If you want to take out a loan on an inherited home, finding the right lender and knowing your credit score can start you off on the right path.
Q: My grandparents passed away years ago. Then, last year, my mother passed.
My grandparents owned a home and I paid a title company to complete a title search on the home and prepare heirship documents. The title search showed that my sisters, my aunt and I are the owners of the home. My aunt and sisters signed a quitclaim deed to give me their interest in the home.
Is there a federal law that states that I must wait for a certain length of time before I can get a renovation loan or mortgage on the home? The home has not had any mortgage debt for many years.
Taking Out a Loan on an Inherited Home
A: If there are obstacles in your way, federal law probably isn’t one of them. Rather, you might stumble on the lender requirements you might face in trying to obtain a mortgage, either a cash out refinance or home equity loan or line of credit.
As you describe the situation, you basically inherited the home and don’t have to worry about paying off a mortgage since your grandparents owned it free and clear.
So the only issue for you is finding the right lender to help you out. Start by talking to a few different types of lenders, including a local, regional and online banks plus a good mortgage broker or two. You might also consider a savings & loan or credit union.
We’re not saying that you should apply to each of these or even give them your social security number and other personal information, but have a conversation with a loan officer about various loan options to start the process of determining what type of loan and lender will best suit your needs. In these conversations, you should be trying to understand what different loan products are out there and what each product will cost.
In addition to that, you should pull a copy of your credit history from one of the three credit reporting bureaus to see if there are any problems in the report. You can get a free copy of your credit report from each of the credit bureaus (one copy per year) at www.annualcreditreport.com and for about $10, get a copy of your credit score. (If you already have access to a free credit score through your local bank, credit card, ID theft protection or other credit monitoring product, that credit score will be good enough to estimate where you’ll fall in the spectrum of interest rates.)
Credit scores of at least 760 or, in some cases, 780 mean your credit is likely good enough to take advantage of the best interest rates and terms for each loan product. If you’re below 600, you might have trouble finding a lender at a decent interest rate – or at all.
Should You Wait Before Taking Out a Loan?
Having said all that, let’s go back to your question about waiting before applying for a mortgage. Generally, you won’t have to wait before you apply solely because you inherited the home or because your family has used quit claim deeds to transfer whatever shares in the property they own to you.
There are times and under certain circumstances in which lenders will require you to wait to refinance or wait to finance a loan on an inherited home if there has recently been a sale of the property, or the property was recently listed for sale, or in certain other unique situations. We doubt that you fall into these unique situations unless in your state quitclaim deeds have been used to fraudulently obtain title.
In the past, if you were buying a property that had been sold, purchased and now sold to you and the price kept going up with each conveyance, lenders may require six months from the last sale before they are willing to lend money on the home. These waiting periods are usually in place to prevent fraud and illicit activities.
But you won’t find out if you have any issues until you actually sit down with a lender and talk through what you want in terms of financing. And, please make an appointment so you are face-to-face. When you have a potentially complicated situation, much more can be accomplished faster when you’re sitting together rather than virtually.
Good luck and let us know how things turn out.
Read More About Inherited Homes