Inherited house - how to get a mortgage to buy out two siblings?

[SB_F]

In the process of inheriting 1/3 of my parents house. Existing BOA mortgage of $72K at 3.95% (13 years left?). Houses in the area are going for $200-225K WHEN fixed up. Their's is not fixed up. 50 yrs old ranch w/ original carpet, tile, cabinets, etc. I figure distress sale to be $140K or less.  We will be using a no will,  non-court probate for small estates (less than $100K estate not counting the house) which is clean if all parties agree. Other money is going to us directly as beneficiaries (retirement, POD on bank accounts, etc). I figure a very generous amount to buy them out is $20-24K each. I expect both to jump at that as neither needs or wants the house.

My intentions are to move in as I fix it up, while I add on and remodel my current house in a better area. Looking at 24 months where I will need to rent a place anyway. After that, maybe make it a rental or even sell. Attorney says no problem legally except BOA is one of a few banks that doesn't like to recognize non-court probates. I can legally take over payments, but BOA prob won't let me switch from my parents' names to mine unless I totally refi elsewhere and pay them off.

So my mortgage question is what's the best route to refi to buy them out? How would a refi work in a situation like this? I could use savings and a $40K personal loan to do it easily and quickly and effectly assume loan by continuing to pay it, and then refi. Or is there a way to apply for a mortgage almost like I am buying it so the new mortgage funds the buyout of brothers directly at closing? (which I am buying for 2/3 of the equity plus the mortgage pay off).

No debt besides my $70K mortgage. $100K income. Scores all over 800 with a Nov 2013 BK13 discharged in June 2019. About $75K in CC limits paid off every month.

Suggestions?

[ShanetheMortgageMan]

You could do this transaction as a purchase or cash out refinance, the purchase probably is the better option. 

If you wanted to refinance, assuming this home in its current condition would pass an appraisal, since you'd be occupying it you could do a cash out refinance to 80% of the current value ($140k) leaving you with a new loan of $112k with cash back to you of $40k (to pay closing costs + pay most of the $40k you estimated on the low end to the other 2 beneficiaries).  

If you wanted to purchase, again assuming this home in it's current condition passes an appraisal, then you could use your 1/3rd ownership in it as a gift of equity from the other two beneficiaries.  $72k is owed on the mortgage and let's use $40k owed to the other two, there may be some seller related closing costs so let's add another $2k to the debit column, so the seller side would need to net $112k.  With an owner occupied property you could put down just 3%, but let's say you want to put 5% down (there is a break on mortgage & PMI rates) then that would make the sales price $120k, use your equity to cover the 5% down financing a $112k loan amount, and you'd just owe closing costs out of pocket.  The benefit to this route would be that purchase interest rates are better than cash out interest rates.

If the home wouldn't pass an appraisal then you can choose to put your own money into improving it before attempting one of the above two options, or you could use a renovation loan to purchase the home and finance in the cost of those repairs.  Renovation loans won't give cash back on top of the renovations (compared to a regular cash out refinance which can give you cash in hand), so the purchase route would be the way to go.

[SB_F]

Thanks @ShanetheMortgageMan! For some reason I didn't get notification of your response, and I've been to busy to get back on here recently.

That information is great to know. I did speak to a mortgage person at NFCU that was very helpful and echoed what you said about the purchase approach being the easiest and at the best rate. The attorney handling the estate directed me to a local title company with a lot of experience in no probate transfers, and they said it would be straight forward as long as the mortgage company was good with it (they agreed that BOA would not go along with it and would demand full payment if a name change was made on the title).