The death of a loved one is a traumatic experience. Not only are you emotionally exhausted, but you also have the added anxiety of sorting through legal documents, financial information, and the deceased’s last will and testament after the funeral. You want to make sure you tie up any financial loose ends, which can be a daunting task.
A mortgage is one issue that some people may face after the death of a loved one. If you already have a home loan payment, you may not be able to afford to take on another. So, what happens if you inherit a mortgaged home, and what do you do next? We’ve got a few pointers and things to think about when dealing with an inherited mortgage.
Can You Inherit A House That Still Has A Mortgage?
After a loved one dies, their assets will go through a probate process. Probate is a legal procedure that is used to distribute an individual’s assets in accordance with their will and is carried out by the executor of the estate. Because the deceased person’s debts must still be paid, their remaining assets must be sold to pay lenders what they are owed. Depending on the size of the individual’s estate, this could take the form of physical or liquid assets.
When all debts are paid, the remaining assets are divided among the heirs. In many cases, this could mean inheriting their home, even if it still has an outstanding mortgage balance.
When this occurs, you have a few options for what you should do next. You could either sell the house to pay off the mortgage and keep the proceeds as an inheritance, or you could keep the house. If you keep the house, you’ll have to either continue making loan payments or use other assets to pay off the mortgage.
Inheriting A House With A Mortgage
After inheriting a house with a mortgage, you’ll need to determine your next steps. Let’s take a look at the factors you should consider when deciding what to do next.
- Determine Who Takes Over The Home
If the mortgage had a co-signer, that person is now responsible for making the mortgage payments. If a home is left to an heir through a will, the heir(s), whether one or more people, is now responsible for the mortgage. It’s critical to determine who is responsible for the loan because this person (or group of people) will work with the lender to obtain mortgage details and information.
If there is no co-signer and no one in line to inherit the property, the bank or lender must still collect on their debt. To try to recoup the debt, they usually sell the house. Sometimes the proceeds from the sale of the home are insufficient to cover the entire loan balance. If this is the case, the lender may seize the deceased’s assets to cover the remaining loan balance or simply assume the remaining debt. This will differ depending on where you live.
- Gather All The Mortgage Documents
Hopefully, the homeowner saved a copy of their mortgage paperwork. At the very least, try to locate a document that specifies who services the mortgage. You or your family attorney must contact the servicer to inform them of the death. Before you can proceed, they will almost certainly require a copy of the death certificate. The servicer will be able to tell you how much is left on the mortgage and how much the monthly mortgage payment is after verifying the death and updating documents. You’ll have all the information you need at this point to decide how to handle the remainder of the mortgage.
You should also inquire whether the borrower has mortgage protection insurance on their home. If they did, it could help to simplify the complicated process of dealing with a mortgage after they pass away. If they died before their mortgage was paid off, the insurance company will write a check to cover the remaining balance, and the house will be paid off.
- Start Making The Loan Payments
To begin, if you decide to keep the house, you must begin making mortgage payments. Otherwise, it may be repossessed. When a home is in foreclosure, it and all of its remaining debts are turned over to the mortgage company.
If the home has any reverse mortgages, those must also be paid off if you want to keep the property. You could also pay off the reverse mortgage by selling the house and keeping the proceeds.
- Pay The Mortgage Off
Another (and probably the best) way to deal with an inherited home loan is to pay off the mortgage entirely. When the house is completely paid off, you have the option of keeping it, leasing it out, or selling it. In either case, paying off the mortgage completely frees the property from a lender and allows you to do whatever you want with it.
Ask A Professional For Advice
If you have any specific questions or just feel completely lost, contact an attorney; they can help you sort out specific questions. Laws differ from state to state, and we all know how difficult it can be to read legalese. Don’t be afraid to seek assistance if you require it, and, most importantly, don’t sign or agree to anything you don’t understand.
The Bottom Line
The time following the death of a loved one feels like a whirlwind. Trying to tie up financial loose ends adds stress to an already stressful situation. Knowing what steps to take ahead of time can help alleviate any anxiety you may experience. Just remember to seek professional advice if you have any questions or if something doesn’t feel right. It’s better to spend the money and make the right decision confidently than to guess and hope for the best.
If you decide to keep the inherited home and continue making loan payments, now might be a good time to refinance your mortgage. Speak with one of our experts today to see if you qualify for a lower rate.
