Inherited property and its associated home equity loans: An examination of relevant implications
When inheriting a property, it's essential to understand the implications of any existing home equity loans. Here's a guide to help you navigate your options.
Inheriting a home via a will requires the will to be reviewed and validated through probate. However, other ways to inherit, such as Transfer on Death (TOD) or revocable trust, may bypass probate and potentially avoid home equity loans.
If a home equity loan is present on an inherited property, your main options for managing it are: assuming the loan payments, refinancing the loan, paying it off outright, or selling the property to cover the debt.
Assuming the loan payments involves contacting the lender to take over responsibility for the home equity loan. This often requires approval and may include fees. If you inherit the property with others, agreement among co-heirs might be needed, especially when refinancing or restructuring the loan.
Refinancing the home equity loan under your own name can provide better terms or more manageable payments, depending on your creditworthiness, income, and the property's appraised value. This option can also be used to buy out other heirs if multiple people inherited the property.
Paying off the loan can be done either out of pocket or using proceeds from selling the house, thereby clearing the debt and owning the property free and clear.
Selling the property is often the simplest way to settle home equity loan obligations. The sale proceeds go first to pay the loan; any remaining funds go to the heirs. If the sale price is insufficient, typically heirs are not personally liable beyond the property value.
Before making a decision, it's advisable to consult with a lawyer and accountant to understand your legal and financial responsibilities, and, if possible, plan in advance with family members to avoid complications.
To determine if an inherited property has a home equity loan, review the deceased's will, trust agreements, billing statements, or search the property's title for liens. If you want to keep the inherited property, you can ask the lender about loan modification or deferment options while the estate is being settled.
Selling the home requires settling up with the lender at the closing before the buyer takes possession. Having actual or imminent title to the home is important when contacting the lender.
You can often get a home equity loan or Home Equity Line of Credit (HELOC) on a property you inherit, after clear title and transfer of ownership have been completed. If multiple heirs inherit a property, one can buy out the others using a home equity loan, but you may need to go to an estate or probate real estate lender that specialises in such financing.
[1] For more detailed information, consult with a legal and financial advisor.
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