This article takes a look at estate refinance loans as a means for buying out co-heirs in an inherited property.
We will cover everything — from qualifying criteria to the application process. We will also discuss an alternative approach for when refinancing is problematic.
Keep reading for expert insights and actionable steps.
How to Get an Estate Refinance Loan?
An estate refinance loan lets heirs tap into the equity of an inherited property. Essentially, it involves borrowing more than what’s owed on the home and receiving the extra amount in cash.
This option may involve replacing an existing mortgage with a larger one, or getting a new loan on a free-and-clear house.
This approach is common when some heirs want to keep the property while others want to cash out. These loans are usually difficult to obtain through banks or credit unions.
Instead, specialized lenders that understand probate and know how to handle the unique aspects of estate situations more commonly offer them.
These lenders are often known as probate, estate, or trust loan providers.
Usually, the executor named in the will or a court-appointed administrator (could be an heir in either role) handles the application and paperwork as the estate’s legal representative.
How to Qualify for an Estate Refinance Loan?
Lenders typically look to tick off boxes for legal, financial, and property-specific factors when considering an estate refinance loan for an inherited property.
Specifically, qualifying for the loan involves meeting certain conditions, such as these:
- Legal Authority
Those acting on behalf of the estate must prove their authority to do so. If, for example, you inherited a house and are appointed executor through a will, you must provide Letters Testamentary from the court. You need Letters of Administration if there’s no will.
- Beneficiary Consent
While an inheritance buyout agreement isn’t a universal condition, lenders usually want proof of beneficiaries’ consent. This documentation reassures them that the property title will be clear.
- Adequate Equity
Lenders look for high equity to reduce risk, which they evaluate by comparing the loan amount to the property’s worth. So, a lower loan-to-value ratio (more equity) is better. For inherited properties, lenders often prefer an LTV of 70% or less.
- Heir’s Creditworthiness
Even if the property’s equity is the primary consideration, lenders will likely look at credit standing and financial stability of the heir doing the buyout.
If that heir has inherited a house with no mortgage and substantial equity, the lender may be more flexible, but there’s no free pass on creditworthiness.
- Acceptable Property Condition
Lenders often require the property to meet certain minimum physical condition standards to ensure it’s adequate collateral for the loan.
How to Apply for an Estate Refinance Loan?
Here’s a glimpse of the main steps in applying for this type of loan.
1. Evaluate the property and equity
For a strong application, assess property value. Get a preliminary title report as well to identify possible issues.
2. Find the right lender
Shop around. Pre-qualify with a few different lenders so that you can see what they are offering. That way, you can compare rates and terms before formally applying.
3. Gather the required documents
These include legal papers like the death certificate, will, and letters proving you’re in charge of the estate. Also, have documents that detail the buyout terms for those getting an inheritance and your personal financial information, especially if you’re an heir.
4. Submit a loan application
Submit an application package to the chosen lender. If the beneficiaries inherited a house with a mortgage, lenders will need detailed information about that loan in addition to inheritance and legal documents.
5. Cooperate with the lender
The lender may need an appraisal for the inherited property to determine its value, so you have to make sure the process goes smoothly. Also, promptly respond if the lender asks for more information during the approval process.
6. Review the terms and close the loan
Carefully go through the loan documents, getting advice from a lawyer or financial expert, if needed. Once you agree to the terms, the lender will set a closing date.
Is There an Alternative to Refinancing?
Refinancing is often ideal for buyouts but usually requires all heirs to agree.
So, what happens, for example, if co-heirs reach an impasse about selling a parent’s house in a negotiated buyout, blocking refinancing efforts?
An executor of a will can sell property without all beneficiaries approving, depending on state laws, estate circumstances, and the terms of the will.
That power, if granted, may allow the executor to facilitate a buyout, but that’s not always an option.
In those cases, a partition action can be a viable — albeit more contentious and complex — path to achieving a similar outcome.
Through this lawsuit, one heir can force the sale of the property by petitioning a court to order the sale.
If the petition is granted, the inherited property can be sold even with disagreements, often through a public sale, with the proceeds equitably distributed among the heirs.
The heir who brought the partition action can bid on the property. That allows them to potentially gain sole ownership with the highest bid.
Take note that a challenge that commonly arises during the sale process is occupancy. For instance, if siblings inherited a house but their brother won’t move out, that could block the sale.
To address that, if the will, state law, and the court allow it, the executor can evict a beneficiary for valid, estate-related reasons.
Ideally, this happens before the lawsuit, as the court may limit executor authority once it starts.
If the executor lacks the authority or their actions are challenged, the new owner may need to address the occupancy issues after the partition sale.
It’s also important to remember that evicting a sibling from a deceased parents’ home is a delicate matter. So, follow the law to the letter and handle the situation with sensitivity.
How to Sell an Inherited Property Easily?
If you’re looking to sell an inherited property fast, a direct sale to a company that buys inherited properties for cash can be an ideal choice.
Here are the key advantages of going this route:
- Cash right away: Skip the mortgage approval wait. Get cash instead.
- Close fast: Forget months of waiting. These investors wrap up deals in days.
- Simplified process: Minimal versus a mountain of paperwork that typically comes with a traditional transaction keeps things simple.
- Any condition accepted: Inherited a house that needs work? No problem. What if you inherited a hoarder house? Cash buyers are ready to take the property as is.
- No real estate commission: No real estate listing agents are involved in the sale.
- Closing costs paid: Investors usually cover these expenses.
Explore the carefully selected list of trusted cash buyers featured on our website. It’s an ideal resource whether you’re selling an inherited house as is or seeking a swift, hassle-free sale.
Get a cash offer from multiple local firms by submitting just one online form, and then settle on a deal.
For those looking to dive deeper into alternative sales options, our extensive guide to selling an inherited home is filled with helpful pointers and expert perspectives.
