Losing a parent is never easy, and having to sort through their financial affairs while grieving can be overwhelming. One of the responsibilities that may fall to you is deciding what to do with your parents’ mortgage after they pass away. Taking over the mortgage is an option, but there are requirements you’ll need to meet and steps to take for a formal assumption of the loan.
Can you take over a deceased parent’s mortgage?
Yes, it is possible to take over, or assume, your deceased parent’s mortgage in most cases. When a homeowner with an outstanding mortgage passes away, the loan does not automatically disappear – someone must continue making the payments. As the child of the deceased, you may have the option to formally assume the mortgage if you meet the lender’s qualifications.
Taking over the mortgage can allow you to stay in your childhood home or investment property that your parents owned. This can provide stability during the difficult transition of losing a parent. However, assuming a mortgage is a long-term financial commitment, so consider the pros and cons carefully.
Requirements to assume a mortgage after death
To take over a deceased parent’s mortgage, the lender will typically require:
- You are named in the will or designated as an heir – Lenders want to ensure you have legal claim to the property before allowing you to assume the loan.
- Your credit score meets minimum requirements – Most lenders will run your credit and want a score of at least 620 or higher.
- You qualify for the loan based on income – The lender will evaluate your debt-to-income ratio to ensure you can afford the monthly payments.
- Home appraises for loan balance or higher – If the home’s value is less than the loan amount left, the lender may not approve the assumption.
In some cases, the lender may require you to refinance the mortgage into your own name instead of formally assuming the loan. This depends on the type of loan and the lender’s policies.
How does assuming a mortgage work?
Assuming a mortgage is a legal process with several steps required to complete the transfer:
- Notify the lender – Contact the mortgage lender as soon as possible after your parent’s passing to discuss your options.
- Complete paperwork – The lender will provide assumption forms and documentation that you’ll need to complete, such as proof you inherited the home.
- Get approval – The lender verifies you meet credit, income, and collateral requirements to take over the loan.
- Make mortgage payments – Once approved, you begin making the monthly mortgage payments from your bank account.
- Record the assumption – Final paperwork legally transfers responsibility of the mortgage to you.
This process can take anywhere from 30 to 90 days on average. During that time, the estate typically continues making mortgage payments to avoid defaulting on the loan.
Benefits of assuming a parent’s mortgage
There are a few potential benefits that come with formally assuming your deceased parent’s mortgage:
- Avoid relocation – Taking over the mortgage allows you to remain in the family home you may have grown up in.
- Lock in low rate – You can maintain the potentially favorable interest rate your parents had on their mortgage.
- Build home equity – As you pay down the loan, you’ll gain equity that can grow into a substantial nest egg.
- Generate rental income – If not living in the home, you can rent it out to produce monthly income.
For many, keeping the family home and honoring their parents’ wishes to take over the mortgage is motivation enough. But for others, the financial benefits also make assumption an appealing option.
Downsides of taking over a mortgage
Although assuming your deceased parent’s mortgage can seem like the right choice, there are also some potential downsides to consider:
- Ongoing payments – You take over responsibility for the remaining mortgage payments, which could span decades.
- Closing costs – Refinancing the loan into your name requires closing costs of 3-6% of the balance.
- Interest rate unknown – If interest rates have risen significantly since your parent took the loan, your payments could be much higher.
- Difficulty qualifying – If you have existing debts or a low credit score, qualification can be challenging.
- casaLack of feelings connection – For a home you didn’t pick out or have memories in, you may lack an emotional connection.
Weighing these factors will help you decide if assuming the mortgage aligns with your financial situation and personal goals.
Alternatives to taking over mortgage
Instead of formally assuming your deceased parent’s mortgage, you may want to consider these alternative options:
Sell the property
Selling the home can simplify matters by paying off the mortgage entirely with the sale proceeds. This route makes sense if you don’t have an emotional connection to the property or want to avoid a burdensome long-term debt obligation.
Rent out the property
If you inherit the home but don’t want to live there yourself, renting it out is an alternative. Property management companies can handle many of the responsibilities if you don’t want to be a hands-on landlord.
Pay off mortgage in full
If you have funds available from the estate, life insurance payout, your own savings, or another source, you may choose to pay off the mortgage completely. This eliminates the debt while still retaining ownership.
Walk away
As a last resort, you can elect not to assume the mortgage and allow the lender to foreclose on the property. This obviously forfeits the asset, but removes any financial risk on your part.
Steps for survivors after a parent’s death
When handling your deceased parent’s unfinished business, beyond just the mortgage, follow this checklist:
- Get death certificates – You’ll need several certified copies for financial institutions.
- Meet with an attorney – They can provide guidance on estate matters like wills and probate.
- Notify financial institutions – Contact banks, mortgage companies, creditors, etc. about the death.
- Update titles and deeds – File paperwork to transfer home and vehicle ownership as applicable.
- Review insurance policies – Decide if you’ll make claims on any life, home, auto or other policies.
- Check on taxes – You may need to file final individual and estate tax returns.
- Cancel subscriptions – End any newspaper delivery, gym membership, cable services, etc. in your parent’s name.
- Redirect mail – Have postal service forward mail or change property address.
- Close unused accounts – Opt to close bank, investment, and credit card accounts not being used.
This checklist provides a starting point, but every estate is unique. Take things one step at a time and seek professional assistance from financial advisors, accountants, attorneys, and therapists to guide you through this difficult process.
Questions to ask about assuming a parent’s mortgage
Here are some key questions to get answered if you are considering taking over your deceased parent’s mortgage:
- What type of mortgage is it and does the lender allow assumptions?
- How much is still owed on the loan principal?
- What is the current interest rate and how does it compare to today’s rates?
- How far along is the mortgage term – when would it be paid off?
- Are property taxes and home insurance included in payments?
- Can I qualify based on my income, debts, and credit score?
- How much are closing costs and fees to assume the loan?
- Could refinancing into my name get better terms?
- What alternatives do I have if I can’t qualify to assume the mortgage?
Getting clear answers to these questions from your lender will help you make an informed decision on how to best handle your parent’s remaining mortgage balance.
The mortgage assumption process step-by-step
If you ultimately decide to assume your deceased parent’s mortgage, follow these steps to take over the loan properly:
- Notify the lender – Call the lender’s loss mitigation or loan administration department about your parent’s passing and interest in assuming the loan. Ask what documentation they require.
- Send required documents – Provide a certified death certificate, will or trust showing you inherit the home, and any other items the lender requests.
- Get credit approved – Complete a loan application so the lender can pull your credit report and verify your income sources.
- Accept loan terms – If approved, the lender will issue a Mortgage Assumption Agreement detailing the loan terms which you’ll need to sign.
- Make first payment – Once paperwork is finalized, you’ll begin making the monthly mortgage payments from your own bank account.
- Record assumption – The lender will file documentation with the county to formally record transfer of the mortgage into your name.
Stay organized throughout the process, follow up on any pending items, and keep copies of all financial paperwork for your records.
Conclusion
Assuming a deceased parent’s mortgage can seem like a daunting process during an already difficult time. However, with careful planning, understanding of the requirements, and professional guidance, the transition can go smoothly. Weigh the pros and cons, consult with loved ones, and use the checklist provided to help you successfully take over your parent’s mortgage after their death if that is the right choice for your situation.
