Inheriting a Home with a Mortgage
Inheriting a home with a mortgage can be a complicated process. Various steps should be taken in order to transfer the loan and keep the home. Before you start the process, it is important to understand the implications and your options.
What to Know When You Inherit a Home With a Mortgage
In general, when you inherit a home with a mortgage, your options are limited to the following:
Sell the home to pay off the mortgage and retain the remaining proceeds from the sale;
Opt to keep the home and use other assets to pay off the mortgage;
Assume current mortgage payments under the original terms of the loan; or
Refinance under new loan terms.
The Consumer Financial Protection Bureau (CFPB) allows lenders to name an heir as the borrower without going through the normal loan approval process, provided they can demonstrate the ability to repay the loan.
The important takeaway here is that when you inherit a home with a mortgage, you are responsible for the existing loan. You should contact the lender as soon as possible to notify them of the change in ownership and discuss your options.
If You Choose to Assume the Mortgage
Under the CFPB, family members have a right, independent of the mortgage company, to decide whether or not to assume a mortgage on property they have inherited. Before making a decision on whether to assume the mortgage, you should gather as much information as possible to make an informed decision. You will want to know the monthly payment amount, where to send payments, and how the escrow is calculated. Additionally, you should be aware of the loss mitigation options available and the balance on the loan. Once you have all this information, you can decide if it makes sense to assume the mortgage, modify the terms, sell the house, or let it be foreclosed on.
Do I need Good Credit to take over the existing loan?
Good credit is not a requirement for taking over an existing, inherited mortgage. According to the CFPB, lenders should allow successors to be added as an obligor or substituted for the current obligor on an existing mortgage. This includes adding the inheritor to the mortgage under existing terms, without demanding a loan application or verifying credit history, income, etc. An inheritors credit should only be taken into consideration if the inheritor decides to refinance or take out a loan against the home's equity.
What Happens if the Original Borrower was in Default?
A mortgage company does not have the ability to block an assumption based on the default status of the mortgage. Individuals who inherit a home have a right to assume a mortgage in order to pursue a loan modification before curing any default.
Inheriting a home with a mortgage can be a complicated process. It is important to understand the implications and your options before making any decisions. If you need help, consider speaking to an attorney or a financial advisor.
DISCLAIMER: Nothing in this blog post constitutes legal advice. The information provided herein is merely provided in the spirit of education. If you have a legal question, you should consult an attorney for your specific legal situation. Further, nothing in this blog shall be construed to have started an attorney-client relationship. No such relationship exists until you sign an engagement letter with the Firm.