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Can a Grantor Trust be on the Property Title Instead of the Borrower?

In the realm of estate planning, the use of trusts is commonplace. But what happens when the person establishing the trust wants to hold title to property in the name of a grantor trust, but want to get a mortgage? Can this be done?

The quick answer: Yes. Under Fannie Mae guidelines, an inter vivos revocable trust can be an eligible borrower. To get the definitions out of the way, an inter vivos revocable trust is one that (1) has been established during the creator’s lifetime, (2) becomes effective during the creator’s lifetime, and (3) can be altered or canceled by its creator at any time, for any reason.

For one of these trusts to qualify, it first must be established by at least one natural person (by natural we are excluding corporations, trusts, LLCs, partnerships and any other legal “persons” you can think of that don’t have a pulse). The e individual (or individuals) establishing the trust must be the primary beneficiary and the assets of at least one of the individuals establishing the trust will be used to qualify for the mortgage. The trustee must be either one of the individuals establishing the trust or an institutional trustee that customarily performs trust functions under the laws of the applicable state. Finally, the trustee must have the power to mortgage the subject property in order to secure a loan to the borrower under the mortgage or deed of trust note.

At the end of the day, the mortgage will be underwritten as if the individual establishing the trust were the borrower. If you find yourself in a situation in which you are looking to purchase property and hold title in a trust, make sure to inform your loan officer early on in the process; this give them the chance to request additional trust documentation if needed and will limit the possibility of any hiccups along the way.