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Closing Home Loans in a Land Trust
Do you know anyone who lends to properties in a land trust?
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Closing Home Loans in a Land Trust
Many buyers and homeowners choose land trusts to keep their ownership private, simplify estate planning, or add protection for their assets. Still, obtaining a mortgage on a property held in a land trust can be challenging for both borrowers and lenders.
You can buy, refinance, or keep your home in a land trust through different mortgage programs, as long as you follow the rules set by agencies and lenders.
What Is a Land Trust?
A land trust is a structure in which a trustee holds title to the property for one or more beneficiaries. The beneficiary can live in, sell, refinance, or transfer the property, as long as they follow the trust’s rules.
Land Trusts are Frequently Used For:
- Protecting the privacy of ownership
- Estate planning
- Avoiding probate
- Protection of assets
- Transfers of real estate made easy
Can You Get a Mortgage with a Property in a Land Trust?
The answer is yes. Many lenders will allow land trust holdings for:
- Principal residences
- Secondary residences
- Investment real estate
The Borrower Will Typically be Required to Be:
- If the program requires it, the borrower must live in the property.
- Lenders will review the trust agreement closely to ensure it meets all their requirements before proceeding.
Fannie Mae Guidelines for Land Trusts
Fannie Mae will allow properties in certain inter vivo revocable trusts, including certain land trusts, if:
- The borrower is a trust beneficiary.
- The borrower occupies the property, if applicable.
- The trust is revocable.
- The borrower may use and occupy the property.
- The lender obtains and analyzes the trust agreement.
The trust may not limit the lender’s right to foreclose on the property in the event of a default.
Freddie Mac Guidelines for Land Trusts
Freddie Mac will also allow trust arrangements if:
- The trust is revocable.
- The borrower is a beneficiary.
- The borrower executes all required loan documents.
- The trust agreement satisfies agency requirements.
Many conventional loans closed in a land trust follow the same requirements as Fannie Mae guidelines.
FHA Loans and Land Trusts
The Federal Housing Administration allows certain property to be vested in a trust if:
- The trust is approved by the lender.
- The borrower remains personally liable for the mortgage.
- The trust meets FHA requirements.
- The borrower remains responsible for the loan. Not all FHA lenders are familiar with trust documents, so it often helps to work with lenders who specialize in trust loans. Property can be placed in a trust if:
- The veteran is the beneficiary of the trust.
- The trust meets VA requirements.
- As their primary residence;
- As personally liable for the loan;
The trust agreement may require further analysis.
Can You Purchase a Home Directly into a Land Trust?
In most cases, the answer is yes. You can take title at closing when:
- The trust agreement is reviewed prior to closing.
- The title company agrees to the vesting.
- The lender’s underwriting clears the trust structure.
- The borrower signs all necessary documents both personally and as the trust requires.
Every lender has their own set of guidelines.
Typical Requirements
The purchase of a land trust typically requires lenders to provide:
- Full trust agreement
- Trust certification
- Trust amendments
- Trustee and beneficiary info
- An occupancy affidavit
- Attorney prepared trust documentation, if required.
Underwriters review these documents to make sure everything meets the required rules.
Typical Causes for Delay
Delays in closing a land trust property often happen because of:
- Incomplete trust and/or amendment documents
- Unclear rules about the trustee’s power to change the trust
- Words in the trust that limit the lender’s rights
- Disagreements between the title company and the lender about who holds the title
To avoid delays, provide your trust documents to your lender early in the mortgage process.
Can You Refinance a Property Held in a Land Trust?
Yes, refinancing properties in a land trust is common.
Generally, the lender will:
- Review the trust documentation.
- Verify the beneficiaries.
- Confirm the occupancy, if required.
- Ensure the trust complies with the agency.
Some lenders might ask you to take the property out of the trust for closing, then put it back in afterward.
Current Trends We See from Borrowers
Many borrowers place their homes, vacation properties, and investments into land trusts after closing to gain privacy and improve estate planning. Most funding issues come from late or incomplete trust documents. Preparing and checking all documents early usually makes it easier to get a conventional, FHA, or VA loan.
Closing Home Loans in a Land Trust:
Summary of a land trust with many conventional, FHA, and VA loans. Usually, you need to be the trust beneficiary, take personal responsibility for the mortgage, and provide the trust documents for review. Informing your lender and title company about the trust early helps speed up funding and makes closing day less stressful.
Answer to Your Questions
Does Putting a Home in a Land Trust Cause Problem?
Usually not. Most funding issues come from the rules in the trust documents. Lenders need to make sure the trust meets their standards and that their security interest is protected. For a mortgage, trustee approvals are not allowed. Most residential mortgage lenders expect borrowers and beneficiaries to qualify and be personally responsible for the loan.
Are Land Trusts Good for Asset Protection?
No, they are not. While a land trust can add privacy and help with estate planning, it does not prevent all creditor claims or claims on a property.
Can You Put an Investment Property in a Land Trust?
You can put investment properties in a land trust. Most lenders allow this as long as you follow agency and lender rules. Will a lender require the full trust? Of the time, yes. Some lenders may accept a trust certification initially, but underwriters usually require the full trust and all changes for review.
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This reply was modified 1 hour, 59 minutes ago by Cameron.
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