Can I Borrow Money on My House in a Revocable Trust?

 In Revocable Trusts

Question:

I have a mortgage on my house and also I have put it in a revocable trust with me as trustee. Can I get a small equity loan on the home to pay off credits cards? I have a big equity in my home.

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Response:

My experience is that banks require borrowers to deed their out of their revocable trusts before they will lend money. After the loan has closed, the homeowner can deed the house back into the trust, as you have done. Your bank may be somewhat more relaxed on this point for a smaller home equity line than for a larger mortgage. It is up to the bank what security it feels it needs. So, ask the bank from which you’re seeking the home equity loan.

Of course, it’s a chore and adds cost to deed the house out of the trust and then back in. It is normally considered best practice to transfer all of your assets into your revocable trust in order to avoid probate and to provide for management in the event of incapacity. Nevertheless, we don’t always transfer homes into revocable trusts in order to avoid the proliferation of deeds in the event the owners want to refinance or take out a home equity line of credit, as you are planning to do. Especially with younger clients, we inquire into their future plans before preparing a deed into trust.

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