Since a home is often the largest investment an individual or couple ever makes, real estate can become a substantial part of an estate. If you inherit real estate – whether it's a home, investment property or land – you may be able to refinance it. In fact, depending on the situation, you may be required to refinance to keep the home.
Requirements of the Estate
An estate – the property and net worth of a deceased individual – cannot actually hold a mortgage. Therefore, if your inherited property is not paid for, this debt will need to be settled before you take ownership of the property.
For instance, if you inherit a home worth $350,000 with a $150,000 loan attached, you’ll need to pay off this loan before you receive the title to the property. That doesn’t mean you have to have $150,000 cash on hand, though. You can likely refinance the mortgage in your name and take on the debt along with the inherited home and equity.
Refinance Rules for Single Heirs
For a single heir to the property, this process can be relatively straightforward. You will need to contact the existing mortgage lender and let it know that the owner is deceased. The lender will likely require proof of death, such as the death certificate.
The lender may give you the option of taking over the existing mortgage if you are a close relative of the deceased owner. However, if the interest rate is higher on the existing loan than it is on loan rates in the current market, this may not be a wise option.
Rules for Multiple Heirs
If you are not the sole heir to a property with a mortgage, refinancing can be a little more complicated. If you would like to keep the house yourself, you’ll need to buy out the other heirs, which means paying them their share of the home’s equity. You can do this through a refinance transaction by financing a larger chunk of the property than is owed.
For instance, if the property is worth $400,000 with a $100,000 outstanding loan, and three heirs are involved, each heir should receive $100,000. As the owner of the property, you’ll need to pay the other two heirs $100,000 each. You can do this by getting a mortgage loan for $300,000, allowing you to pay the loan on the home while also paying off both of the additional heirs.
Refinancing a Paid Property
If you are lucky enough to inherit a property that has been paid off, you still have the option to refinance and borrow money against the equity of the home. This may be a good option if you have other debts you’d like to pay off, want to start your own business or need to make improvements to the property.
When you contact a mortgage broker, you’ll need an appraisal to determine your equity. Then the broker will tell you what percentage of the home’s equity the lender is willing to loan you. As with any refinance, you’ll be required to furnish personal information, such as your Social Security number, and financial information, such as statements from your cash and investment accounts.