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The death of a loved one is an incredibly difficult time. Not only are you emotionally drained, but after the funeral, you have the added anxiety of sorting through legal documents, financial information, and the last will and testament of the deceased. You want to make sure you take care of any financial loose ends, and that can turn into an overwhelming task.
One obstacle some may have to deal with after the death of a loved one is a mortgage. If you already have a home loan payment of your own, you might not be able to afford to take on another. So what happens if you inherit a house with a mortgage, and what do you do next? We’ve got a few tips and things to consider when managing an inherited mortgage
Can You Inherit A House That Still Has A Mortgage?
After the death of a loved one, their assets will go through a process called probate. Probate is a legal process used to properly distribute an individual’s assets as outlined in their will and carried out by the executor of the estate. Because the deceased individual’s debts still need to be paid off, their remaining assets will need to be sold to pay lenders what they are owed. This could come in the form of physical or liquid assets, depending on the size of the estate of the individual.
When all debts have been settled, the remaining assets are distributed among the heirs. In many cases, this could mean inheriting their home, even if that home still has an outstanding balance on the mortgage.
When this happens, you have a few options to consider for what you should do next. You could either sell the home to pay off the mortgage and keep any remaining money as your inheritance, or you could keep the home. If you keep the home, you’ll need to either continue making payments on the loan or use other assets to pay the mortgage off.
Inheriting A House With A Mortgage
After you’ve inherited a house with a mortgage, you’ll need to figure out what your next steps are. Let’s take a look at the considerations you should make when planning what to do next.
Determine Who Takes Over The Home
If there was a co-signer on the mortgage, that person is now responsible for making the mortgage payments. In the event a home is left to an heir via a will, the heir(s) – whether there are one or more people – is now responsible for the mortgage. It’s important that you establish who’s responsible for the loan, because this person (or group of people) will work with the lender to get details and information about the mortgage.
If there’s no co-signer and no one in line to inherit the home, the bank or lender still needs to collect on their debt. They usually end up selling the house to try to recoup the debt. Sometimes the amount brought in from the sale of the home doesn’t cover the entire loan balance. If that’s the case, then the lender may seize the assets of the deceased to cover the remainder of the loan or simply assume the rest of the debt. This may vary depending on where you live.
Gather All The Mortgage Documents
Hopefully, the homeowner kept a file of their mortgage documents. At the very least, try to find a document saying who services the mortgage. You, or your family attorney, will need to call the servicer to notify them of the death. Chances are they’ll want a copy of the death certificate before you can move forward. After verifying the death and updating documents, the servicer will then be able to tell you how much is left on the mortgage and how much the monthly mortgage payment is. At this point, you’ll have the information you need to decide how to deal with the remainder of the mortgage.
You’ll also want to ask if the borrower had mortgage protection insurance on their home. If they did, this could help simplify the complicated process of dealing with a mortgage after their death. If they passed before their mortgage was paid off, the insurance company will cut a check to pay the remainder of the mortgage, and the home will be paid off.
Start Making The Loan Payments
First and foremost, if you decide to keep the home, you’ll need to begin making the mortgage payments. Otherwise, it may go into foreclosure. Once in foreclosure, the home and all of its remaining debts will be turned over to the mortgage company.
If there were any reverse mortgages on the home, those will also need to be paid off if you want to keep the property. You could also pay off the reverse mortgage by selling the home and keeping the remaining payments.
Pay The Mortgage Off
If you can pay the mortgage off completely, that’s another option (and probably the best) to deal with an inherited home loan. With the house completely paid off, you can then keep the property, maybe lease it out or simply sell the home. Either way, paying the mortgage in full frees the property from a lender and allows you to do what you please with the home.
Ask A Professional For Advice
Contact an attorney if you have any specific questions or just feel completely lost; they can help you sort out specific questions. Laws fluctuate from state to state, and we all know how difficult legalese can be to read. Don’t be afraid to ask for help if you need it, and – most importantly – don’t sign or agree to something you don’t understand.
The Bottom Line
The time after a loved one dies feels like a whirlwind. Trying to tie up financial loose ends adds extra stress to an already traumatic time. Knowing what steps to take in advance can help alleviate the anxiety you might feel. Just remember to ask for professional guidance if you have any questions, or if your gut tells you something isn’t right. It’s better to spend the money and come to the right decision with confidence, rather than guessing and hoping for the best.