Updated: Sep 8
It is important to understand that you have different options available to you when a family member passes away and real estate is passed on to you through either a Last Will & Testament (probate), a Living Trust, or a Beneficiary Deed.
Most people are aware that you can sell an inherited property, move into the property, or turn it into a rental (income) property. But what happens when you inherit property that has an outstanding mortgage or if you inherit property with other people?
If there are multiple heirs, you will first need to agree on the next steps. Whether you decide to keep the home or not, there may be a lot to sort through. If you find yourself in one of these situations, you may wish to consider these options:
Option 1: Rate/Term Refinance
When you inherit property, you do have the option to refinance the property to lower the interest rate, remove mortgage insurance, get out of an adjustable rate mortgage, and/or lower the length of the term of the loan. You may be thinking, "Why would I need to refinance?" If you are left a home worth $300,000 but there remains a $150,000 loan on the property owed by the person who died, that $150,000 loan needs to be paid off before you will be able to obtain a clear title to own the property. If you do not have funds to pay that amount in full and you do not wish to assume the mortgage terms, refinancing the loan may be a great option for you to consider.
Option 2: Cash Out Refinance
Another option is to use equity in the home to pay off debt (student loans, credit cards, vehicles, or second mortgages) or taking out cash for investment purposes. A cash-out refinance will allow you to put the mortgage in your name and, ideally, secure a more favorable interest rate on the loan while freeing up cash to address those expenses.
Option 3: Renovation Refinance
You may also use the equity in the newly acquired home to update the homes aesthetics, add a pool, or update the interior of the home. Whether you plan to rent, sell, or move in, you may decide to renovate. Before writing off an out-of-date home, consider its potential and overall value. By taking the time to make home improvements, you will increase the home equity, which means more money in your pocket.
At Glover Court Solutions & Estate Planning, we pride ourselves on our ability to lead our clients through life's challenges by not only educating them on options, but also by connecting our clients to qualified professionals throughout the valley. If you would like additional information about refinancing an inherited property, contact our friend and colleague, Brandon Rocha, at Fairway Independent Mortgage Company today!
If you would like assistance with the preparation of a custom estate plan, Glover Court Solutions & Estate Planning offers FREE, no obligation consultations and reviews of your current estate plans,. While, we cannot give legal advice, we can provide general legal information to help you navigate your legal matter(s). We also network with dozens of qualified attorneys throughout the Valley whom we would be happy to refer you to in the unlikely event we are unable to help.