What Happens to Your Mortgage When You Die?

What Happens to Your Mortgage When You Die?

When you die, your mortgage doesn't just disappear. Either your estate or your heirs will need to take over the mortgage payments or sell the property—otherwise the home goes into foreclosure. What happens after a homeowner dies depends on factors like state law, whether the homeowner has a will or trust and whether a co-borrower is listed on the mortgage.

If You Die Without a Will

About half (54%) of U.S. adults pass away without a will, according to a Gallup poll. When this happens, the probate court appoints an administrator or personal representative to handle the deceased person's assets and liabilities. The administrator is usually a spouse or close relative.

The administrator will need to handle the mortgage in some way. They can, for example, sell the home to satisfy the mortgage, or use the deceased person's assets or death benefits from an insurance policy to pay off the loan balance.

Setting up a trust allows heirs to avoid the probate process and can give clear directions on how property should be handled when you die. It's often beneficial to have both a will and a trust to expedite the distribution of your assets, especially if your heirs will need to start making payments on your mortgage immediately.

If a Surviving Spouse Isn't Listed on the Mortgage

When a person dies, their will usually says who inherits the house. The property is transferred to the appropriate heir—which may be the surviving spouse—through the probate process. So a surviving spouse can still inherit the home when they're not listed on the mortgage.

The mortgage may contain a "due-on-sale" clause, which allows a lender to demand the entire outstanding balance of a loan when the property transfers ownership. But federal law allows heirs to assume (take over) the mortgage without triggering this type of clause. The heir (in this case, a spouse) must continue making the mortgage payments. They may also choose to sell the home.

If there's no will, state law determines who owns the home and the accompanying loan, and what happens next.

If You Have a Joint Mortgage

It's possible for someone to have a joint mortgage with a spouse or any other person. If the homeowner has a joint mortgage and dies, the co-borrower automatically inherits the property. They'll need to continue making mortgage payments to keep the house.

If You Have Multiple Beneficiaries

A homeowner may die with several beneficiaries listed in the will. The beneficiaries can inherit the home, but they don't automatically inherit the mortgage.

Under federal law, the homeowner's surviving spouse, children and/or relatives have a right to assume the mortgage without triggering the due-on-sale clause. The heirs must agree on what to do next. For example, one beneficiary might keep the home and take over the loan, or the heirs could agree to sell the house to satisfy the mortgage.

If You Have a Reverse Mortgage

A reverse mortgage allows older homeowners to use their home as collateral to borrow money. The balance usually must be repaid, which often happens through a home sale after the last borrower dies. If you have a non-borrowing spouse, they may be able to stay in the home if they meet requirements.

Learn more: The Pros and Cons of a Reverse Mortgage

What to Do if You Inherit a Mortgage

If you inherit a mortgage, you have a few options, including:

• Assume the mortgage. Assuming the mortgage involves taking legal possession of the home and the loan. You won't need to go through the underwriting process to assume the loan, as long as you have title to the home. Inheriting property is one way to get the title.
• Refinance the mortgage. If you can't afford the current loan payments but want to keep the home, refinancing may help you lower those payments by extending the loan term or lowering the interest rate. You'll need to meet the lender's eligibility criteria, including a minimum credit score and debt-to-income ratio, and go through a home appraisal.
• Sell the property. Some people decide to sell the home they've inherited because they already own a home, can't afford the payments or don't want the complications of maintaining the home or renting out the property. If you decide to go this route, you may need to budget for renovations and the expenses of the home sale.

How to Assume a Mortgage if Someone Dies

If you choose to assume a mortgage, follow these tips to ensure a smooth process:

• Gather legal documents. You'll need these to prove your legal right to the home to the lender. You may need a copy of the deceased person's death certificate, executed will, letter from the executor or administrator of the estate, and the deed. The servicer can then allow you to make payments.
• Contact the loan servicer immediately. Let the servicer know the borrower has died and you've inherited the home. Ask about the process for assuming the mortgage and submit any required documents.
• Continue making payments. Any cosigners or co-borrowers automatically assume responsibility for the loan payments. Other beneficiaries will need to start making payments while in the process of assuming the mortgage.
• Consult an attorney. Hiring a real estate attorney can help you navigate the legal and financial aspects of assuming the mortgage.
• Sign the assumption paperwork. Once you've filled out any paperwork, you and your attorney can review the assumption document, and then you'll sign.

How to Ensure Your Mortgage Is Covered After You Die

You can take steps now to ensure your mortgage is handled after your death:

• Create an estate plan. An estate plan is a collection of legal documents that show how you want your assets distributed after you die. It typically includes your will and possibly a trust, which can simplify the process greatly when you die. It can also lay out other important decisions, like health care directives and guardianship for your children. An estate planning attorney can help you set this up.
• Add a co-borrower. Adding a co-borrower to the loan documents ensures the home automatically passes to that person after your death. A co-borrower is typically someone who lives in the home with you, but it's possible to add any person who agrees to it. They'll have a shared interest in the home and will be equally responsible for making payments.
• Consider mortgage protection insurance. Mortgage protection insurance is a type of life insurance policy that pays off your mortgage if you die with a balance on your home loan. This could be a good option if you lack the assets to pay off the loan after your death and your heirs can't make the loan payments, but is usually unnecessary if you also hold life insurance that could pay off the home.
• Get life insurance. Life insurance is a type of policy that provides your beneficiary with a sum of money (the death benefit) after your death. This could be a good fit if you want your heirs to receive money they can use for anything rather than a specific purpose, like mortgage protection insurance.

Learn more: Questions to Ask Your Estate Planner

Frequently Asked Questions

The Bottom Line

When you die, the balance left on your home loan doesn't just disappear. Your heirs will need to either assume the loan or sell the property. You can help make this process easier for your heirs by creating an estate plan, buying life insurance or simply communicating with your loved ones now.