My dad passed away two months ago. I’ve been living in his house for the past few years. My wife and I were there to help take care of him. My wife also passed away unexpectedly. Now I don’t know what to do about the mortgage. I have no place else to live, and I’m on disability. I’m afraid to tell the finance company that he passed away, so I’ve just been making the payment. Is there any way I can get the mortgage in my name? — James
Hello James. I’m very sorry for your loss. I can’t imagine what it’s like to lose a spouse and parent in a short time, and the last thing you should have to worry about right now is keeping your home.
Fortunately, federal law does provide heirs protection when a deceased loved one’s home has a mortgage. You may be able to assume the mortgage on your father’s home if you meet some requirements. Although assuming the mortgage may be your best option, it may also be possible to qualify for a mortgage on your own, even with lower income. You can compare mortgage rates from multiple lenders by using Credible.
Dealing with the loss of a loved one is difficult enough without having to worry about what will happen to their remaining mortgage debt. When someone passes away, there are several options for handling an outstanding mortgage, depending on whether you want to keep the home or sell it. Here’s what you need to know about assuming a mortgage loan after a death occurs.
Who is Responsible for Paying the Mortgage?
When a homeowner with a mortgage dies, their debts are typically paid out of their estate. However, a mortgage is treated differently than other debts like credit cards or medical bills. No one is legally obligated to pay off the deceased’s mortgage unless they were a co-signer on the loan.
If someone inherits the home but doesn’t want to keep up with mortgage payments the lender can foreclose on the property. On the other hand family members who inherit the home may want to continue living there. In that case, they have a few options
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Assume the mortgage The inheritor can contact the mortgage servicer and go through the process of assuming responsibility for the loan This transfers the mortgage into their name
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Pay off mortgage: Use assets from the estate or their own funds to pay off the mortgage in full.
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Sell the home: Sell the property and use the profits to pay off the mortgage debt.
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Let lender foreclose: Walk away and allow the lender to foreclose on the property.
How to Assume a Mortgage Loan
Assuming the mortgage can allow an heir to keep the home without disrupting their living situation. Here are the steps to take over an existing mortgage:
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Contact the servicer: Let them know you’ve inherited the home and intend to assume the mortgage. Ask what documents you’ll need to provide.
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Provide documentation: Supply paperwork to verify the death and confirm you’re the rightful heir. This may include a death certificate and will or court order.
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Get approved: The servicer will review your credit, income, and overall finances to ensure you’re qualified to take over the payments.
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Sign assumption agreement: Finally, sign a written contract with the servicer to formally transfer the mortgage into your name.
You’ll then begin making monthly mortgage payments as the new borrower. Your loan terms, like the interest rate and payment amounts, will remain the same.
What if You Can’t Afford the Payments?
If the inherited home has an expensive mortgage that you can’t afford, don’t panic. You still have options:
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Loan modification: Ask the lender if they can modify the loan. This may include extending the repayment term to lower payments or amending the interest rate.
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Refinance: Take out a new mortgage on the home. You can likely qualify for better terms like a lower rate.
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Reverse mortgage: If you’re over age 62, a reverse mortgage allows you to tap home equity without having to make payments.
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Sell the property: As a last resort, you may need to sell the inherited house and use the profits to satisfy the mortgage.
Special Case: Reverse Mortgages
Reverse mortgages have unique rules regarding what happens when the borrower dies. With a reverse mortgage, you don’t make payments – the lender pays you, and the loan comes due when you die, sell, or move out.
If you inherit a home with a reverse mortgage, you’ll need to repay the full loan balance to keep the property. Otherwise, the home will go to foreclosure and sale to cover the mortgage.
How to Plan Ahead
To avoid issues for your loved ones after you pass away, you can take steps now to account for your outstanding mortgage:
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Buy mortgage insurance: Mortgage protection insurance pays your lender directly if you die before repaying the loan. This can cover the balance so your heirs don’t have to.
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Refinance: Locking in a lower rate/payment now makes assuming the loan easier for inheritors later.
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Include in will: Spell out in your will who should get the home and how you want the mortgage handled. This makes your wishes clear.
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Communicate with heirs: Discuss your intentions for the home and mortgage so heirs understand what to expect.
The Takeaway
Losing a loved one is stressful enough without concerns over unfinished mortgage payments complicating matters. By learning how mortgage assumptions work and planning ahead now, you can ensure a smooth transition for inheritors later. With some preparation and understanding of the process, they can seamlessly assume mortgage payments and continue living in the family home.
Assuming ownership of a property
To assume your father’s mortgage, you must secure ownership of the property. First, your father’s estate may have to go through probate, depending on the state where he lived.
Probate is a court-guided process that transfers property from a deceased person to their heirs. According to the last will, the court assesses a deceased person’s assets, pays off their debts, and distributes any remaining assets to heirs. If your father didn’t leave a will, the courts decide how to distribute his assets.
Once you have ownership of the home, you can ask the lender about assuming your father’s mortgage.
James, you say you continued paying the mortgage after your father’s death, which was wise. You avoided the risk of foreclosure by keeping the mortgage current, and you demonstrated that you can make the payments, even on disability income.
After you secure ownership of the home, reach out to the lender and let them know you inherited your father’s house. They can walk you through the process of assuming the mortgage.They may require you to provide proof of your father’s death and that you’re the legal owner of the property.
Also, you’ll need to purchase homeowners insurance in your name as required by the mortgage lender. You may be able to contact the existing home insurer and have your father’s policy transferred to you. Or you can shop around for new homeowners quotes and change the coverage to a new provider as you wish.
In the meantime, until everything’s official, it’s a good idea to keep paying the existing homeowners insurance and mortgage to maintain their current status. If you have any questions or need help navigating the mortgage assumption process, consult with an experienced estate attorney.
If, after assuming the mortgage, you decide to refinance, you can check out Credible to compare mortgage refinance rates from multiple lenders.
What happens to a mortgage when the borrower dies?
Mortgages typically can’t be transferred from one person to another. The borrower is responsible for repaying their home loan until they sell the property. Then the new owner must secure financing on their own.
But federal law makes allowances in cases where the primary borrower passes away. Here’s what can happen:
- A mortgage cosigner becomes responsible for repayment.
- The estate executor may sell the property and use the proceeds to pay the mortgage.
- An heir who wants to keep the property can petition the lender to assume the mortgage, putting it in their name. (But note that an heir is never required to assume a deceased family member’s mortgage.)
How easy it is to assume your father’s mortgage depends on whether you’re a legal heir and if there are others. If there are other heirs to your father’s estate, you’ll need to agree on whether you can take over the mortgage and keep the property.
But if you’re the only heir, and there isn’t a cosigner on the loan, your path to assuming the mortgage should be straightforward.
Loan Assumption – What You Need To Know Before Assuming a Loan
FAQ
How to handle a mortgage after death?
Can you assume a mortgage when someone dies?
Can a mortgage stay in a deceased person’s name?
What is the death clause in a home loan agreement?
What happens to a mortgage when a borrower dies?
The Consumer Financial Protection Bureau (CFPB) is issuing an interpretive rule to clarify that when a borrower dies, the name of the borrower’s heir can generally be added to the mortgage without triggering the Bureau’s Ability-to-Repay rule.
How to handle a home loan after death?
When making financial and legal decisions about managing assets after a borrower’s death, the first step is to notify the mortgage company. It is important to get everything in writing.
How do heirs assume a mortgage after a homeowner’s death?
Let’s take a closer look at the assumption process and what it entails. To assume a mortgage after the homeowner’s death, heirs have a few options. They can work directly with the mortgage servicer or hire a real estate attorney for assistance.
How do I get a mortgage if a borrower dies?
Gather important documents: Start by collecting the necessary documents, including the death certificate, will, and mortgage information. This will be essential for all future steps. Contact the lender: Inform the lender about the borrower’s death as soon as possible.