If you inherit a home with a mortgage, you will also inherit that mortgage. For example, you could have options, such as taking over a mortgage or selling a home, but sorting them can be stressful and confusing. And if your home has a reverse mortgage or another special situation, this can affect the options you choose.
Here are some things you need to know about inheriting a home with a mortgage:
The first step to inheriting your home with a mortgage
You’ll want to take a few steps before deciding what to do at home.
Check the mortgage terms
Understanding mortgage parameters can help you understand what to do with your home. The outstanding balance, the size of your monthly mortgage payments, the interest rate on your mortgage, and whether it is a fixed rate or fluctuating is zero.
Get advice from a lawyer
Even if you are confident you want to sell or maintain your home, your attorney specializing in elder law and estate planning can advise you on the next steps and ensure that you meet all your legal requirements. This is especially true when there is a lot of money involved, or there are several heirs or property in multiple jurisdictions.
Keep paying your mortgage
Even if the borrower dies, he will still have to pay off the mortgage while the property is being sorted out. If you missed your mortgage payment, you risk facing late payment fees or losing your home due to foreclosure.
You need to confirm your mortgage payments at home.
To change payment details, contact the servicer, for example, to deliver the statement to your physical or email address.
Investigating the results of “death tax”
The real estate executor handles federal real estate taxes paid from the deceased’s assets. However, if it’s in action, you may need advice from a lawyer.
Please note that in 2025, the property must be worth more than $13,990,000 before federal property taxes begin. In 2021, 6,158 federal property tax returns were filed, of which 2,584 returns, or more than half, were taxed.
Apart from federal liability, some states have their own real estate taxes. Inheritance tax is also included, and the heir is responsible for paying it. 17 states and Washington, DC are also said to have real estate taxes, inheritance taxes, or both.
Your options if you inherit a home with a mortgage
Option 1: Assuming a mortgage
If you decide to maintain your home – whether you want to move or borrow it, you can assume a mortgage in your name. In this case, you simply continue to pay your monthly mortgage bill.
If you decide to take the loan and transfer the home act to your name, the lender or servicer should be willing to work with you. This is because Garn-ST has great leverage in dealing with mortgages in real estate situations. Germanic Deposition Engine Act of 1982.
Option 2: Buy other heirs or accept purchases
If other beneficiaries inherited some of the property and wish to move into the house yourself, they must purchase them.
To purchase other heirs, you will first evaluate the property and reach a contract regarding the value and price that other heirs will receive for the shares. If you don’t have cash on hand to buy it, you can qualify for fundraising, such as probate, real estate loans, or cash-out refinances.
Alternatively, if one of the other heirs wants to move into the house, you may need to weigh the terms of the proposed acquisition.
Option 3: Sell your house
Beneficiaries can jointly choose to sell inherited homes and use the proceeds to repay the mortgage. If cash remains after the sale is completed, you may distribute the money to the heirs, if it is specified or in accordance with the laws of the state.
If you decide to sell your home, understand the potential tax outcomes, such as the capital gains tax. This tax is paid for an amount that exceeds the original purchase price of the home (also known as the tax base), i.e. profits from the sale.
When you inherit a home, its tax base is stepped up to reflect the current market value of the home. You can also take into account the money spent on renovations or massive repairs when determining sales revenue. However, if you wait several years to sell your property and your value continues to increase, you may be in charge of capital gains tax.
Successful home with a reverse mortgage
If the deceased had a reverse mortgage in the home, there may be several different options. According to Mike Roberts, founder of MyHecm.com and author of The Reverse Mortgage’s Industry Insider Guide to Reverse Mortgage, these include:
- Repay your balance: If you can fully repay the balance, you can own a home.
- Refinance: You can refinance your inherited reverse mortgage with a traditional mortgage, and repay the outstanding balance when refinancing.
- Selling a house: You can sell your home for 95% of your valuation.
- I agree with Act in place of foreclosure: By giving the lender a deed to your home, you leave the home without paying anything.
If you are inheriting a home with a reverse mortgage, time is not on your side. There is a six-month window to pay off your debt, but you can extend it if your heirs are actively working on repaying your loan, says Roberts.
“If a reverse mortgage is not repaid (by the 1-year mark), lenders are mandated by HUD to begin the foreclosure process,” says Roberts. “The word “foreclosure” has a very negative connotation, but it is the usual part of calming down a reverse mortgage after the last borrower or unbooted spouse dies. ”
If you are a surviving spouse and you are reverse mortgage, nothing will change, says Roberts. You can still maintain your home even if you are not living on a mortgage, that is, using mortgage jargon. However, if you were not married to a borrower after the reverse mortgage was taken out, your situation may be more complicated.
“When the last surviving borrower or unborrowed spouse dies, taxes and insurance will not be paid unless the heir chooses to continue paying,” says Roberts. “() The heir decides what happens to the house and whether important others live there.”
Also, when taking on a reverse mortgage, you are responsible for continuing to pay the homeowner’s insurance and property taxes and keeping your home in good condition.
Successful home with an underwater mortgage
If the inherited home is less valuable than the outstanding mortgage debt, the home may have negative equity or “underwater.” As an heir, this may be a major factor in determining whether to maintain or sell your home.
If you are inheriting a home with an underwater mortgage:
- Check the evaluated values: Reaffirm that the value of the house is correct.
- Find out what type of loan you are: If the mortgage is a non-recourse loan – which means that the borrower does not have to pay more than the value of the home – the lender may have options other than foreclosure. The same usually applies to reverse mortgages.
- Consider short selling: If the value is less than the outstanding mortgage balance, you may consider requesting a short sale or act in lieu of foreclosure with the lender.
If there is no will, who will inherit the mortgage?
If a person dies without a will and leaves the house behind with or without a mortgage, the court will decide who will inherit it. The laws governing this process vary from state to state. If you believe you are claiming property in this situation, contact your attorney.
Wills, living wills, trusts and other real estate planning documents are extremely important. If you are seeking legal assistance, the National Elderly Legal Attorney (NAELA) has a lookup tool to help you find a lawyer in your area.
