Inheritance Loan vs Inheritance Cash Advance

Inheritance funding comes from two different kinds of companies: inheritance lenders and inheritance advance companies. The right choice depends on what you need, how long the estate or trust will take to settle, and what assets it holds. Both can put money in your hands within days to a few weeks, but they work differently and their prices are far apart. North Coast Financial is one of the most experienced hard money lenders in California, with over $1 billion in private money loans funded since 1981. We lend against property held in estates and trusts, and this guide lays out both options plainly, including when an advance is the better fit.

Key Takeaways

1. An inheritance advance is not a loan. The company buys part of your expected share for cash today and collects from your distribution when probate closes. There are no monthly payments and usually no credit check, but the price can take a large bite out of what you receive.
2. A loan is made to the estate or trust and secured by a house or other property it owns. You pay interest and points, and when the property has equity the total is usually a fraction of what an advance charges.
3. If there is California property with significant equity, price a loan first. If it holds only cash, stocks or personal belongings, an advance may be the only option.
4. North Coast Financial’s loans on estate and trust property are typically 9.95% to 10.5% on a first, up to 65% to 70% of the property’s value, with 7 days typical funding and no junk fees.

Inheritance Cash Advance Companies

Inheritance cash advance companies buy all or a portion of the inheritance from the heir in exchange for providing the cash advance. For example, an advance company may provide $30,000 today and be repaid $50,000 once probate is closed and the estate is settled. Their process is usually quick, and many fund within a week. Monthly payments are not required because there is nothing to pay back. The terms are set out in the advance agreement, and the executor or administrator pays the company directly from your share at distribution.

Most advance companies do not check credit or income, because repayment comes out of the inheritance rather than from you. Many agreements are also non-recourse: if the inheritance turns out to be worth less than expected, the company absorbs the shortfall instead of coming after you. Read the agreement to confirm both points, since terms differ from one company to the next. You may also hear the same product called a probate advance or an advance against inheritance. They describe the same transaction.

A cash advance on an inheritance is recommended in the following situations:

• The estate or trust contains cash, stocks, bonds or other personal property and does not contain real estate
• An heir needs a quick, short-term advance to help cover the costs of the estate
• Heirs are feuding and cannot all agree on borrowing against estate-owned real estate
• Heirs have urgent personal debts or expenses that need to be paid immediately
• The amount needed is small, so a loan’s minimum charges would be a large share of it

Inheritance Advance Rates

Advance pricing varies from company to company, so get written quotes from at least two or three before you sign. Most advances are priced as a flat amount rather than an interest rate. In the example above, the company keeps $20,000 for $30,000 of cash received, or 67% of the money in hand. If probate takes a year, that works out to about 67% for the year. If it closes in half that time, the effective yearly price is roughly double. Some agreements also raise the amount owed the longer probate stays open, so get the answer in writing on how the price changes if settlement runs late.

When the estate or trust owns a house or other property, an advance is generally not the best choice. Its price usually ends up far higher than the total cost of a loan secured by that property, as the example further down this page shows.

In California, an assignment of part of an heir’s share is filed in the probate case, and the court can review whether its terms are fair (Probate Code section 11604). Ask the estate’s attorney to read any advance agreement before you sign it.

Inheritance Lenders – Loans Against Real Estate

Inheritance lenders make a loan secured by property owned by the estate or trust. These are commonly known as probate and estate loans or trust loans. Most of these lenders are hard money lenders that lend private funds rather than bank deposits, which is why they can lend during probate or to an irrevocable trust when most banks will not.

READ MORE: Can an Irrevocable Trust Get a Loan or Mortgage?

The loan is recorded against the property with a note and deed of trust, just like a traditional mortgage. North Coast Financial requires a monthly payment, calculated on a 30-year amortization. Lenders typically lend up to 65% to 70% of the property’s current value, which allows for both large and small amounts. When the property is sold or refinanced with a traditional lender, the payoff happens through escrow.

Because the borrower is the estate or trust, the person with legal authority signs: the executor or administrator in probate, or the successor trustee for a trust. In probate, an executor or administrator with full authority under the Independent Administration of Estates Act can borrow against estate real estate after giving the beneficiaries a notice of proposed action (Probate Code section 10514(b)); if a beneficiary objects, the loan needs court approval. An executor or administrator with limited authority needs court supervision to borrow against real estate (Probate Code section 10501(b)). The attorney handling the case will confirm which applies. The approval is based mainly on the property’s value and equity, not on anyone’s income.

Inheritance loans are recommended in the following situations:

• The estate or trust owns real estate with sufficient equity
• Funds are needed to pay for expenses of the estate or trust
• Funds are needed to make repairs or improvements to the real estate to maximize the property value and sell
• The heirs are dividing interest in the real estate and need to borrow against the equity in the real estate
• One beneficiary wants to buy out siblings and transfer the house into their name (Prop 19 in California, or Prop 58 if the parent died on or before February 15, 2021). Under Prop 19, the parents’ tax base carries over only if the new owner moves in as a primary residence, and only up to a dollar cap the Board of Equalization adjusts every two years

READ MORE: How to Refinance an Inherited Property to Buy Out Heirs

Inheritance Loan Rates and Fees

Rates and fees vary by lender. At North Coast Financial, financing on estate and trust property is typically 9.95% to 10.5% on a first and 12% to 12.5% on a second, with 1.25 to 1.95 points (1 point equals 1% of the amount borrowed). We do not order an appraisal, so there is no appraisal fee. The borrower also pays the standard transaction costs of escrow, title insurance, notary and recording. Some lenders add “processing,” “document” or “underwriting” charges on top. We do not: no junk fees, and every fee is named in writing before you sign. Terms depend on the property and the plan to repay, so call for a quote on your situation.

Inheritance Loan Process

The inheritance loan must be initiated by the individual(s) with the legal authority to act on behalf of the estate or trust (probate administrator, executor, successor trustee, etc.). The loan application and loan documents must be completed, reviewed and signed by this individual.

1. Apply for inheritance loan
2. Obtain approval
3. Loan is processed by inheritance lender
4. Loan funds directly to bank account of trust or estate
5. Pay expenses or buy out other beneficiaries
6. Title of property is transferred into individual’s name
7. Refinance inheritance loan or pay off with cash

To start the process, we need five pieces of information: the amount needed, the property’s approximate value, any existing mortgages on it, the address, and how you plan to repay (a sale or a refinance). From there most of the time goes to title and escrow, and 7 days is typical funding. Families who cannot wait for probate to finish usually have access to the money within a couple of weeks of the first call.

Cost Example: The Same $30,000 as an Advance or a Loan

Using the advance example above, here is what the same $30,000 would cost when borrowed against a house with equity and paid off when the property sells or is refinanced. The figures use the top of our typical first-position rate (10.5%), with monthly payments of about $274 based on a 30-year amortization. Points of 1.25 to 1.95, plus the escrow and title charges, are extra and vary by loan and property.

On a small amount, points and closing costs are a big part of the price, and an advance can still make sense when there is no property or you need only a few thousand dollars. On larger amounts the gap usually widens. One difference matters in families: money borrowed by the estate or trust is a shared expense unless the beneficiaries agree to charge it to one share, while an advance affects only the person who signs it.

Where to Find Inheritance Funding Companies

After determining whether an inheritance loan or an inheritance cash advance is most appropriate for the situation, the heir can begin searching for a company to work with. Searching the internet for a term such as “inheritance loans near me” will provide a list of companies offering their services. Read the reviews to get a sense for how satisfied previous clients have been. Before choosing, get answers to three questions: what you will receive, what you will repay, and what happens if probate runs long. Also check the lender’s license: in California, look up its DRE or NMLS number. North Coast Financial is DRE Broker #01870870, NMLS ID 323044.

If already working with a probate or trust attorney, ask for referrals for a reputable inheritance funding company.

Inheritance Loan and Advance FAQs

Are inheritance loans a good idea?

They are when the estate or trust owns a house with significant equity and the family needs money before it sells or is refinanced: to pay expenses, make repairs before a sale, or buy out a sibling. If you want the lowest total cost and there is a house with equity, a loan usually wins. It is not a good idea without a clear way to repay, usually a sale or a refinance, within one to two years.

What banks do inheritance loans?

Few banks will lend while an estate is in probate, and many will not lend to an irrevocable trust. Private direct lenders fill that gap. North Coast Financial lends on California property held in estates and trusts, decides mainly on value and equity, and funds its own loans rather than shopping the file to other lenders.

What credit score do you need for an inheritance loan?

There is no single cutoff. Because the property secures the loan, equity matters more than the score. We review credit, but a low score paired with a house that has significant equity can still qualify. An inheritance advance usually involves no credit check at all.

How much can I get from an inheritance advance?

Advance companies typically fund only part of your expected share, set after they review the probate file and any debts the estate must pay first. Get each company’s figures for what you will receive now and what it will keep at distribution, and compare them in dollars.

What happens to an inheritance advance if probate takes 3 years?

It depends on the agreement. Many advances cost a flat amount no matter how long probate runs, which works in your favor on a long case. Others raise the amount owed at set intervals. A loan accrues interest every day it is open, so on a very long probate, compare the two over the same period before deciding.

Does an inheritance advance show up on my credit report?

Generally no, because an advance is a purchase of part of your inheritance, not a debt in your name. Get the company’s confirmation in writing before you sign.

Do you pay tax on an inheritance in California?

California has no inheritance tax or estate tax, and an inheritance is generally not taxable income to the person receiving it. The federal estate tax applies only to very large estates and is paid by the estate. Income the assets earn after the death, and gains when you sell, can be taxable, so ask a CPA about your situation.

Why do people call inheritance advances loans?

Because they put cash in your hands before the estate pays out, which feels like borrowing. Legally an advance is an assignment: the company buys part of your share. That is why it has no interest rate or monthly payment, and why its price shows up as an amount taken from your distribution.

North Coast Financial is a direct lender for California estate, probate and trust loans and works with beneficiaries, trustees and their attorneys. Call (760) 722-2991 to review the property and the timeline, or contact North Coast Financial for a free consultation.

READ MORE: Estate Loans to Buyout Siblings