Estate Loans vs. Traditional Loans: Making an Informed Choice

Are you looking at options to get money out of an estate before the end of probate? Perhaps one of the heirs wants to purchase the family home, but does not have the cash assets available before the estate settles. If so, you may be looking at getting a loan on the estate. However, knowing whether you want an estate loan or a traditional or conventional loan can be difficult.

Conventional Loans

Conventional loans are mortgages. The term does not refer to a single type of mortgage but describes any type that is not government-backed. The property secures conventional loans and requires principal and interest payments to the lender. The interest can be fixed or adjustable rates, have balloon payments, or even be jumbo loans.

A conventional loan might be the right choice if a family member wants to purchase real property from an estate. They can get a mortgage on the property, then pay off the mortgage or refinance after probate concludes. It is a good approach when one person wants to retain the property. However, it is not a good solution if the estate simply tries to increase cash flow.

Estate Loans

Estate loans are different from conventional loans. Estate loans last during probate. They do require that you have good credit and show an ability to make payments. In addition, you will be paying interest on the loan.

You might be able to secure an estate loan with assets from the estate. However, in most circumstances, you must supply collateral from outside the estate.

People do not usually get estate loans to buy property from the estate. Instead, people get an estate loan to access funds before probate concludes. One of the reasons to get an estate loan is if you need to cover daily expenses but cannot until the estate is out of probate.

Probate Advances

While conventional and estate loans are viable options in some circumstances, there is another alternative. Probate advances get rid of the burdens of traditional loans. You do not have to be creditworthy, be able to make payments, or pay interest. Instead, you sell a portion of your inheritance to the funding company. When probate concludes, the funding company gets its money from the estate. You make no payments and have no responsibility to the funding company after you get the money.