Can the Grantor Get a Mortgage on House in an Irrevocable Trust?
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Question:
Can you get a mortgage if you are the grantor of a home in an irrevocable trust and your trustee approves of it?
Response:
Not a traditional mortgage. While the trust probably would permit a mortgage, banks won’t grant a mortgage to property in an irrevocable trust. This is because most bank mortgages are actually sold by banks on the secondary market in order to obtain more liquidity. Once they sell the mortgage, they have additional cash to lend to other borrowers. To be able to take this step, the mortgage must be standard or “conforming.” This means that the borrower must be an individual (or individuals), not an entity that would have to be examined separately, such as a trust.
A family member or friend might lend the money if they can afford to do so. But then there’s the issue of what happens with the money. I’m not sure what the terms of your trust are, but the trustee may only disburse any funds it holds, whether or not they are borrowed, under the terms of the trust. The trustee could almost certainly use the funds to maintain and improve the house. But, for instance, if the trust was created for Medicaid planning purposes, the funds could not be used for the grantor’s benefit. Such trusts do not permit the distribution of principal.
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Can I Take Out a Mortgage on a Home in a Trust?
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Can I Borrow Money on My House in a Revocable Trust?
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