When a homeowner dies, inheritance of the home is typically decided by a will or probate.
What about a home that has a mortgage on it? Are the next-of-kin responsible? What happens to surviving family members who still live in the home in question?
Who Takes on Your Parent’s Mortgage Debt When They Die?
Typically, debt is recouped from the estate. This means that before any assets can be passed onto heirs, the executor of the estate will first use those assets to pay off creditors. Unless someone co-signed the loan or is a co-borrower with your parent, nobody is required to take on the mortgage. If the person who inherits the home decides they want to keep it and take over responsibility for the mortgage, there are laws that allow them to do so.
Taking Over a Mortgage on an Inherited House
Heirs should also be able to continue making payments to keep the mortgage current, even if the account hasn’t yet been legally assumed. The exception to this situation is when the mortgage has a co-signer. If someone co-signed the mortgage, they take sole responsibility on that mortgage.
How to Get Information on the Mortgage
You’ll first need to talk to the servicer of the loan and let them know that you’ve inherited the property. You’ll likely need to provide proof of the person’s passing, as well as documents showing that you are the rightful heir to the home. The servicer should provide you with information about how to continue making payments and what your options are for assuming the loan.
I Just Inherited a House. What are My Options?
If there are multiple heirs or you aren’t the executor of the will, this could get complicated, especially if an agreement can’t be made. One option is to simply sell the home to pay off the mortgage. Distribute any leftover funds to the heirs as dictated by the will. Selling is easier when there are multiple heirs, and no one wants to retain the property. What if you want to keep the home but the others don’t? A refinance can help free up funds that you can use to buy out the other heirs and assume ownership of the property.
The time after the death of a loved one can be intense as the family determines what to do with everything the deceased left behind. One option for avoiding issues is to purchase mortgage protection insurance (MPI). MPI is paid directly to the lender to cover some, if not all, of the remaining loan. Plan ahead by having your parents create a will. This allows them to dictate who receives what out of their estate when they die.
The Bottom Line.
Pondering our own passing or a loved one’s is never easy but taking steps now to plan can help give both your parents and their heirs peace of mind. Speaking with an estate planner or financial adviser can help you decide what options may be best for your personal situation.
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