Refinance-an-Inherited-Property

Refinancing an Inherited Property: What You Need to Know

/0 Comments/in /by

Did you inherit a house? The feeling can be amazing, but the financial decisions and responsibilities that come with it can quickly feel overwhelming, especially because the property was passed down to you by a loved one. Why not consider refinancing it? It could lower your monthly mortgage payments, or you could make necessary repairs with built-up equity.

Before you go ahead, here is everything you need to know about refinancing your inherited property.

Did You Inherit a House With a Mortgage?

It isn’t fortunate if you have inherited a house with a mortgage. A mortgage is a lien against the asset as security for the money borrowed to purchase it. The mortgage needs to be repaid—not paying could result in foreclosure.

If there is a co-signer or co-borrower on the loan, they are responsible for repaying it. Once you have been named the executor, you become responsible for handling any remaining financial obligations and ensuring beneficiaries receive their assets. You will continue making mortgage payments using funds from the estate.

If you are the sole heir of the property, you have several options:

  • Assume the mortgage and continue making payments
  • Clear the debt
  • Sell the property
  • Refinance

However, if you are one of the several heirs, all co-heirs should work with the estate executor and the mortgage lender to decide the property’s future. The mortgage may include a due-on-transfer or due-on-sale clause that needs full loan repayment before a change in ownership.

Lenders cannot enforce this clause in some scenarios, such as if the borrower dies and the property is passed to their children, the property is transferred to a living trust with the borrower being the trust’s beneficiary, or in case of legal separation like divorce.

What if You Inherited a House With No Mortgage?

Maybe you inherited a house with no mortgage. In that case, you own 100% of the property’s equity. While you can use that to your advantage, you need to contact a lender and meet their requirements for a new loan.

How to Refinance an Inherited House

An inherited property can be refinanced in different ways. When refinancing, you must continue making monthly mortgage payments. Here are some refinancing options:

Probate Loan

This loan is a cash advance provided by the lender while the estate undergoes probate. The lender will receive your inheritance after probate proceedings. To apply for a probate loan, you need:

  • The requested amount and purpose
  • Order for probate
  • Inventory and property/appraisal address
  • Petition for probate
  • The death certificate

The lender will review your application after you submit it, and the cash can take up to two weeks to show in your bank account. You may take out a probate loan on the available equity in the home, which you can use to buy out other beneficiaries.

Rate-and-Term Refinance

This refinancing option allows homeowners to change the term and interest rate of the present loan by using a new mortgage to replace it. A rate-and-term refinance helps lower monthly payments or can be used to shorten the loan term without changing the principal balance. It is a good option for solo heirs to the inherited home, not properties with co-heirs.

The house and mortgage must be in your name before you start shopping for lenders. You can refinance once it is transferred to you.

These are the primary steps to rate-and-term refinance an inherited house:

  1. Check credit score: You need a FICO score of at least 620 (varies for every lender).
  2. Check multiple lenders: The best refinance rates and the lowest fees come from comparing different lenders.
  3. Apply for a refinance: You can apply with several lenders. Your credit score will have minimal impact.
  4. Compare Loan Estimate documents: Doing so will tell you how much you will need for closing costs.
  5. Lock your interest rate: Your interest rate won’t change for some time once locked.
  6. Close on your new loan: Closing on a refinance is like closing on a purchase loan. You have to pay closing costs.

Also Read: Are Property Taxes Included in Mortgage?

Cash-Out Refinance

This refinance option gives homeowners a new loan for more than what they owe. The difference is paid in cash, which can be used to improve the home, consolidate debt, or meet other financial obligations. You may also use it to purchase the inherited home and pay off the remaining heirs.

A cash-out refinance has a few requirements, including:

  • It requires the homeowner to have at least 20% equity in the home.
  • Your inherited home’s value determines the amount you can take out, which you will find out after a home appraisal. A lender should generally let you take out about 80% of the home’s value (depending on the lender and your situation).
  • Your name must have been on the title of your inherited property for a minimum of 6 months before you can do this refinancing.

Conclusion

Now that you have a clear idea of how to refinance an inherited house, choose a reliable mortgage broker to help you and make the process seamless. Talk to the experts at ALT Financial.

Can You Sell a House with a Mortgage?

Can You Sell a House with a Mortgage?

/0 Comments/in /by

Selling a house can be a daunting task, especially if you still have an outstanding mortgage. Many homeowners find themselves in this situation, wondering if they can sell their property without fully paying off their mortgage. The good news is that you can indeed sell a house with a mortgage. This blog will explore the process, considerations, and steps involved in selling a mortgaged property.

Understanding Mortgages and Home Equity

When you take out a mortgage to buy a home, the lender holds a lien on the property until the loan is paid off. This means that while you own the home, the lender has a financial interest in it. However, having a mortgage does not prevent you from selling your home. In fact, it is quite common for homeowners to sell properties that still have outstanding loans.

One key concept to understand when selling a home with a mortgage is home equity. Home equity is the difference between your home’s current market value and the remaining balance on your mortgage. For example, if your home is worth $400,000 and you owe $250,000 on your mortgage, you have $150,000 in equity. This equity can be used to pay off your mortgage during the sale process.

The Selling Process

  1. Contact Your Lender for a Payoff Statement

Before listing your home for sale, it’s crucial to contact your lender and request a payoff statement. This document outlines the exact amount needed to pay off your mortgage at closing, including any accrued interest and fees. Since this amount can change over time as you make payments, ensure you obtain an updated statement closer to your closing date.

  1. Estimate Your Home’s Value

Next, determine your home’s market value to understand how much you can expect from the sale. You can look at comparable homes in your area or hire a professional appraiser for an accurate assessment. This step is vital as it will help you set a competitive asking price and ensure that you have enough equity to cover your mortgage payoff and selling costs.

  1. List Your Home for Sale

Once you have an idea of your home’s value and the payoff amount, you can list your property for sale. Work with a real estate agent who understands the local market and can help you navigate the selling process. They will assist in marketing your home and negotiating offers.

  1. Negotiate Offers

When potential buyers express interest in your home, you’ll receive offers that may require negotiation. It’s essential to consider not just the sale price but also how it aligns with your mortgage payoff needs and other closing costs.

  1. Closing Process

During closing, the sale proceeds will first go toward paying off your mortgage. If you sell your home for more than what you owe on the mortgage, any remaining funds after covering closing costs will be yours as profit. However, if you owe more than what buyers are willing to pay (a situation known as being “underwater”), you may need to bring additional funds to closing or negotiate with your lender.

Considerations When Selling

  • Equity Position

Your equity position plays a significant role in determining whether selling is feasible without financial strain. If you have substantial equity in your home, selling should be straightforward; however, if you’re close to breaking even or owe more than what the market will bear, you’ll need to plan accordingly.

  • Market Conditions

The current real estate market conditions can also impact your ability to sell successfully. In a seller’s market with high demand and low inventory, you may achieve a price higher than expected, allowing for an easier payoff of your mortgage. Conversely, in a buyer’s market where competition is fierce, pricing strategies become crucial.

  • Fees and Closing Costs

Don’t forget about additional costs associated with selling your home—these include real estate agent commissions, title insurance fees, and other closing costs that can eat into your profits. Make sure to factor these expenses into your calculations when determining how much equity you’ll actually receive from the sale.

Alternatives If You’re Underwater

If you’re in a situation where selling at market value won’t cover your mortgage balance (i.e., you’re underwater), consider these options:

  • Short Sale: A short sale occurs when the lender agrees to accept less than what is owed on the mortgage due to financial hardship.
  • Loan Modification: Speak with your lender about modifying the terms of your loan to make payments more manageable.
  • Renting: If possible, consider renting out the property until market conditions improve.

Conclusion

In summary, selling a house with a mortgage is not only possible but also common among homeowners. By understanding how mortgages work and following essential steps like obtaining a payoff statement and estimating home value, you can navigate this process effectively. Whether you’re looking to downsize or relocate for new opportunities, remember that having an outstanding mortgage should not deter you from pursuing your real estate goals. Consulting with an experienced real estate agent can provide valuable insights tailored to local market conditions.

Are Property Taxes Included in Mortgage?

Are Property Taxes Included in Mortgage?

/0 Comments/in /by

Yes, property taxes may be included in your monthly mortgage payments if required by your lender in your mortgage agreement. It can be an opportunity to pay property taxes in small amounts every month instead of a large sum annually or semi-annually. As part of this arrangement, you pay one-twelfth of the annual property tax bill into an escrow account monthly.

Here is everything you must know about the inclusion of property taxes in your mortgage.

Understanding Mortgage Payment Components

You must understand that a mortgage payment is made up of a few parts. In short, these parts are called PITI:

Principal: It is the amount allocated to reduce your loan balance.

Interest: The cost of borrowing from the lender.

Taxes: Property taxes (if included)

Insurance: Homeowners insurance and PMI or private mortgage insurance if applicable.

While it is not required for every loan, the taxes, and interest charges added on top of your mortgage payments are collected and managed using an escrow account and paid when they come due. If the escrow account balance lacks the required amount, your mortgage loan services will usually adjust your monthly payment. In the case of a surplus, they will send you a check.

Mortgage Escrow Account

The mortgage servicer sets up a mortgage escrow account when you apply for a mortgage. This account covers your property taxes and insurance. Think of it as a savings account funded by adding escrow payments to your monthly mortgage payment. It is managed by the lender to pay certain property-related expenses for you.

Sounds tricky? Let us clear it for you. Suppose your property taxes and insurance premiums are worth a total of $6,000 annually—your lender will divide it into 12 monthly escrow payments, which will be $500 per month and included with your mortgage payments. Your servicer deposits these funds into the escrow account, using them to pay for your taxes and insurance premiums.

Remember, the escrow account you used when closing on your home and this mortgage escrow account are for different purposes, even though they are both savings accounts used to fund necessary expenses.

The mortgage escrow account is constant and ensures your property taxes and insurance are paid on time, while the closing account is short-term and used specifically for buying homes and funding payments for the purchase.

When Are Your Property Taxes Included in Your Mortgage Payments?

Whether your property taxes are part of your mortgage payment typically depends on whether you have an escrow set up with your lender. The lender will use the funds from your escrow account to pay your property tax bill by the due date.

Don’t be worried. It won’t surprise you—your lender will explain this program before you sign for the loan. Details about whether property taxes are part of your mortgage payments will be in your loan documents. Also, expect an initial escrow disclosure statement explaining the monthly payments and how they cover your property taxes and insurance.

When Are Your Property Taxes Not Included in Your Mortgage Payments?

You are unlikely to include property tax payments in your mortgage payments if your lender does not need an escrow account or you don’t want the escrow requirement.

For instance, if you pay a down payment of at least 20%, a lender may let you forgo an escrow account on a conventional loan.

In case your mortgage does not include an escrow or has been paid off, you will pay the amounts directly to your local government and insurance company, respectively.

Pros and Cons of Paying Property Taxes With a Mortgage

Add a little more to your monthly mortgage payments, and it will make it easier for you to pay your property taxes. On the other hand, you may want to handle those payments to control your finances better.

  • Pros

Convenience: All you have to do is pay your monthly mortgage payments, and everything else will be taken care of—you don’t even need to worry about your tax due dates. Your property taxes will be paid on time.

Budget

When you pay using your escrow account, your tax budget becomes predictable. You won’t have to worry about large tax and insurance bills.

Fills the Gaps

Sometimes, your property taxes may increase due to a new assessment or other factors. In case your escrow account does not have sufficient funds because of the surge in property taxes, your mortgage services will likely cover the entire bill and prevent late tax payments.

  • Cons

Increased Monthly Payments

With the addition of property taxes and insurance to your mortgage, your monthly payments will rise, sometimes making it difficult to manage other expenses and leaving you with less money for unexpected expenses.

Larger Upfront Payment

If your lender sets up your escrow account near the due date on your property taxes, they will require sufficient funds to cover the bill. You may be required to deposit taxes worth multiple months upfront. The further the due date, the smaller the deposit amount.

No Interest

There’s no interest, so the money in the escrow account won’t increase, which cuts down the opportunity for potential earnings. If the lender does not need an escrow account, you might have the chance to save the money in a high-interest savings account or investment account for some extra income before paying the property taxes and insurance.

Conclusion

You cannot avoid taxes. You need to pay them on time to avoid severe consequences. Using your mortgage payment to pay your property taxes is a convenient way to “set it and forget it.” If you keep making your monthly mortgage payments, your lender or loan servicer should ensure paying the taxes using your escrow account.