What happens to your mortgage when you die?

If you share a home with others, you might wonder what will happen to it when you pass away. Who will be responsible for the mortgage payments? Will your heirs and loved ones be able to keep the home? Let’s look at what happens to your house when you die.

Who takes over your mortgage when you die?

When you pass away, your mortgage doesn’t suddenly disappear. Your mortgage lender still needs to be repaid and could potentially foreclose on your home if that doesn’t happen.

In most cases, if there is a will, the responsibility of the mortgage will be passed to the beneficiary of the home.

If you applied for your mortgage with a co-borrower or co-signer, the other party must continue paying the loan. Or, if you have mortgage protection insurance, the remaining debt will be paid through the policy. Also called “mortgage life insurance,” this type of policy helps protect your loved ones from having to pay a mortgage debt they may not be able to afford. Unlike life insurance, the payments usually go directly to your mortgage lender to pay off your mortgage debt when you die.

What happens to a mortgage if someone dies without a will?

If you die without a will or trust in place, the responsibility falls to the executor of your estate, who should keep making mortgage payments using funds from your estate while the home’s fate is sorted out. If the estate doesn’t have sufficient funds or assets, it can liquidate to pay the mortgage — though that may create complications for heirs.

What happens to a mortgage when it’s divided between multiple heirs?

If you bequeath your home to someone or have a joint owner with the right of survivorship, your heir has to decide what to do with the home and the mortgage. Generally, the person who inherits must either assume the mortgage and start making payments or arrange to sell the property.

When multiple heirs agree to assume the mortgage, they become co-borrowers and continue making mortgage payments. Alternatively, the heirs may agree to sell the home and use the proceeds to pay off the remaining mortgage balance. If only one heir wants to keep the property, they may be able to buy out the other heirs’ shares.

Whatever the heirs decide, it’s best to enlist the help of an estate or real estate lawyer in these types of situations.

What happens to your house if you die and don’t have any heirs?

In cases when a homeowner passes away with no immediate heir to inherit the property, a public administrator may be appointed. The administrator will step in and supervise the administration of the estate.

As part of this process, the administrator will typically try to locate heirs. When there is no surviving spouse or children, more distant relatives are contacted. If this effort is unsuccessful, the individual’s assets may be taken over by the state where the home is located.

What happens to a reverse mortgage when a borrower dies?

When a borrower of a reverse mortgage dies, any co-borrowers will still receive the loan benefits, assuming they meet all the agreement requirements.

If there is no co-borrower but the borrower is married, the surviving spouse may remain in the home if they can repay the reverse mortgage loan. However, when the last surviving borrower or eligible non-borrowing spouse passes away, sells the home or no longer occupies the home as their primary residence, the loan must be paid off.

If there is no spouse, the beneficiaries or heirs of the deceased reverse mortgage loan holder must pay off the loan to keep the home. Heirs will receive a due and payable notice from the lender, and then they’ll have 30 days to buy, sell or turn the home over to the lender to pay off the balance.

What happens when a surviving spouse is not listed on the mortgage?

If your surviving spouse isn’t on the mortgage, federal law provides protections that may allow them to assume the mortgage and keep the home — provided they are the ones to inherit the property, and they are able to afford the mortgage payments. If they can’t, they’ll need to apply for a loan modification with the lender.

When to notify the mortgage company of a death

Among all the other things you’ll need to do after a loved one dies, you’ll also need to let their mortgage lender know that they’ve passed away. If you’re wondering when to notify the mortgage company of death, the answer is as soon as possible.

Give yourself ample time to locate and submit any necessary documents, including a death certificate, and assume the mortgage quickly to avoid long-term problems with the lender. Be sure to have them update the contact information they have on file.

Inheriting a property with a mortgage

Inheriting can be scary. Many mortgages include a due-on-sale or due-on-transfer clause that requires full repayment of the loan in the event of a change in ownership. However, federal and state laws typically override those clauses in this situation, mandating a lender to work with a surviving spouse or family member who inherits a mortgaged home. An estate attorney can fill you in on your rights in your state.

If you inherit a property that has a mortgage, you will be responsible for making payments on that loan. However, there are a few ways to manage your newfound asset:

• Assume the mortgage: If you are the sole heir, you could contact the mortgage servicer and ask to assume the mortgage. If you want to assume the loan, you can work with the servicer to transfer the loan to you. Keep in mind that there might be a fee associated with assuming the mortgage.
• Refinance the mortgage: Some lenders are willing to be flexible if you’re not in the financial position to assume the loan but don’t want to sell. You might be able to refinance the loan to secure a lower payment or extend the term so it’s more affordable. Depending on the loan’s interest rate in comparison to current rates, you might be better off getting this other mortgage.
• Sell the property: If you sell the property, you’ll have to use the proceeds to pay off the loan before you can pocket any windfall. You could also choose to let the lender foreclose — though there’s a risk of deficiency judgment against you if they sell the home and the proceeds don’t cover the mortgage.

Do heirs need to requalify the mortgage?

Borrowers must typically meet “ability to repay” requirements before a mortgage lender can approve a loan. These rules help protect borrowers from predatory loans they wouldn’t be able to afford.

However, there’s an exception to this rule if you inherit a home. Heirs do not have to requalify for the mortgage on a home they’ve inherited. This gives them an opportunity to keep the home and assume the loan without having to meet the ability-to-repay requirements. If your goal is to keep the property, be sure you can actually afford the mortgage before committing to it.

If you want to refinance or otherwise change the mortgage terms, though, you’ll need to qualify for a new loan and meet all the lender’s eligibility requirements.

How to assume a mortgage

If you’ve inherited a mortgage, you can typically work directly with the servicer to take over the loan. But you might also decide to get outside help. Here’s how to assume a mortgage from a deceased family member:

1. Find a lawyer: It isn’t required, but hiring an attorney can simplify the process and relieve some of the stress of assuming your loved one’s mortgage — especially when you’re grieving.
2. Gather necessary documents: You might need to provide proof that you’re the rightful inheritor of the property or the executor of the estate, so you’ll want to collect relevant documents. To transfer the title, you will need proper authorization or paperwork, including the deed. If you can’t locate it, contact your local records office (e.g., the county clerk) for a copy. You can usually get a copy for a modest fee or pay more for a certified copy (which lenders usually require).
3. Contact the mortgage lender or servicer for next steps: Ask about things like the outstanding balance, the monthly payment and other essential details. Your lawyer can help you communicate with them.

Remember that you don’t have to go through the underwriting process or requalify for the mortgage to assume it. However, you’ll likely need to provide a certified copy of the borrower’s death certificate (and potentially the borrower’s will). If you are a joint owner, you will likely have to show the deed with your name on it.

Considerations for transferring a mortgage after death

Inheriting a home comes with significant financial responsibilities. Before taking over the mortgage of a loved one who has passed away, it’s important to consider all the ramifications and expenses that will come along with it. It can also be a good idea to speak with a financial planner.

• Be sure you have a solid handle on the amount of the monthly mortgage payments, and whether your budget can comfortably accommodate the new expense.

• You’ll also need to keep up with homeowners insurance payments when taking possession of a home, along with property taxes, maintenance and upkeep and, if applicable, homeowners association dues.

• Assess the overall condition of the home. If it needs any significant repairs, you can obtain cost estimates for the work and determine whether you are willing to shoulder that expense as well.

Tips to plan ahead for your mortgage

Managing someone’s affairs after they’ve died is challenging and, sometimes, confusing. To help make the process a little easier for your loved ones, here are some ways you can prepare for what happens to your mortgage when you die:

• Plan your estate: An estate plan will specifically outline who receives what, which can prevent family members from wondering about your wishes or fighting amongst themselves. (Estate planning is also a great way to minimize taxes on your assets.)
• Create a will: Having a clear last will and testament that describes what should be done with your mortgage, bank accounts and other assets will help your loved ones navigate what to do with your estate.
• Purchase life insurance: A good life insurance policy can also help save your heirs from financial stress. Be sure to compare the differences between life insurance and mortgage protection insurance, as these are separate policies with separate coverage.
• Consider mortgage protection insurance: If you can’t afford or can’t get approved for traditional life or disability insurance, you can take out mortgage protection insurance to ensure your partner or loved ones are able to hold on to the house after you’re gone.

FAQs

• How long can a mortgage stay in a deceased person’s name?

  In general, a mortgage is not allowed to remain in a deceased person’s name. You should notify the mortgage company immediately after the individual’s passing; some states allow up to 30 days to notify the lender.

• What happens if I don’t notify the mortgage company of death?

  Failing to notify the mortgage company of a death can have financial consequences. For instance, if payments stop after the individual’s death, the lender can potentially foreclose on the home.

• What happens to a mortgage if someone dies with a home equity loan?

  When a borrower dies, a home equity loan remains in effect, meaning it must be paid off. Heirs who inherit the home have a few options, including assuming the home equity loan, paying it off or refinancing it. If nothing is done, the lender could foreclose on the home.