Inheriting a House with a Mortgage

Dealing with the loss of a loved one is never easy. When inheritances, homes, estates, and mortgages are involved, tensions can run high within a family and it’s easy to get lost in the paperwork and terms.

Learn what your options are when you inherit a home with a mortgage.

Key Takeaways

Notify the existing lender right away, and continue to make payments on the existing mortgage.
Depending on how the estate was set up and the state where you live, you may have to go through probate, which can take a long time if the estate is complex or if the will is contested.
If things get contentious, keep calm and seek professional help.
If you inherited the home with multiple people, you may have to buy the others out if you want to live in the home, or vice versa.
After the estate is settled, you can assume mortgage payments under the original loan terms, sell the home, or refinance under new loan terms.

What Happens in Probate

After your loved one passes, you may have to go through probate, depending on how they set up their estate and your state’s laws. This process essentially allows the will to be contested by heirs and allows creditors to make any claims against the estate.

Probate can be a lengthy process if the estate is particularly complex or if the will is contested. During this time, make sure that you or the executor of the estate contacts the lender to notify them of their loved one’s passing. The lender most likely will need a copy of the death certificate to be able to speak to you about the loan terms. It is very important that someone keeps making payments on the mortgage during this time, so that the property doesn’t go into foreclosure while you’re waiting on probate.

Family Matters to Consider

Depending on the circumstances of the will and everyone’s relationship with the deceased and each other, this can be a time of significant conflict. Make sure that you are doing your best to keep a level head during this time, giving yourself and the people around you time to grieve. If things get too contentious, legal representation may become necessary, but you should also consider seeking a professional mediator or counselor to help your family through this difficult time.

Multiple People Inheriting the Same Home with a Mortgage

In the case of multiple people inheriting a portion of the same home, things can get exceptionally messy. Assuming everyone who has inherited the home doesn’t want to all live in the home together, you’ll have to make some tough group decisions. The simplest is to sell the home, thereby paying off the mortgage, and splitting the proceeds evenly.

If some of you want to stay in the home and some of you don’t, the ones who want to remain in the home generally have to buy out the ones who do not. When the inherited home has a mortgage, the math can become a little more complicated. The simplest math would be to take the total value of the home as verified by an appraisal, subtract the existing mortgage balance, then divide by the number of heirs to get each heir’s buyout amount.

This math can become more complex when, for example, one heir has invested a significant amount of time and money into repairing the property and the others have not. For this reason, and for the complexities of splitting property, many estate planners advise against leaving homes to multiple people, especially if those people don’t get along very well.

Deciding Next Steps

Once the dust settles, if you’re the sole heir, or if you’re the one remaining in the home after you settle things with other heirs, you’ll have options. You can continue paying the mortgage under the original terms, sell the house and pocket the proceeds, or refinance the home under new terms.

What happens if the home has a reverse mortgage?

If the home that you’ve inherited has a reverse mortgage, you will need to notify the reverse mortgage servicer of your loved one’s passing and find out the existing balance due on the reverse mortgage. Hopefully you’ll have the funds to pay the balance, but if you don’t, then you can try to refinance the property to pay the balance. If the home doesn’t have enough equity, or if you don’t have the creditworthiness to refinance, then you may have to sell the home you’ve inherited to pay off the reverse mortgage.

Do I need good credit to take over the existing loan?

For the most part, no, you do not need to have good credit to take over an existing, inherited mortgage. Guidance from the Consumer Financial Protection Bureau (CFPB) advises lenders to allow successors “to be added as an obligor or substituted for the current obligor on an existing mortgage.” In other words, the mortgage company should add whoever has inherited the home to the mortgage under existing terms, without doing a full loan application and verifying their income, credit history, and so on. Your credit would only come into play if you choose to refinance or take out a loan against the home’s equity.

How can I get money to repair the home I inherited?

If the home that you inherited is badly in need of repairs and the estate didn’t leave you any cash to pay for completing them, you still have options. You may be able to do a cash-out refinance, a home equity loan, or a home equity line of credit (HELOC). All of these options allow you to tap into any existing equity in the home to access cash for repairs. They all will require you to have decent credit and verifiable income history, just like a mortgage would. If you can’t get approved for loan options, you may be able to get help from local grants if you’re elderly or have a disability by calling 211. If the home needs repairs and you can’t afford to complete them, you may want to consider selling the home for cash and using the proceeds to buy something cheaper that is in good repair.

The Bottom Line

Inheriting a house with a mortgage can be a stressful, messy process during an already difficult time. Keep a level head, seek help from your loved ones and professionals, and make sure to keep paying the mortgage while you’re sorting everything out.