Inheritance Loans vs Inheritance Cash Advance

Written by Posted On Tuesday, 14 July 2020 15:38

Inheritance Loan vs Inheritance Cash Advance

There two main types of inheritance funding; inheritance loans and inheritance cash advances. The needs of the beneficiaries as well as the type of assets owned by the trust or estate will determine the right style of inheritance funding to obtain. For both type of inheritance funding, borrowing against an inheritance is generally a fast process. Near immediate inheritance funding (compared to bank loans) is available with either option.

Inheritance Loan Lenders – Loans Against Real Estate

Inheritance loan lenders provide loans against real estate within the inheritance (estate or trust). These inheritance loans are referred to as trust loans or probate and estate loans. Inheritance loan companies are usually private money lenders. Traditional lenders like banks and credit unions are not typically able to provide inheritance loans since the current owner of the property is an estate or an irrevocable trust.

READ MORE: Can an Irrevocable Trust Get a Loan or Mortgage?

Inheritance loans are secured by real estate with a deed of trust and note just like a normal mortgage. The borrower will be responsible for making monthly payments while the loan is outstanding. Inheritance lenders can lend up to 65-75% of the real estate’s current value. Beneficiaries can obtain small inheritance loans or borrow a large amount depending on the amount of equity within the real estate. When the real estate is refinanced with a traditional lender or sold, the inheritance loan will be paid off automatically. The inheritance can also be paid off with cash.

Inheritance loans should be used for the following circumstances:

  • An heir wants to buy out siblings, transfer the property from the trust or estate into the heir’s name and use Prop 58 (California) to prevent a property tax reassessment
  • The inheritance (estate or trust) contains real estate with adequate equity
  • The estate or trust has expenses or debt that need to be paid
  • Repairs or improvements need to made the real estate

 

READ MORE: How to Refinance an Inherited Property to Buy Out Heirs

Inheritance Loan Interest Rates and Fees

Inheritance loan interest rates and fees are going to will differ between lenders. Annual interest rates of 8-10% are common along with loan fees of 2-4 points. 1 point is equal to 1% of the total loan amount. Borrowers must also pay the real estate transaction fees of title insurance, escrow, recording fees and notary fees. Some inheritance loan lenders also tack on additional fees and may call them processing, document or underwriting fees.

The Inheritance Loan Process

The individual with the legal authority to act on behalf of the estate or trust (probate administrator, executor, successor trustee, etc.) will need to initiate the loan request and complete the needed application forms.

  • Apply for loan
  • Obtain loan approval
  • Inheritance lender processes loan
  • Loan proceeds are sent directly to estate or trust bank account
  • Beneficiaries are bought out (or trust estate expenses are paid)
  • Property title is transferred into name of individual
  • Inheritance loan is refinanced, paid off with cash or property is sold

 

READ MORE: Estate Loans to Buy Out Siblings

Inheritance Cash Advance Companies

Inheritance cash advance companies provide a cash advance to the heir in exchange for signing over all or a portion of the heir’s inheritance. Inheritance advance companies can typically fund a cash advance within a week. Monthly payments are usually not required. The inheritance advance agreement will outline the details and terms of the cash advance.

A cash advance on an inheritance is recommended for the following circumstances:

  • The estate or trust does not contain real estate assets
  • Heirs need cash quickly to pay for expenses of the estate
  • Heirs cannot agree on placing a loan against real estate owned by the estate
  • Heirs have expenses or personal debts that must be paid as soon as possible

Inheritance Advance Rates

Inheritance advance rates can vary widely for different inheritance advance companies. Heirs should receive quotes from 2-3 inheritance cash advance companies to get an idea of rates and terms. The inheritance advance company often provides an advance and then later takes a larger amount from the estate once it has been settled. For example, a cash advance of $30,000 is provided and then $50,000 goes to the inheritance advance company once probate closes.

Cash advances are not usually recommended if the estate owns real estate. Inheritance cash advance rates are often much higher than for a real estate inheritance loan. Inheritance loans secured by real estate loans can be obtained at a much lower overall cost due to the lower amount of risk involved for the lender.


Original article posted at North Coast Financial: Inheritance Loan vs Inheritance Cash Advance

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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.

https://www.northcoastfinancialinc.com/

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