If you’re looking to buy a property or home, it can be difficult to come up with enough money for a sizeable downpayment. Conventional wisdom is that if you want to avoid private mortgage insurance, also known as PMI, you’ll need to have at least 20 percent down towards your home purchase. However, especially in pricier areas of the country, such as the west and east coasts, this can be quite difficult to muster.
Matters can be made even worse if you’re a new homebuyer, since coming up with a solid downpayment is even more difficult for younger buyers. In these sorts of situations, you may be wondering if you can use money from family or even inheritance as collateral when purchasing real estate. Here are a few things to know about leveraging your inheritance as collateral.
Can you use inheritance as collateral?
The good news is that if you have the right team, it is possible to tap the assets you’ve inherited for collateral on a home purchase. That being said, it’s a more complicated process than just simply withdrawing the money, which is why it can be helpful to find a team of equity specialists to help you navigate getting a probate or inheritance loan. HCS Equity is one resource for those living in California since it’ll be important to navigate Proposition 13, as well as other aspects of California’s probate codes.
One way that a company like HCS Equity might facilitate your loan more quickly is by offering up their own money as equity which then gets repaid. This enables you to get quick approval so that you can strike while the iron is hot and you’re looking at the property you want to. As an heir, you won’t even need to worry about working with the trustees and attorneys in order to make sure you comply with all tax regulations either, since you’ve got an expert in the corner. You can learn more about HCS Equity and even request a free consultation with their team online by heading to www.hcsequity.com.
What else should you be aware of when leveraging inheritance for your down payment?
It’s important that you recognize that when you’re tapping your inheritance for a down payment it’s just as important to consider other elements of your finances when you’re working with a loan officer and mortgage lender. This is because, as a borrower, you still need to provide proof that you’re responsible and will be good on your word to pay your mortgage regularly. While it’s still possible to get a downpayment thanks to your inheritance coffers, in order to be a competitive borrower and home buyer, you’ll want to make sure a few things are in order.
For example, if you have a poor credit score, that could still be a major liability—even if your downpayment is taken care of since you’re the beneficiary of a major inheritance. A large amount of debt or missed payments could signal to lenders that, despite your inheritance, you aren’t particularly fiscally responsible. It’s also worth noting that in order to get competitive rates for your mortgage, you’ll need your credit score to be higher. If you have a lower credit score, you may qualify for a mortgage but still wind up paying a higher interest rate overall.
Your debt-to-income ratio will also likely play a factor in what you can get approved for. Also known as DTI, this ratio shows lenders how much debt you’re on the hook for each month versus how much income you have. The lower your DTI, the better, as it shows that you’ve got room in your budget for not only the cost of a mortgage, but the necessary home maintenance that comes with a new home.
