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Last updated on December 26th, 2022 at 09:35 pm
If you have a mortgage, and you are worried about what this means to your heirs and loved ones, can they keep the home, who will be responsible for paying for it? Let us give you answers to all these
When you depart this life, your mortgage will not suddenly disappear. Your mortgage lender still needs it to be repaid, and if that doesn’t happen they could foreclose on your home.
It is the same if there are outstanding home equity loans or lines of credit attached to the home.
If you applied for your mortgage with a co-borrower or co-signer, then the other party can continue making payments on the loan.
If you don’t have a co-borrower or co-signer, then the executor of your estate is responsible to continue making payments using funds from your estate while the fate of the home is sorted out.
If you leave your home to be inherited by an heir, then they can decide what to do with the home and the mortgage.
Your heir will either need to take up the mortgage and start making payments or arrange for the sale of the property.
When you inherit a property
You will be responsible for making payments on the loan when you inherit a property that has a mortgage.
If you are the single heir, you could connect with the mortgage servicer and ask to assume the mortgage, or sell the property, or choose to let the lender foreclose.
If you want to take over the loan, you can reach out to the servicer to transfer the loan to you.
If you sell the property, you’ll have to use the proceeds to pay off the loan before you can pocket any fortune.
Some lenders can work out and be flexible if you’re not in the financial position to assume the loan, but don’t want to sell.
You can refinance the loan to secure a lower payment or modify the terms so it’s more affordable.
Things get more complex when multiple heirs inherit an interest in the home. As everybody will need to agree on what to do with the property, or one might have to buy out the others’ shares.
In such situations, it is ideal to take the help of a real estate lawyer.
Do you as a heirs need to requalify?
Borrowers need to qualify before a mortgage lender can approve a loan. These rules help protect borrowers from predatory loans which are not affordable.
But if you inherit a home, there’s an exception to this rule. Heirs don’t need to requalify for the mortgage on the home they inherited.
So they can keep the home and assume the loan.
However, if you want to change the terms of the mortgage, like refinancing to a lower rate then you’ll need to qualify for a new loan and meet all the eligibility requirements.
How to take on a mortgage?
If you inherit a home with a mortgage and want to assume the loan then you need to provide proof that you’re the true heir of the property or the executor of the estate.
The mortgage lender or servicer can guide you for the next steps and information, regarding the outstanding balance, the monthly payment, and other essential details.
You can also work directly with the servicer to take over the loan, as you don’t have to go through the underwriting process or requalify for the mortgage to assume it.
A lawyer can help you in your communications with the servicer.
Once the loan is assumed, you can continue making payments on it or opt to refinance.
It is always important to plan for the future of your home and what will happen when you depart this life.
Having a clear last will and testament describing what should be done with your mortgage, bank accounts, and other assets will help your loved ones understand what to do with your estate.
A good life insurance policy too can help save them from financial stress. Create an estate plan and include what you’d like to see happen with your home.
Reference Source: Bankrate
