Losing a loved one is already a difficult experience, and inheriting a house with a mortgage can add a layer of complexity. But with wise action, you can manage the situation smoothly and honor the legacy of the deceased.
Here are some essential steps to get you started.
7 Ways to Navigate Inheriting a House With a Mortgage
1. Sell Your Inherited Property Quickly
Selling quickly is a perfectly valid choice, depending on your circumstances and priorities. Selling quickly removes the complexities of managing an inherited property, freeing you to focus on other priorities and emotional adjustments.
If you’re unsure about long-term plans or managing ongoing mortgage payments, a quick sale reduces the chance of default and frees you of foreclosure anxiety.
Depending on the current market climate, selling quickly can potentially fetch a higher price and help you avoid waiting for slower periods.
2. Seek Expert Guidance
While emotions are running high, it’s crucial to involve a professional. Opt for a legal advisor specializing in estate or inheritance law. This is particularly important if:
- It involves multiple heirs and can potentially cause disagreements
- The property spans multiple states or countries, adding jurisdictional complexities
- The financial aspects are significant, demanding a more nuanced approach
A qualified lawyer can guide you through legal intricacies and ensure you navigate the process without missteps.
Remember, their expertise can save you time, money, and emotional hassle in the long run.
3. Maintain Mortgage Continuity
Despite the loss of the previous owner, the mortgage doesn’t go away. To avoid late fees, foreclosures, and unnecessary stress, prioritize paying regularly.
Here’s what you need to do:
Gather Mortgage Details
Identify the lender or servicer, find out how the deceased received statements (physical mail or email), and understand the current payment system (manual or automatic).
Ensure Uninterrupted Payments
If necessary, update payment information or establish auto-pay to prevent missed deadlines. Remember, even a brief lapse can have serious consequences.
Communicate With the Lender
Keep the lender informed of the situation and your intentions regarding the property. Transparency builds trust and will facilitates smoother communication throughout the process.
Taking these initial steps demonstrates responsibility and helps you navigate the situation easier.
4. Consider Living In the House and Taking Over the Mortgage
Inheriting a house with a mortgage presents an opportunity to make it your own. If paying the mortgage and moving is a favorable option, it allows you to directly inherit the cherished memories and familiar comfort of the property.
If you’re financially secure and wish to stay, contact the lender or servicer about assuming the mortgage in your name. The Garn-St. Germain Depository Institutions Act of 1982 empowers heirs in such situations and allows them to retain existing loan terms, even if they include due-on-sale clauses.
Depending on your circumstances, you might negotiate a new loan with the lender. You can potentially secure a lower interest rate or adjust the payment schedule to better suit your budget.
Living in the house can preserve a tangible link to your loved one and the memories shared there. However, this method works best if paying the mortgage is more cost-effective than selling the house.
5. Crunch the Numbers
Inheriting a house with a mortgage throws a financial curveball your way. Before making any decisions, know the numbers involved.
Subtract the remaining mortgage balance from the current market value of the house. This reveals your home equity, that is, the portion you truly own.
Track down the monthly mortgage payment amount including:
- any homeowner’s insurance or property taxes
The estate executor should have access to the deceased’s bills, revealing average energy, water, and garbage disposal costs. Factor these into your monthly expenses.
If you’re considering renting the property, research average rental rates in your area for similar houses. This will help you estimate the potential income you’ll need to offset the mortgage and running costs.
Consider potential interest rate changes or additional costs down the line. Consult a financial advisor for long-term budgeting.
Numbers talk, but emotions play a part too. Consider the sentimental value of the house and how living there might fit into your lifestyle.
6. Understand the Mortgage Documents and Refinancing Options
Before making any decisions, dive into the mortgage documents and explore your refinancing options.
Knowing Your Mortgage
Identify the type of mortgage. Traditional primary mortgages continue as usual, while reverse mortgages require immediate repayment or refinancing upon inheriting.
If you want better terms or wish to tap into inherited equity for renovations, consider cash-out refinancing. This allows you to replace the existing loan with a new one for a larger amount, pocketing the difference (subject to approval).
Legal jargon can be overwhelming. Consult a lawyer specializing in estate or mortgage law to fully understand your rights and obligations. A financial advisor can help you:
- crunch the numbers
- compare refinancing options
- make informed decisions about your future financial goals
By diving into the details and seeking professional guidance, you can turn the mortgage puzzle into a clear picture of your financial options. Don’t hesitate to ask questions and explore possibilities.
The Due-on-Sale Clause
Buried within your inherited mortgage document, you might find a clause called “due-on-sale” (aka “alienation clause”). This clause gives the lender the power to demand immediate repayment of the entire loan if you, the inheriting party, transfer ownership to someone else, like an LLC.
Think selling the house or even putting it in your own LLC? This clause could put the brakes on your plans.
But not all due-on-sale clauses bite. Most states, following federal guidelines, offer important exceptions for inheritances. So, you can breathe a sigh of relief if you’re selling to your spouse or children or inheriting the mortgage yourself.
The Acceleration Clause
In the maze of your inherited mortgage documents, the acceleration clause is another clause you should watch out for. This gives the lender the power to instantly demand full repayment if you, the inheriting party (now responsible for the loan), miss the monthly payments.
Understanding the clause helps you to avoid its pitfalls. Remember, while probate takes its course, the estate’s executor handles the mortgage payments. Once it wraps up, the responsibility shifts to you, the beneficiary.
Missing even one payment could trigger the acceleration clause, turning your manageable monthly commitment into a big, scary lump sum. Don’t let that happen! Prioritize timely payments or seek help if you’re facing financial hardship.
If unforeseen circumstances threaten your ability to make payments, communication is key. Reach out to the lender and explore alternatives like a loan modification or temporary forbearance. Defaulting should be a last resort.
7. Take Full Ownership
One option (and arguably the simplest) is to ditch the debt and take full ownership. By paying off the mortgage in full, you unlock a world of possibilities for your inherited property.
But before you dive headfirst into cashing out, decide if you can comfortably afford the lump sum payment to pay off the mortgage completely. Factor in potential selling costs or renovation expenses if you plan to lease or sell.
Sell Fast and As-is With Grandview Homes
Don’t let the dilemma of a mortgage affect you because you inherited a piece of property. With Grandview Homes, you can sell quickly and as-is, without breaking a sweat.
Contact us today and sell your house in no time.