Nobody likes to think about their own mortality, but the reality is that nothing in life is certain. You could get into an accident or become ill and find yourself having to address what you leave behind when you die. If you have a mortgage, you might worry about what that means for your heirs and loved ones. Will they be able to keep your home, and who will be responsible for paying for it?

Who takes over your mortgage when you die?

Fittingly for this topic, the word mortgage is drawn from a French term for “death pledge.” When you pass away, your mortgage doesn’t suddenly disappear. Your mortgage lender still needs to be repaid, and could foreclose on your home if that doesn’t happen. The same applies if there are outstanding home equity loans or lines of credit attached to the property. That’s because a mortgage is a lien that remains in place until the loan is repaid, even if the borrower dies.

If you applied for your mortgage with a co-borrower or co-signer, the solution is relatively simple: The other party can continue making payments on the loan.

If you don’t have a co-borrower or co-signer, the responsibility falls to the executor of your estate, who should continue making payments using funds from your estate while the fate of the home is sorted out. The rub is if the estate doesn’t have sufficient funds or liquidity to pay the mortgage — that’ll create complications for heirs.

If you leave your home to be inherited by an heir, your heir can decide what to do with the home and the mortgage. Generally speaking, your heir will either need to assume the mortgage and start making payments, or arrange for the sale of the property.

What if you inherit a property?

If you inherit a property that has a mortgage, you will be responsible for making payments on that loan.

If you are the sole heir, you could reach out to the mortgage servicer and ask to assume the mortgage, or sell the property. You could also choose to let the lender foreclose.

If you want to assume the loan, you can work with the servicer to transfer the loan to you. Keep in mind that there might be a fee associated with assuming the mortgage.

Of course, if you sell the property, you’ll have to use the proceeds to pay off the loan before you can pocket any windfall.

Some lenders are willing to be flexible if you’re not in the financial position to assume the loan, but don’t want to sell. You might be able to refinance the loan to secure a lower payment or modify the terms so it’s more affordable. Depending on the interest rate in comparison to current rates, you might be better off getting this other mortgage.

If multiple heirs inherit an interest in the home, things get more complicated. Each party will need to agree on what to do with the property — one might have to buy out the others’ shares, for instance. If none of the heirs are interested in living in the home, selling it might be the best route to take. Alternatively, if one or more heirs want to convert it to a rental, consider the ramifications of changing it to an investment property: You might need to get a new mortgage, since the original loan was for a primary residence, not a rental.

Whatever heirs decide, it’s best to enlist the help of an estate or real estate lawyer in these types of situations.

Do heirs need to requalify? 

Borrowers typically need to meet “Ability to Repay” requirements before a mortgage lender can approve a loan. These rules help protect borrowers from predatory loans they wouldn’t be able to afford.

There’s an exception to this rule if you inherit a home, however. Heirs don’t have to requalify for the mortgage on the home they inherited. This gives them an opportunity to keep the home and assume the loan without having to meet the ability-to-repay requirements. If the goal is to keep the property, be sure you can actually afford the mortgage before committing to it.

If you want to change the terms of the mortgage, however — such as refinancing to a lower rate — you’ll need to qualify for a new loan and meet all of the lender’s eligibility requirements.

How to assume a mortgage

You might need to provide proof that you’re the rightful inheritor of the property, or the executor of the estate, if you inherit a home with a mortgage and want to assume the loan. Contact the mortgage lender or servicer for next steps and information, such as the outstanding balance, the monthly payment and other essential details. If you can’t locate the deed, contact your local records office (e.g., the county clerk) for a copy. You can usually get a copy for a modest fee, or pay more for a certified copy. Your attorney can help guide you as to which type of copy to get.

You can typically work directly with the servicer to take over the loan. Remember that you don’t have to go through the underwriting process or requalify for the mortgage in order to assume it, but you’ll likely need to provide a certified copy of the borrower’s death certificate (and potentially the borrower’s will). You might want to employ a lawyer to help you in your communications with the servicer, especially if the servicer is less than helpful with your situation.

Once you’ve assumed the loan, you can continue making payments on it or opt to refinance.

Bottom line

If you own a home, it’s important to plan for the future and what will happen when you pass away. Having a clear last will and testament that describes what should be done with your mortgage, bank accounts and other assets will help your loved ones navigate what to do with your estate. A good life insurance policy can also help save your heirs from financial stress (but be sure to compare the differences between life insurance and mortgage protection insurance — these are separate policies with separate coverages). Take the time to create an estate plan, even if you don’t think you need one, and talk to your loved ones about your wishes, including what you’d like to see happen with your home.

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