Do I have to refinance property that I have inherited?

Posted by  on Oct 25, 2010

Ordinarily, a lender can call in a loan (make the entire balance due and payable) if payments are not made or the property changes hands (for example when it is sold). If the current mortgage is an FHA loan, and you are able to qualify, you can probably assume it, but government mortgages are about the only ones that are assumable any more. That said, it is extremely unlikely that a lender would call in a loan that is performing; that is, if you continue to send in the mortgage payment and keep up the property taxes and insurance, the lender probably won't bother you.

However, mortgage interest rates are extremely low today, probably lower than they were when your aunt took out the current loan on the property. It would be smart to check with several lenders to see what kind of interest rate you could get today. The form on this site is a good place to start your mortgage shopping.

When you compare mortgage rates, be prepared to provide the following information:

  • The property location
  • The property value
  • The amount of liens against it
  • The proposed use (are you moving in or will you rent it out?)
  • The property type (condo, single family, manufactured home)
  • Your credit score (you can purchase scores on www.annualcreditreport.com)

Check with several mortgage lenders, at least one mortgage broker and one direct lender (like a bank). Get your disclosures and review the deals. The new Good Faith Estimates make it easy to compare mortgage rates and terms. If you plan to sell the home in a few years, consider a 5/1 hybrid adjustable rate mortgage (ARM); the rate is about 1% lower than that of a 30-year fixed loan. However, if your aunt lived in the home, and you plan to rent it out, you may not be able to improve on her interest rate. Normally, rental property mortgages come with significant fees that raise the rate quite a bit.

Finally, if you find that the property is upside down, and the mortgage is higher than the property value, you don't have to keep it. Heirs are not required to keep property they don't want, and if you are not obligated on a mortgage, you can give the home back to the estate without harming your credit rating.


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