When a homeowner dies, the inheritance of a home is typically decided by a will or probate proceedings. But what happens when the property has a mortgage on it? Will your next of kin be responsible for your mortgage debt? What will happen to your surviving family members who still live in the home?
Let’s review what happens to your mortgage when you die and how to plan ahead to avoid mortgage issues for your heirs. We’ll also explore what you need to know if you’ve inherited a home after a loved one has died.
Losing a parent is never easy. On top of grieving, you may need to make difficult decisions about their finances and property. This often includes what to do about any outstanding mortgage debt.
If your parents had a mortgage when they passed away, you may wonder if you can take over the payments. Fortunately, with the right planning, inheriting a mortgaged home doesn’t have to be overly complicated.
In this comprehensive guide we’ll explain everything you need to know about taking over a deceased parent’s mortgage.
Who Is Responsible for a Mortgage After a Parent Dies?
When someone passes away, any debts they owe are typically paid from their estate. However, a mortgage functions differently than other types of debt.
Unless there was a co-signer on the loan, no one is legally obligated to continue repaying a mortgage after the borrower dies. But if an heir wishes to keep the property, they can take steps to assume the mortgage.
The estate plan may also provide instructions on how to handle the home and mortgage. And some states have laws protecting certain heirs’ rights when it comes to assuming a mortgage.
So while no one is forced to take on a parent’s mortgage the option exists for heirs who want to retain ownership of the property. The lender must be notified so the appropriate next steps can be taken.
Can a Surviving Spouse Take Over the Mortgage?
If your parents were married and co-owners of the home, the situation is fairly straightforward. The surviving spouse simply continues making mortgage payments as before. They automatically become the sole, legal owner of the property.
However, things get murkier if your deceased parent was the only borrower on the mortgage. The good news is, a surviving spouse still has options:
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Assume the mortgage: The spouse can formally assume the mortgage, taking legal responsibility for the loan. Lenders are required to allow this for surviving family members.
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Refinance the loan: Another option is taking out a new mortgage in the surviving spouse’s name to pay off the existing one.
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Sell the home: If keeping the property proves unaffordable or impractical, selling the house and paying off the mortgage is often the solution.
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Make payments temporarily: The spouse can simply keep making payments until final arrangements are made. Lenders allow this grace period.
As you can see, a surviving husband or wife has several choices, even if they weren’t originally on the mortgage. Consulting a financial advisor and real estate attorney can help navigate the decision.
What if Someone Other Than a Spouse Inherits the Home?
If your parents left the home to you or another relative in their will, you also have options for dealing with an outstanding mortgage. As a beneficiary, you aren’t liable for the loan, but you can take steps to keep the house if you wish.
Some possibilities include:
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Assume the mortgage: Work with the lender to formally take over the loan. They must allow this for immediate family members inheriting a home.
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Pay off the loan: Use other assets from the estate to pay off the mortgage in full before transferring the deed.
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Refinance: Take out a new mortgage in your name to pay off the existing one.
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Make payments temporarily: Simply continue making payments as you figure out next steps. Lenders allow this short-term arrangement.
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Sell the home: If keeping the house proves impractical, sell it and use the proceeds to pay off the mortgage.
The route that makes most sense depends on your financial situation and intentions for the property. Consulting a lawyer and financial advisor can help weigh the pros and cons.
How Does the Mortgage Assumption Process Work?
Assuming your deceased parent’s mortgage loan isn’t automatic. You’ll need to take certain steps to make it official. Here is an overview of the general process:
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Notify the lender about your parent’s passing and intent to assume the mortgage. Provide any requested documents, like a death certificate.
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Formally apply to assume the mortgage. The lender will evaluate your creditworthiness and ability to make payments.
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Get approved. In some cases, the lender may request modifications to the loan terms.
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Review the loan details like interest rate, monthly payments, and timeline. Consult professionals to understand the financial impacts.
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Finalize the assumption by signing the necessary legal paperwork. This transfers responsibility to you.
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Update related records like property taxes and home insurance to your name.
Every situation is unique, so be sure to seek legal and financial guidance tailored to your circumstances.
What If I Don’t Qualify to Assume the Mortgage?
Lenders are required to let spouses and immediate family inherit and assume a mortgage when a property owner dies. However, you still must meet their financial qualification requirements.
If you don’t qualify based on credit score, debt-to-income ratio, or other criteria, you have alternatives:
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Refinance in your name or with a co-signer.
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Sell the home and use the proceeds to repay the mortgage.
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Rent out the property to cover the mortgage payments.
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Request a loan modification from the lender.
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Explore government programs for assistance.
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Consult an attorney about special legal options.
The right solution depends on whether you intend to keep the house or just need time make arrangements. Seeking professional legal and financial advice can help identify the most suitable option.
How Can I Prepare Now for Assuming a Mortgage Later?
No one likes to think about their own mortality. However, taking steps now to prepare can ensure a smoother process for your loved ones later.
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Discuss your intentions with your parents and spouse. Make sure you’re all on the same page.
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Create or update your estate plan and will to reflect your wishes about the property.
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Consider mortgage protection life insurance to pay off the loan balance if you pass away first.
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Refinance at a lower interest rate to reduce costs of assuming the mortgage.
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Consult a financial planner or attorney to customize a plan for your situation.
With the right preparation, you can tackle the complex process of assuming your deceased parent’s mortgage with greater confidence and peace of mind.
The Bottom Line
Taking over a parent’s mortgage after they pass away can certainly be complicated. But understanding the legal process, evaluating all your options, and seeking professional guidance can enable you to make the best decisions during an already difficult time.
With some planning and forethought now, you can take steps to ensure assuming a mortgage from your parents goes smoothly in the future. That way, you can focus on more important things, like honoring their legacy.
How to get information on the mortgage
To take over the mortgage of an inherited house, you’ll need to talk to the loan servicer first and let them know you’ve inherited the property. You’ll likely need to provide proof of death and documents that prove you’re the rightful heir to the home.
The servicer should provide information about how to continue making payments and your options for assuming the loan.
What happens to your mortgage debt when you die?
Your debts are typically paid from your estate after you die. Before any assets can pass to your heirs, the executor of your estate will use your assets to pay off your creditors.
However, with mortgage debt, the process is different.
Unless someone is a co-signer on the loan or a co-borrower, no one is legally obligated to continue paying off yourmortgage. But if someone inherits your home and decides to keep it and take over the mortgage, there are laws that allow it. Most commonly, surviving family members inherit the property and maintain the mortgage payments while they arrange to sell the home.
If no one takes over the mortgage after your death, your mortgage servicer will begin the process of foreclosing on the home.
What happens to the mortgage on your parent’s home when they pass away?
FAQ
How to assume a mortgage from a family member that passed away?
You need to have the executor of her estate deed the property to you, and contact the current lender to let them know she is deceased. Lenders give heirs time to make alternate arrangements for financing and may even be willing to refinance the mortgage themselves.
Can you assume the mortgage if you inherit a house?
Can I assume my mother’s mortgage?
Yes, even if the house is not paid off. The lender has to agree to let you assume or take over the mortgage. To do that, the lender must approve you as the borrower, since they will not have the house as collateral if the title is transferred away from your mother to you, but the loan obligation remains with your mom.
How long can you keep a mortgage in a deceased person’s name?
No, a mortgage can’t remain under a deceased person’s name.
What happens to a mortgage if a parent dies?
A mortgage attaches to real estate and continues beyond the death of the person who took out the loan. When the last surviving parent dies and a child or children inherit the family home, they also inherit any mortgage.
Should you take over a parent’s mortgage?
Taking over a parent’s mortgage is a significant financial decision often prompted by inheritance, aging parents, or family planning. While it may seem straightforward, the process involves navigating legal and financial considerations to comply with lender requirements and property laws.
Can a mortgage be accelerated if a parent dies?
If your parent dies and the home goes to you, the mortgage lender can’t accelerate the loan simply because the property transferred at death. When you inherit a parent’s home and mortgage, the terms of the mortgage don’t change. The monthly payments must be made in the amount agreed upon and in a timely manner. The interest rate doesn’t change.
What happens to a mortgage if a person dies?
Probate process: If the property is part of the estate, it may go through probate, where a court oversees the distribution of assets. Lender notification: It’s essential to notify the lender as soon as possible about the death and your intention to assume the mortgage.
Can you take over a mortgage if you inherit a property?
If you aren’t the original borrower on a home loan, but you inherit a mortgaged property or get ownership through a divorce or other intra-family transfer, can you take over the mortgage? If you’re legally considered a success in interest, the answer is yes. In addition, federal law requires the lender and loan servicer to:
How do I transfer a mortgage after a loved one dies?
Whether you’re the heir, the executor of estate or both, you’ll need to decide how to proceed with managing the house and transferring the mortgage after the death of a loved one. You can choose to move forward with any of the following options: Resume making monthly loan payments on the property.