This article will explain all you need to know about inheritance funding and the different types of inheritance funding available, which are inheritance advances and estate loans.
It will also provide information on where to get inheritance funding, including inheritance finance companies and hard money lenders, and how to apply for it.
What Is Inheritance Funding and How Does It Work?
Inheritance funding, also known as inheritance loans, inheritance advances, estate loans, probate loans, or probate advances, is a type of short-term financing that gives you access to the value of the funds or assets you’ve inherited before the probate case is closed.
Types of Inheritance Funding
There are two types of inheritance funding: inheritance advance and estate loan.
An inheritance advance is essentially a cash advance on your expected inheritance amount, based on what you may inherit. Since you’re not actually taking out a loan, you don’t need to worry about repayments or needing strong credit to qualify. Instead of interest charges, you normally pay a flat fee, which can be quite hefty, around 10% to 50% of the inheritance value.
On the other hand, estate loans allow you to borrow against real estate assets that you don’t yet have access to, similar to a home equity loan. You receive your funds and repay it plus interest and fees, with your estate considered collateral for the loan. An inheritance loan or estate loan may come with an interest rate around 8% to 10% or more, and lenders typically lend up to 65% to 70% of the property’s value.
Where to Get an Inheritance Advance or Estate Loan
Inheritance financing is not available at traditional lenders, such as banks or credit unions. You can either go with an inheritance finance company or with a hard-money lender. However, be aware that either option can come with high fees or high-interest rates.
The most common way to get inheritance financing is through an inheritance advance company. These companies buy your inheritance directly from you in exchange for a fee. They don’t consider your credit history when you apply, and you can get inheritance upfront, within a few days of applying. But these companies can be expensive, charging fees equivalent to those you’ll find with a high-interest loan.
Hard money lenders are short-term lenders that provide loans backed by property. Like inheritance advance companies, hard money lenders don’t consider your credit score. This option, too, can be expensive, with APRs often higher than other subprime loans. If you’re unable to repay your loan, your lender seizes your estate assets and sells it.
Inheritances involve two types of taxes: estate tax and inheritance tax. Estate tax is paid from the estate of the deceased before you get your funds. Inheritance tax is what you pay after you receive your inheritance.
Only a few states charge inheritance tax, including Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. This tax can range from 1% to 18% of your inheritance’s worth in 2022, depending on how much you receive and your state’s laws. Often close relatives like spouses and dependents are exempt from paying an inheritance tax.
Make sure you’re aware of your state’s inheritance tax laws before applying for inheritance financing to know just how much you’re eligible to receive.
The 4 Steps of Getting an Inheritance Advance
Applying for inheritance financing is more involved than other types of loans. There’s a lot you need to do before you can even start looking at lenders, and you’ll need to gather some documentation, such as a copy of the decedent’s death certificate, a copy of the decedent’s will, and what the experience of other customers has been like. Compare offers from different lenders to find the best one for you.
1. Complete an application
After selecting a lender, fill out an application form. You’ll typically need to provide documentation proving your eligibility, as well as the amount you stand to inherit.
2. Wait for approval
After submitting your application, you’ll need to wait for approval. This can take anywhere from a few hours to several days, depending on the lender.
3. Receive your funds
Once your application is approved, you’ll receive your funds. This can happen in as little as 24 hours, depending on the lender.
4. Repay your advance or loan
Finally, you’ll need to repay your advance or loan, along with any fees or interest charged. Make sure you understand the repayment terms before you accept any financing offer.
Pros and Cons of Inheritance Funding
As with any type of financing, there are pros and cons to inheritance funding.
Immediate access to funds. Inheritance funding can provide you with quick access to the funds you need to cover immediate expenses or pay off debt. No credit check required.
Inheritance funding companies and hard money lenders typically don’t require a credit check, making it easier for people with poor credit to get financing. No monthly payments.
Unlike traditional loans, inheritance advances and estate loans don’t require monthly repayments, which can help ease financial stress.
High fees and interest rates. Inheritance funding can be expensive, with fees and interest rates that can take a significant chunk out of your inheritance. Limited options.
Inheritance funding is a specialized form of financing, so there are fewer lenders to choose from than with traditional loans. Risk of losing inheritance. If you can’t repay an inheritance loan or advance, you risk losing your inheritance or estate assets.
Is Inheritance Funding Right for You?
Inheritance funding can be a good option if you need quick access to cash and don’t have other financing options available. However, it’s important to carefully consider the fees and interest rates associated with inheritance advances and estate loans, as well as the potential risks involved.
Before applying for inheritance funding, make sure you understand the legal and financial implications of accessing your inheritance early. Consider consulting with a lawyer and a financial specialist to make an informed decision.
If you decide that inheritance funding is the right choice for you, take the time to compare lenders and find the best offer for your needs. Make sure you understand the terms of any financing offer before accepting it, and be prepared to repay your advance or loan according to the agreed-upon terms.
Inheritance funding can provide quick access to the funds or assets you’ve inherited, but it’s important to carefully consider the costs and risks involved.
If you decide to pursue inheritance financing, make sure you understand the legal and financial implications, and take the time to compare lenders and find the best offer for your needs.
With the right approach, inheritance funding can be a useful tool for managing your finances and achieving your goals.