Can an Irrevocable Trust Get a Mortgage Loan in California?
In California, can an irrevocable trust get a loan or mortgage?
This is one of the most common financing questions from beneficiaries who are involved with a legal trust in California, and for good reason. Leveraging the real estate assets associated with a trust can provide some much-needed funds for beneficiaries.
But a regular mortgage loan usually doesn’t work well for this kind of scenario. Instead, beneficiaries often use what’s known as a “trust loan” to pull cash out of an estate. A trust loan uses the real estate assets as collateral and provides beneficiaries with cash that can be used for many purposes.
How an Irrevocable Trust Works in California
In legal terms, a trust is a legal arrangement between three primary parties or groups:
In California, as in most states across the U.S., a trust can either be revocable or irrevocable. The primary difference has to do with how changes and modifications are handled.
With an irrevocable trust, the grantor cannot modify or terminate the trust after it has been created. A revocable trust, on the other hand, can be modified by the grantor during their lifetime.
Grantors often choose the irrevocable trust option, because it protect the assets from creditors and allows them to minimize or avoid estate taxes.
With that introduction out of the way, let’s circle back to the financing question we began with. Can an irrevocable trust in California get a mortgage loan?
Can an Irrevocable Trust Obtain a Mortgage Loan?
Beneficiaries of an irrevocable trust can borrow against the real estate assets by using what’s known as a “trust loan.” With this unique type of financing, the real estate property serves as collateral for the loan.
In California, beneficiaries might use the money obtained through a trust loan to pay estate taxes, make repairs or improvements to the property, divide ownership, or even buy out other beneficiaries. Borrowing against an irrevocable trust could also help you avoid a property tax reassessment, in accordance with California Proposition 58.
Short-Term Financing Offered by Specialty Lenders
Traditional banks and lenders rarely offer irrevocable trust loans in California. But this funding “gap” is filled by specialty lenders, including private money and hard money lenders.
Irrevocable trust loans also differ from traditional mortgage financing when it comes to the term length. Generally speaking, California trust loans are short-term financing products with a repayment window of several months up to five years.
These loans are intended to help with trust distribution and related costs. Later, when the real estate property transfers out of the trust and into the beneficiary’s name, the irrevocable trust loan could be replaced with a traditional long-term mortgage. That’s how most beneficiaries go about
Qualifying the Property, Not the Borrower
To recap, beneficiaries of an irrevocable trust in California can get a loan backed by the property included in the trust. This financing method offers several benefits over traditional mortgage lending, and that includes the qualification process.
With an irrevocable trust loan, the lender qualifies the real estate property rather than the individual borrower(s). This means you don’t have to worry about your credit score or income situation. The loan will be based on the value of the property that’s used to secure it.
With a traditional loan product, on the other hand, the lender will scrutinize the borrower’s credit history, income, debt level and more. They use these checkpoints to decide whether or not to qualify the applicant. It’s a deep dive into your personal finances.
But with a trust loan, it’s the property that matters most. So a beneficiary could potentially qualify for financing even if they have poor credit or non-traditional income.
We Help Borrowers in Arizona, California, Florida and Texas. Independent Lending is a private money and hard money lender based in California. We offer a variety of specialty products, including irrevocable trust loans for beneficiaries. Actually, we are one of the few lenders in California offering these types of products.
While we’re based in the Golden State, we also serve clients in Arizona, Florida and Texas. Irrevocable trust loans are commonly used in those states as well.
We have decades of experience with this type of financing. This allows us to approve loans quickly and with minimal hassle for our clients. And given the complexity of trust arrangements, speed and efficiency can make a big difference!