closing costs.
  • Lock your interest rate: Once locked, your interest rate won’t change for a specified amount of time.
  • Close on your new loan: Closing on a refinance is very similar to closing on a purchase loan. This is also when you can expect to pay closing costs.

You can easily view personalized refinance rates within minutes without affecting your credit.

Cash-Out Refinance 

With this option, homeowners get a new loan for more than what is owed. 

The difference gets paid out in cash which can be used for home improvements, debt consolidation, or other financial demands. This could also be used to purchase the inherited home and to pay off the remaining heirs. 

A cash-out refinance also have a few requirements, such as:

  • A cash-out refinance requires that the homeowner has at least 20% equity in their home.
  • The amount you can take out depends on your inherited home’s value, which you’ll learn after a home appraisal. Lenders will typically allow you to take out no more than 80% of the home’s value, but this depends on the lender and your specific situation. 
  • Your name must have been on the title of your inherited home for at least six months before you can do a cash-out refinance.

Looking to Refinance an Inherited House? Explore Total Mortgage’s Loan Program Options

Are you ready to refinance an inherited house? Consider refinancing with Total Mortgage for a smooth and personalized mortgage experience. 
Find a Total Mortgage branch nearest to you or apply online to get a free rate quote.


Carter Wessman is originally from the charming town of Norfolk, Massachusetts. When he isn’t busy writing about mortgage related topics, you can find him playing table tennis, or jamming on his bass guitar.

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