What Happens To Your Mortgage After You Die?
Life is uncertain. We don’t always know what is going to happen. And thinking about your mortality isn’t the something you’ll like to consider. But one of the many questions you’ll be asking is “What happens to the house?”
If you have a mortgage, you might worry about what is going to happen with it after you pass away. Will they be able to keep your home? Will they sell it? Who will be responsible for paying for it?
Who Takes Over Your Mortgage When You Die?
When you pass away, your mortgage doesn’t just disappear. Your mortgage lender still needs to be repaid. If that doesn’t happen, it could foreclose on your home. The same rules apply if there are outstanding lines of credit or home equity loans attached to the house.
Firstly, if you applied for your mortgage with a co-signer or co-borrower, there’s an easier solution. Basically, the other party can continue making payments on the loan.
In the case you don’t have a co-signer or co-borrower, the executor of your estate is responsible. That person should continue making payments using funds from your estate. This is while the fate of the home is sorted out.
Lastly, if you leave your home to be inherited by an heir, your heir can decide what to do with the mortgage and the home. Generally, your heir will either need to assume the mortgage and start making payments, or sell the property.
What If You Inherit a Property?
If you inherit a property that has a mortgage, you’ll have the responsibility to make payments on that loan.
Moreover, if you’re the sole heir, you have three options.
- Ask the mortgage servicer to assume the mortgage.
- Sell the property.
- Choose to let the lender foreclose.
If you want to assume responsibility for the loan, you can work with the servicer to transfer the loan to you. And if you sell the property, you’ll have to use the proceeds to pay off the loan before you can do anything with the money.
In addition, if you don’t want to sell but you’re not in the financial position to assume the loan, some lenders are willing to be flexible. If this is the case, you might be able to refinance the loan. With a refinance you could modify the terms or secure a lower payment so it’s more affordable.
Things get more complicated when multiple heirs inherit an interest in the property. Each party will need to agree on what to do with the house. Another option is that one might have to buy out the others’ shares. In these types of situations, the best thing is to enlist the help of an estate or real estate lawyer.
Do Heirs Need To Requalify?
Heirs don’t have to requalify for the mortgage on the home they inherited. This gives them an opportunity to keep the property and assume the loan without having to meet the ability-to-repay requirements.
However, if you want to change the terms of the mortgage, such as refinancing to a lower rate, you’ll need to qualify for a new loan. And in this new loan, you’ll have to meet all of the lender’s eligibility requirements.
If you own a home, it’s crucial 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 debts, mortgage, bank accounts and other assets will help your loved ones navigate what to do. Take the time to create an estate plan. Also, talk to your loved ones about your wishes, including what you’d like to see happen with your house.
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