Refinancing Your Inherited Property: A Guide to Unlocking Its Full Potential
6 minute read
April 5, 2024


Inheriting a property comes with numerous financial, legal, and emotional considerations.

For many heirs, refinancing the property is the best solution to achieve their goals.

In this guide, we’ll dig into all aspects of the refinance process for inherited properties, including the challenges, benefits, and how best to prepare.

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What happens when you inherit a property?

The process for inheriting a property can look different depending on a few circumstances.

Did the owner have a will?

  • If they did: The will determines the distribution of property to the heirs
  • If they did not: The state laws of intestacy determine the distribution

Was the mortgage paid off?

  • If it was: Ownership of the property would be transferred to the heirs with no issues
  • If it was not: The heirs are responsible for paying the remaining loan amount before the property can be transferred to them

Are there multiple heirs?

  • If there are: The heirs must agree on what to do with the property, including one person buying out the others, selling the property and splitting the proceeds, or keeping the property and renting it out
  • If there are not: The new owner can decide whether to keep, sell, or rent out the property

What can the heirs do if the mortgage has a balance?

The heirs have several options if they inherit a property with an outstanding mortgage:

  • Continue making payments
  • Refinance the mortgage
  • Sell the property
  • Contact the lender for more options
  • Let the property go to foreclosure

If at least one heir wants to keep the property, they can refinance the property into their own name.

Refinancing also allows an heir to “buy out” the other heirs if there are multiple.

How does an heir “buy out” the other heirs?

Refinancing a mortgage is a common strategy for buying out the other heirs of an inherited property.

This process allows the heir who wants to keep the property to pay the other heirs their share of the inheritance while transferring sole ownership to themselves.

Let’s take a look at how this process works.

Step 1: Agree on the property’s value

Once the property’s fate is decided, the heirs will have to agree on the market value of the property following an appraisal.

This value determines how much each heir’s share of the property is worth.

Step 2: Calculate the buyout amounts

After a professional property appraiser determines the home’s value, each heir’s share is calculated either based on the will’s instructions or equally divided.

Step 3: Apply for a refinance loan

Once the heir who wants to keep the property has calculated the total buyout amount, they can apply for a refinance loan with a lender.

A cash-out refinance loan replaces the existing mortgage on the property with a new, larger loan, and the difference between these two loans will be distributed to the other heirs as the buyout.

Other reasons for refinancing

Refinancing an inherited property can be beneficial even if an heir is the sole recipient.

Common reasons an heir may choose to refinance include:

  • Securing a lower interest rate
  • Lengthening or shortening the mortgage terms
  • Switching to a different type of mortgage (fixed-rate vs. adjustable-rate)
  • Tapping into the home’s equity to make improvements or consolidate debt

If the home is fully paid off, the process will be even simpler and you likely will have access to a greater amount of cash.

Challenges for heirs who want to refinance an inherited property

One key consideration in the process is whether the heir who wants to keep the property can qualify for a refinance.

With traditional lenders such as banks, the heir may not have the option to refinance for the following reasons:

  • Traditional lenders don’t want to deal with the complexity of inherited properties and require clear proof of ownership
  • Refinancing relies heavily on a borrower’s income and credit score, and some heirs may not have good credit or steady income
  • Traditional lenders won’t approve loans for properties that don’t meet their strict standards
  • Heirs may not be able to meet a bank’s loan-to-value (LTV) ratio requirements, which can limit the amount they can borrow against the property

An heir’s inability to get approved for a refinance can be difficult for many reasons, including the sentimental value of the home or potential disputes between heirs.

Fortunately, private lenders like Marquee Funding Group can easily refinance an inherited property—without the red tape that banks require.

How to refinance an inherited property with a private lender

Private lenders or hard money lenders can make the refinance process much simpler for heirs.

They specialize in dealing with the types of complex scenarios that come with inherited properties.

Benefits of hard money lenders with inherited properties

Hard money lenders understand the unique nature of inherited properties and are much more accommodating when working with heirs who are in the process of navigating probate.

These types of lenders are less focused on the borrower’s credit and income, and more concerned with the property’s value and the available equity.

They also can refinance properties that require repairs or renovations, because they recognize the value hidden in these projects.

Tips for refinancing an inherited property with a hard money lender

The most important factors to a private lender are your plan for the property and your exit strategy.

In other words, they want to know why you want to refinance the property and how you intend to repay the loan.

Tips for refinancing with a private lender:

  • Find a lender who has experience with inherited properties
  • Clearly define your goals for the refinance, such as buying out other heirs, paying off existing mortgages, or making improvements to the property
  • Prepare to provide legal documentation on the property and the loan amount you would need
  • Be open, honest, and transparent about your situation, no matter how complex it may be concerning other heirs. This allows the lender to come up with different scenarios to ensure that a borrower gets the best possible term, rate, and type of loan.
  • Ask questions about the process to ensure you fully understand how it works and what’s required of you

The refinance process with a private lender is quick, simple, and flexible as long as you come prepared and hold up your end of the deal.

Marquee Funding Group can help you refinance your inherited property

Working with a hard money lender like Marquee Funding Group is not just another transaction—it’s a partnership.

Marquee Funding Group specializes in complex loan scenarios that traditional lenders will not or cannot do, including refinancing inherited properties.If you’re inheriting a property and want to explore your options, submit your scenario to receive our personalized guidance on your situation.

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