Can you use your inheritance as security for a home loan?

Receiving an inheritance is often a bittersweet experience. While losing a loved one is one of the most painful life events one can experience, the gift these people leave behind in the form of a legacy can be a blessing.

During such an emotional time, thinking about how best to use the inheritance money can be overwhelming, so it’s best to take all the time you need before making a decision.

How does the succession process work?

When a person dies, their assets – or what is legally called an estate – are often left to their loved ones in the form of a will. A will is a legal document outlining a person’s wishes after death, which may include who will inherit their estate, how the estate will be distributed, and whether there are any restrictions on how the inheritance can be used. An executor is often appointed to execute the will.

In the absence of a will, however, the state or territory government will dictate how the estate is handled, including how it is distributed among family members. In cases where the executor is unwilling to fulfill his legal responsibilities, the court may appoint an administrator to execute the will. The debts and taxes of the deceased can also be paid before the distribution of the estate.

The whole inheritance process can take months, but the good news is that once the inheritance money is transferred to your account, you can use it for any purpose.

Can you get a home loan with money from an inheritance?

You have many options for spending your inheritance, including using the money as a deposit for your dream home.

However, banks and other financial institutions often have strict requirements for those who choose to use the inheritance money to open a home loan. Here are the things you need to prove:

1. The inheritance is not refundable

First of all, you need to prove that the money is yours by right. To do this, you must provide a letter from the executor validating the details of the estate, including the amount and the date on which it was given to you. You may also be asked to provide a copy of the will and grant probate, proving that the will is valid and registered. Your lawyer can help you secure this document.

2. The money from the estate has been transferred to your bank account

You will also need to provide bank statements showing that your inheritance has been deposited into your account. If your inheritance is held in the name of the deceased’s executor or estate trustee, you must provide a letter stating that you can legally access the funds. The amount and date shown on the bank statement must match those on the executor’s letter.

3. You have been in possession of the inheritance for at least three months

Some lenders will require you to keep the inheritance in your account for at least three months before you can apply for a home loan.

How much can you borrow?

Just like traditional loan seekers, you can borrow up to 95% of the property’s value, but you may need to pay mortgage insurance from lenders. To avoid paying this cost, you must shell out at least a 20% deposit.

Some lenders allow borrowers who have received a huge monetary gift or inheritance to use the amount as a deposit. However, there are also lenders who only accept a deposit of actual savings, which means you must have made the savings yourself.

Plus, you can use your inheritance money in addition to other government-funded benefits, including the First-Time Homeowner Grant (FHOG) and the First Home Loan Deposit Program (FHLDS).

But regardless of the source of your deposit, you also need to meet other standard mortgage loan requirements, including job security, stable income, minimal debt, and a good credit history.

If you want to get an idea of ​​how much you can afford to borrow based on your income and expenses, our borrowing power calculator can help you get an accurate estimate.

About Mallory Brown

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