What happens to your mortgage when you die?

If you share a home with others, you might be wondering what happens to the mortgage when you die. Will your heirs and loved ones be able to handle the loan and keep the home? Who will be responsible for payments? 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 foreclose on your home if that doesn’t happen. In most cases, the responsibility of the mortgage will be passed to the beneficiary of the home if there is a will.

If you applied for your mortgage with a co-borrower or co-signer, the solution is relatively simple: 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.

However, if there is no will and you don’t have a co-borrower or co-signer on your house title, the process is different.

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

If you die without a will or trust, the responsibility falls to the executor of your estate, who should keep making payments using funds from your estate while the home’s fate is sorted out. The rub is if the estate doesn’t have sufficient funds or assets, it can liquidate to pay the mortgage. That’ll 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 speaking, 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. When only one heir wants to keep the property, they can buy out the other heirs’ shares.

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

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 the co-borrower meets all the agreement requirements. If there is no co-borrower, the borrower’s spouse (if married) may remain in the home if they can repay the reverse mortgage loan.

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 allowing them to assume the mortgage and keep the home. This is assuming they (and not someone else) inherit the property. The surviving spouse must also be able to afford the mortgage payments to assume the mortgage. If they can’t, they’ll need to apply for a loan modification with the lender.

When to notify the mortgage company

Among all of the other things you’ll need to do after a loved one dies, you’ll also need to let their mortgage company 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.

You’ll want to 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. You also want them to update mailing and email addresses.

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 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 or sell the property. 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. 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. Of course, if you sell the property, you’ll have to use the proceeds to pay off the loan before you can pocket any windfall.
• 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.

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 don’t have to requalify for the mortgage on the home they 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, though, be sure you can actually afford the mortgage before committing to it.

If you want to change the mortgage terms, however — such as refinancing — you’ll need to qualify for a new loan and meet all of 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 reliable lawyer. It isn’t required, but hiring a lawyer will simplify the process and relieve some of the stress of assuming your loved one’s mortgage — especially if 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 and information. Ask about things like the outstanding balance, the monthly payment and other essential details. If you have a lawyer, you can ask them to help you communicate with the servicer, especially if the servicer is less than helpful with your situation.

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. Once you’ve assumed the loan, you can continue making payments on it or opt to refinance.

Tips on planning 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, here are some ways you can prepare for what happens to your mortgage when you die so your loved ones know exactly what to do when the time comes:

• 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 (MPI) to ensure your partner or loved ones hold onto your house after you die.
• Plan your estate – Having an estate plan at the time of your death can make life much easier for your loved ones. That’s because good estate plans specifically outline who receives what, which can prevent your 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 last will and testament – If you own a home, it’s important to plan for the future and decide what happens to a mortgage when you die. 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.
• Consider a life insurance policy – A good life insurance policy can also help save your heirs from financial stress. But be sure to compare the differences between life insurance and mortgage protection insurance. These are separate policies with separate coverages.