"My Parent Died and Their Home Is in a Living Trust. Can I Refinance It, Keep the Mortgage or Buy Out My Siblings?"

Your mother's name is on every page of the trust binder. She set it up, she managed it as its trustee, and she was the person it was built to benefit. A lender has probably told you it cannot lend to the trust, and after the person who made it has died that is usually right. A lender can lend to you once the home is in your name.

Fannie Mae and Freddie Mac waive the usual six months on title for a cash-out refinance of an inherited home. Once the trustee deeds it to you, you do not have to wait six months to take cash out.

"On title" means your name is on the deed, the document that moves ownership into your name and is recorded, or filed, with the county. The trustee is the person who manages the trust. A living trust is a trust a person sets up while alive, and the person who sets it up is called the settlor. Before the settlor dies they can change or cancel it, which makes it revocable. After the death that is no longer possible, and the trust may become irrevocable.

I'm Jeff Moran, a mortgage broker in Bluffton, South Carolina, originating since 1996, licensed in fifteen states, NMLS #483943, through C2 Financial Corporation. The trust, the deed out of it and the settling of your parent's affairs belong to the trustee and your attorney, and I don't advise on any of that. The loan is my part. If the home is in your own trust and you are the one buying, buying a home in a revocable living trust is the article for you. A land trust is a different arrangement with its own rules, covered in a mortgage on a home held in a land trust.

The trust was built around your parent, and that is why a lender will not lend to it now

Every condition a lender checks on a living trust points at the settlor. Freddie Mac's guide, in its section on living trusts (5103.5), requires that the settlor be the trust's primary beneficiary, meaning the person the trust is mainly set up to benefit, and still hold the power to revoke or amend it. After your parent's death, none of that can describe your parent any longer. Freddie Mac's guide says in a note that a living trust "may be made irrevocable by a Settlor's death." Your attorney can tell you whether your parent's trust did.

A non-agency lender I work with, Luxury Mortgage Corp., also lists irrevocable trusts as not eligible for financing in its Prime Access guidelines (version 9.0, Section 11.2) and its Simple Access guidelines (version 9.2, Section 11.2). So the loan is made to you in your own name, after the home is deeded out of the trust.

The usual path: the trustee deeds the home to you, and you borrow in your own name

Moving the home out of the trust is the trustee's job, done the way the trust document and your attorney direct, and the deed has to be recorded before a loan can close in your name. Once the home is yours, Freddie Mac has an exception (Section 4301.2) for a client who inherited the home, so you can refinance a loan you never signed. Fannie Mae's refinance guidelines (B2-1.3-02) make a similar exception to its on-title requirement when the lender documents that you acquired the home through an inheritance. You qualify on your own income, credit and debts, the same as any refinance, and how your debt ratio is figured shows the arithmetic.

Keeping your parent's mortgage instead of refinancing

The loan your parent signed stays on the home until it is paid off, so the monthly payment still needs to be made while the trust is settled. Whether you take over that loan at its existing rate or replace it is a conversation with the company that collects the payment, and my article on an inherited home's mortgage walks through what to ask them.

How do I buy out my siblings on a home we inherited through a trust?

Once the trustee has deeded the home to all of you, you are co-owners, and the one who keeps the home refinances it to pay the others. Freddie Mac's special purpose cash-out refinance (Section 4301.6) is written for that. The new loan can pay off the existing first mortgage, pay the closing costs and pay the co-owners their shares. Everyone signs a written agreement, and the owner who keeps the home may not receive any of the proceeds.

Freddie Mac asks for twelve months of owning the home together and proof that you both lived there, and it exempts clients who inherited an interest in the property from both. Buying out a co-owner with a special purpose cash-out refinance has the full walk-through.

Can I do a cash-out refinance on a home I inherited through a trust?

Yes, and you do not have to wait the usual six months on title. Freddie Mac's cash-out section (4301.5) requires that at least one person on the new loan has been on title for six months, and it lists inheritance as an exception. Fannie Mae's cash-out section (B2-1.3-03) says there is no waiting period when the lender documents that you acquired the home through an inheritance. Both agencies also want the mortgage being paid off to be at least 12 months old, except in a co-owner buyout. If your parent's loan is newer than that, ask me before you plan on cash out. If a line of credit or a second mortgage might fit the job better, the home equity hub puts the four ways to use equity side by side.

Selling the home instead

Selling is the trustee's decision, made with your attorney. My part is the payoff: the company collecting your parent's payment provides a payoff statement, and the sale pays that loan off at closing. If one of you plans to buy a different home with your share, using an inheritance for a down payment covers how that money is documented.

Documents to have ready

The lender has to document the inheritance, so the file usually draws on a copy of the death certificate, the complete trust document with all pages and every amendment, and the recorded deed from the trustee into your name. Your parent's most recent mortgage statement, all pages, shows the payoff, and a refinance that buys out siblings needs the signed written agreement between all of you.

An illustration with made-up numbers

Numbers below are made up to show the mechanism. Nothing here is a real file or a quote.

Carla and her brother and sister inherited their mother's home through a living trust, and the trustee has deeded it to all three. Carla wants to keep it. The home appraises at $450,000, their mother's mortgage has a $120,000 balance, and the three of them sign an agreement that Carla pays each of the other two $110,000.

Buyout refinance, home appraised at $450,000

Payoff of their mother's mortgage              $120,000
Payment to her brother for his share       (+) 110,000
Payment to her sister for her share        (+) 110,000
Closing costs on the new loan              (+)   8,000
                                           -----------
New loan amount                                $348,000
Cash to Carla                                        $0

The new loan is a little over 77 percent of the appraised value, and because they inherited the home, Carla needed neither twelve months of owning it with her siblings nor proof that they all lived there.

Your next step

If you want to see pricing on a plain refinance of the home once it is in your name, you can see rates priced for your refinance. You can choose a rate option that works best for you, and that selection can change as your file comes together. For a sibling buyout, or anything about the trust, call me at (843) 765-0000 or email jeff@solverya.com.

Nothing here is legal, tax or estate advice, and nothing here is a loan approval, a denial or a commitment to lend.

Sources: Freddie Mac Seller/Servicer Guide Sections 4301.2, 4301.5, 4301.6 and 5103.5; Fannie Mae Selling Guide Sections B2-1.3-02 and B2-1.3-03; Luxury Mortgage Corp. Prime Access guidelines v9.0 and Simple Access guidelines v9.2.

Common questions

Can a living trust get a mortgage after the person who created it dies?

Usually not in the trust's own name. Freddie Mac requires the person who created a living trust to hold the power to revoke it, and a death can make the trust irrevocable. The usual path is for the trustee to deed the home to the beneficiary, who then borrows in their own name.

Can I refinance my parent's mortgage if I never signed it?

Yes, once the home is in your name. Freddie Mac makes an exception to its rule that someone on the new loan was on the old one when that person inherited the home, and Fannie Mae makes an inheritance exception to its on-title requirement. You qualify on your own income, credit and debts.

Do I have to wait six months before refinancing a home I inherited?

Not for a cash-out refinance. The six months on title is a cash-out rule, and both Fannie Mae and Freddie Mac waive it when you acquired the home through an inheritance, as long as the lender documents it. The deed into your name still has to be recorded first.

How do I buy out my siblings on a home we inherited through a trust?

After the trustee deeds the home to all of you, the sibling keeping it refinances into their own name and the new loan pays the others their shares. Everyone signs a written agreement, and the owner who keeps the home receives none of the proceeds.

Does the home have to come out of the trust before I can get a loan on it?

On the loans I can offer, yes, once the trust is no longer a revocable living trust that meets the agency rules. The deed from the trustee to you is the trustee's and your attorney's work, and the refinance follows it.