Frequently, a will names multiple people as inheritors to a house. This can be a complicated situation because a house is not an asset that can be easily distributed between multiple heirs.
One solution is for one heir to buy out the others' ownership stake in a house. This can be a win-win since one of them gets exclusive ownership of the house while the others cash out on their share without having to worry about repaying the mortgage.
Once the heirs have decided about what they want to do with their share of the property, it's time to start legal proceedings to transfer ownership. To begin, the individual assuming ownership will have to prove that the owner of the home is deceased and raise funds to buy out the other heirs.
Why Refinance Inherited Property
The process by which ownership is transferred from a deceased homeowner to their heirs depends on whether there is a mortgage on the home.
When the owner of a home passes away, the home becomes a part of their estate. If there are no outstanding debts or loans associated with the home, then the property is transferred to the beneficiaries named in the will.
Things are a little more complicated if there is an outstanding mortgage on the house. In that case, the debt needs to be cleared before the title of the property can be transferred to any other party. That means that the heirs have to pay off the loans before they can own the property.
Let's say an individual who owned a home worth $500,000 with an outstanding loan amount of $200,000 passes away. Their will mentions that their three children are equal heirs to the property. So now it is up to the children to pay off the $200,000 before assuming the title of the property.
This is where refinancing comes in. The heir who wants to own the house in its entirety can refinance the existing mortgage to raise funds to buy out their siblings. In the example mentioned, the beneficiary trying to buy the house needs to get a mortgage worth $400,000 so it can cover the debt and their siblings' share of ownership.
How to Refinance Inherited Property to Buy Out Other Beneficiaries
The first thing you need to do if you share a house with other heirs is to reach a consensus on what needs to be done with it. Every individual who inherited a portion of the property has a say. If the rest of the heirs agree to being bought out of their ownership of a house, you can go forward with refinancing the mortgage on it.
If the house has been passed down from parents to children or grandparents to grandchildren, then its value need not be reassessed in most states. This is thanks to the parent-child exclusion that makes it possible for property to be transferred without reappraisal. This has major tax and loan implications.
Once you know what the value of the property is, you can go about refinancing its mortgage. Approach lenders with proof of the owner's death and documents to show that you are a legal heir. If you find a lender to refinance the mortgage, you can have the loan officer write individual checks to each of the other heirs based on their share of the property.
Refinancing Inherited Property with a Hard Money Loan
It can often be hard to refinance the mortgage on an inherited property from a conventional mortgage lender. This is because the title isn't in your name when you approach the bank (the house still belongs to the estate), making it seem like a risky proposition for banks.
If you're not able to get a conventional mortgage to refinance a house you've inherited, you can approach a hard money lender. These lenders give out probate loans or estate loans for this exact situation. The beneficiary who wants full ownership of the property will assume the loan. After completing the refinancing, the title is transferred from the estate to the beneficiary.
Buying property out from fellow heirs can be a complicated process. The legal procedures are complex and vary from state to state. Anybody trying to assume ownership of property they share with other heirs should consult a local real estate agent. An agent will guide you through transferring the title and recommend lenders who can refinance the mortgage.
Clever Partner Agents have years of experience assisting clients with a variety of real estate transactions. By working with a Partner Agent, you ensure that you're getting expert advice through every step of buying a home. Visit our website to connect with a Partner Agent who can help you buy out property you've inherited by refinancing the mortgage.