Can We Refinance Our Home That's in a Trust?

Trust funds provide a method of planning for your final wishes and avoiding the probate process when you die. After you move an asset, such as your home, into the trust, you no longer technically own it. However, you might decide to refinance the property at a later date. Most lenders will allow you to refinance your home if it's in a revocable trust, with a few extra steps involved. However, lenders might not be willing to refinance a loan on a property held by an irrevocable trust.

Revocable vs Irrevocable Trusts

Revocable trusts and irrevocable trusts are the two primary types of trusts used for estate planning purposes. Both function to hold assets with instructions on how to distribute them when you die, but only a revocable trust can be modified after it's created. Revocable trusts are also called living trusts because you act as the trustee during your lifetime. You have the power to change the terms of the trust, move assets or revoke the trust. If you use an irrevocable trust, you appoint a trustee and no changes can be made.

Refinance Loans

A refinance loan is a new mortgage loan that can be taken out if you already have a mortgage loan on a property. Generally homeowners refinance their mortgage loans if interest rates have dropped, they want to lower the monthly payments by extending the term or they want to get cash back if they have built equity.

Lender Requirements

Lender requirements for refinance loans are very similar to the requirements your lender had for the original mortgage loan. Your income and credit history are reviewed. An appraisal of the home may be required. The lender also conducts a title search to ensure no liens are filed against the property and to verify how the title is held. If the title report shows the property is held in a revocable trust, the lender will likely ask you to remove it from the trust before processing the refinance. However, not all lenders will make you take this step.

Titling and Deeds

Certain documents related to real estate, such as deeds, are filed publicly with the county land records department or registry. When a title search is conducted, the most recent deed filed on record determines who the legal owner of the property is. If the lender wants you to take the property out of the trust before refinancing, you will need to complete a deed granting ownership of the property back to yourself. Then, the refinance loan's security instrument is recorded next in line. Finally, you sign a second deed to put the property back into your revocable trust.

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