What Happens to Your Mortgage When You Die?
One important aspect of estate planning is deciding what will happen to your home after you die. The answer might be fairly cut and dry if the home is fully paid for. If it’s not, though, you’ll need to consider the financial ramifications for your estate and for the person who inherits the home.
Here’s what happens to your mortgage when you die:
Who assumes a mortgage after my death?How to take over the mortgage of an inherited housePlanning ahead
Who assumes a mortgage after my death?
No one automatically assumes your mortgage after your death. Your estate executor (i.e., the person you appoint to carry out your will and manage your estate after you die) or administrator (i.e., the person a court appoints to fulfill those same duties) will continue to make payments using funds from the estate while everything is being settled.
Later, the individual who inherits the home might be able to assume the loan.
Good to know: If you’re a co-borrower or cosigner with the decedent, you don’t have to do anything to take over the mortgage because you’re already responsible for paying it. You’ll simply continue the payments. However, you should contact the mortgage servicer to inform them of the decedent’s death.
How to take over the mortgage of an inherited house
Mortgage loans have a due-on-sale clause, also called an acceleration clause, that requires the loan to be paid in full if it transfers to a new owner. However, federal law prohibits lenders from accelerating a loan in the event of a borrower’s death. Individuals who acquire ownership this way are considered “successors in interest,” and lenders must treat them as if they were the borrower.
The law allows a successor in interest to assume the loan, without having to apply or qualify, and continue making the payments. You’re also entitled to modify the mortgage to avoid foreclosure if you wish to keep the home.
What are my options as the heir of a home with a mortgage?
In the event you inherit a mortgaged home, you have several options. Which one is best depends on your personal preferences and your financial situation.
If you want to keep the house, you can:
Assume the mortgage: Federal law allows heirs to assume a decedent’s mortgage loan in many cases. As long as you’re a qualified successor in interest — someone who inherited or otherwise acquired ownership as a result of the homeowner’s death — you can take over the loan once the deed is signed over to you. The law also entitles you to modify the loan if you’re not financially capable of making the payments.Refinance the mortgage loan: You can also refinance the mortgage into a new mortgage loan as soon as the deed is signed over to you. You’ll have to apply for the loan, qualify based on your own creditworthiness, and pay any closing costs. However, refinancing could result in a lower interest rate or an extension of the time to pay off the loan — either of which can make the home more affordable.Repay the loan in full: Assuming you have the cash on hand, you can avoid mortgage issues entirely by paying the balance in full. The home would then be yours free and clear.
If you can’t or don’t want to keep the house, you can:
Sell it: The home is yours as soon as the deed has been transferred to you, so you can list it for sale just like you would a home you’d purchased yourself.Let the lender foreclose: If you don’t want the house and don’t want to sell it — a reasonable decision if you’re unlikely to sell at a profit — you can simply take no action. After a period of time with no payments, the lender will foreclose and repossess the home.
Important: Foreclosure can have tax consequences for the estate. Contact an accountant or attorney before going this route.
What happens to a reverse mortgage when you die?
The rules change when you inherit a home from someone other than a spouse with whom you are a co-borrower on the home’s reverse mortgage.
A reverse mortgage allows older homeowners to access the existing equity from their home. These loans don’t have to be paid back unless the borrower and their co-borrower spouse both die or move out of the home.
If you inherit a property with a reverse mortgage, you have the option of selling or keeping the home. The loan is not assumable, but you can keep the house by doing one of two things: paying off the balance or paying 95% of the home’s value, whichever is less.
Similarly, if you decide to sell the home, you’ll use the sale proceeds to pay off the debt owed on the loan — or an amount that’s at least 95% of the home’s value — and then pocket the remaining proceeds.
Planning ahead
A crucial step in estate planning is drafting a will detailing how you want your estate handled after you die, along with who you want to serve as the estate executor. In the event you die intestate — without a will — the court will appoint an administrator to take on that role.
When planning to bequeath a mortgaged home, it’s important that you disclose the mortgage to your executor and close relatives — otherwise they won’t know to make payments, and the home could be lost to foreclosure inadvertently.
In addition, consider whether the individual who inherits your home will be able to afford mortgage payments and upkeep. An estate or financial planner can help you devise a strategy to keep your gift from becoming a burden to your loved ones.
Compare your home loan options
Credible is a mortgage marketplace that allows you to easily compare rates and loan options. With Credible, you can secure a streamlined pre-approval letter and see loan details from all of our partner lenders in just a few minutes. We also provide transparency into lender fees that other brokers typically don’t.
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4 Ways to Determine House Value
Whether you’re thinking of buying, selling, or refinancing — or you’re just curious — you might want to know how to determine a house’s value. Fortunately, there are several ways to find out how much a house is worth, and you might get different results from each one.
Here are some options for finding the value of a home:
Online home value calculatorsComparative market analysis from a real estate agentFHFA House Price Index CalculatorProfessional appraisal
How to find the value of your home
To determine your home’s value, try one or more of these methods.
1. Online home value calculators
Online home value calculators use automated valuation models, or AVMs, to estimate how much your home is worth. These estimates are based on a wide range of property and local market data, including your home’s square footage, number of bedrooms and bathrooms, recent comparable sales, local market trends, and more.
Online valuation tools don’t account for unique features of your home that might increase or decrease its value, such as how old your roof is or when you last remodeled your kitchen. For that, you’ll need a professional appraisal.
Tip: You’ll also get different home values from different calculators because they use proprietary formulas.
Here are two home value calculators we like:
PennyMac Home Value EstimatorRedfin Home Value Estimator
If you’re in the market for a new home, you’ll want to secure a great mortgage rate for your home loan. Credible can help with this. We make comparing rates from multiple mortgage lenders easy. In just a few minutes, you can see prequalified rates and compare a wide range of loan options for free — our process is safe and secure, and checking rates with us won’t affect your credit score.
Credible makes getting a mortgage easy
Instant streamlined pre-approval: It only takes 3 minutes to see if you qualify for an instant streamlined pre-approval letter, without affecting your credit.We keep your data private: Compare rates from multiple lenders without your data being sold or getting spammed.A modern approach to mortgages: Complete your mortgage online with bank integrations and automatic updates. Talk to a loan officer only if you want to.Find Rates Now
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2. Comparative market analysis from a real estate agent
If you’re planning to hire a real estate agent to help you sell your home, you can ask them for a comparative market analysis, or CMA. They’ll look at similar, recently sold properties in your area and analyze how they compare to yours. After that, they’ll arrive at a fair market value and help you set a strategic listing price for your home.
A CMA requires a knowledgeable local agent who can assess how other homes’ characteristics contributed to their selling price, along with how your home compares and how to estimate its value accordingly.
Your agent will also need to understand nuances such as how much buyers in your area will devalue a property that backs up to a major road or how much value a screened-in patio adds.
See: How to Increase Your Home Value: Complete Guide
3. FHFA House Price Index Calculator
The Federal Housing Finance Agency’s (FHFA) House Price Index (HPI) Calculator is an online tool that can tell you how the estimated value of a home in a given metropolitan statistical area (MSA) may have changed since you purchased it. Its calculations are based on the percentage change in home values in the MSA during that time span.
The FHFA’s HPI calculator is not likely to be useful to an individual who is buying or selling a home. That’s because the values it provides are based on averages, and it can’t tell you the actual value of a specific house. Homes within the same MSA can have wildly different values because an MSA encompasses such a large area. The HPI doesn’t account for neighborhood conditions or a specific home’s attributes.
This tool, and all the data behind the HPI, might help you out if you’re a researcher or an economist, or if you simply want a quick overview of how property values have trended in the area over the years. But if you’re looking for a more accurate valuation of your home, we’d recommend going with a professional appraisal.
4. Professional appraisal
Hiring a professional appraiser costs several hundred dollars but is often the best way to get the most accurate value for your home. That’s why mortgage lenders often require a home appraisal before they’ll approve your mortgage application.
Good to know: Lenders do sometimes rely on AVMs to save time and money or even waive the appraisal for a refinance or second mortgage.
Here are some of the factors appraisers take into account when establishing a value for your home:
LocationSquare footageInterior and exterior conditionNumber of bedrooms and bathroomsLot sizeAge of the homeHeating and coolingUpdates and renovations (such as a new garage door or hardwood floors)Neighborhood and surrounding propertiesHome designCurrent market conditions
What is home value?
There’s more than one way to determine a home’s value. Here are three valuation methods for residential real estate and the different purposes they serve.
Fair market value
Fair market value is how much someone is willing to pay for your home. It’s based on supply and demand and explains why old mansions in Midwestern cities with major population losses can cost less than starter homes in bustling West Coast cities.
Fair market value assumes that the seller isn’t giving the buyer any breaks on the price, and that the buyer has a solid understanding of the property’s characteristics.
ppraised value
Appraised value is how much your home is worth for lending purposes. It’s determined by a state-licensed appraiser.
The appraised value may be higher or lower than fair market value. If it’s lower, the seller will need to lower the price. Otherwise the borrower will need to increase their down payment to gain mortgage approval and close the deal.
Tip: Appraisers try to be objective, but can make mistakes or be biased. You can challenge a low home appraisal with solid data.
ssessed value
Assessed value is how much your home is worth for property tax purposes. To find the assessed value of your home, you can look at your property tax statement or contact your local property tax assessor.
Some jurisdictions even have websites where anyone can look up a property’s assessed value. Assessed value may be less than the property’s current fair market value. Common reasons for this include homeowners exemptions and statutory limits on annual property tax increases.
Keep Reading: Property Tax Assessment: What It Is and What It Means
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