How to Refinance an Inherited Property to Buy Out Heirs [2021]

Written by Posted On Thursday, 14 January 2021 09:43
How to refinance an inherited property to buy out heirs How to refinance an inherited property to buy out heirs

How to Refinance an Inherited Property to Buy Out Heirs (Beneficiaries, Siblings)

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 receive 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 inheritance buyout loan. 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 is able to fund.

Probate Loans, Estate Loans & Trust Loans

Experienced private money lenders (also known as hard money lenders) with the needed expertise understand how to refinance an inherited property to buy out heirs.

These types of loans are commonly referred to as:

There are various other names such as trust beneficiary buyout, inheritance loans, estate inheritance loans, inheritance advance, probate advance. 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.

READ MORE: 8 Trust Loan Questions - Answers for Beneficiaries and Trustees

Property Tax Considerations on Inherited Property (Prop 58 - California)

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. Prop 58 loans can help the beneficiary prevent a property tax reassessment when the property transfers from the name of the trust or estate into the name of the new owner (parent to child transfer).

Inherited House with No Mortgage

Inheriting a house with no mortgage provides the maximum amount of equity to divide among the heirs or siblings. A free and clear property often provides the best opportunity to obtain an estate loan to buyout 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.

Read More: How to Buy Out a Sibling on Shared Property

Where Can I Obtain a Refinance Loan on an Inherited Property?

North Coast Financial is a hard money lender specializing 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.

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Jeff Hensel

North Coast Financial, Inc. is a California hard money lender with over 37 years of experience specializing in various types of hard money loans including probate and estate loans, investment and rental property loans, bridge loans, fix and flip/rehab loans, purchase loans, cash out and refinance loans and other hard money loans with California real estate as collateral.

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