If you inherit a property that still has a mortgage, here is what happens to the loan and what your options are.
When someone dies with a mortgage on their home, the loan doesn't get forgiven or cancelled. The mortgage is a lien on the property — it stays with the house regardless of who owns it. As the heir, you're inheriting both the property and the obligation attached to it. The good news is that you have several options, and federal law provides important protections for heirs.
The Garn-St. Germain Act (1982) prohibits lenders from enforcing a "due on sale" clause when a property transfers to a relative upon the borrower's death. This means the lender cannot demand immediate full repayment simply because the homeowner died and the house passed to you. You have the right to assume the mortgage and continue making payments under the existing terms.
1. Keep the house and assume the mortgage. You take over the existing monthly payments. You'll need to contact the loan servicer, provide a death certificate and proof of inheritance, and formally assume the loan. Your credit score and income are generally not factors — you're continuing an existing loan, not applying for a new one.
2. Refinance into a new mortgage. If the existing mortgage has unfavorable terms (high interest rate, adjustable rate), you can refinance into a new loan in your name. This does require a credit check and income verification. It can also be an opportunity to pull cash out of the property's equity.
3. Sell the property. You can sell the home and use the proceeds to pay off the mortgage. Any remaining equity after the loan payoff, real estate commissions, and closing costs belongs to you. If the estate is in probate, the sale may require court approval depending on your state.
4. Walk away. If the property is "underwater" (the mortgage balance exceeds the home's value), you may choose not to assume the debt. You're not personally liable for the deceased person's mortgage — you'd simply let the lender foreclose. You lose the property but owe nothing.
Some homeowners carry mortgage life insurance or a life insurance policy specifically designated to pay off the mortgage. If one exists, the proceeds pay off the loan and you inherit the house free and clear. Check with the estate attorney and review the deceased person's insurance policies carefully.
While you're sorting this out, the mortgage payments still need to be made. Most lenders will work with heirs during the transition period, but they won't wait indefinitely. If the estate doesn't have liquid funds to cover payments and you need time to decide, an inheritance advance can bridge the gap.
Disclaimer: This page is for general informational purposes only and does not constitute legal, financial, or tax advice. Probate laws, timelines, and costs vary significantly by state and by individual circumstances. We strongly encourage you to consult with a qualified attorney or financial advisor for guidance specific to your situation. First Heritage Funding is not a law firm and does not provide legal services.
No. Under the Garn-St. Germain Act, heirs who inherit a property can assume the existing mortgage without going through a credit check or income qualification process. You simply continue making the same payments under the same terms.
The lender can begin foreclosure proceedings if payments are not made, regardless of probate status. It's important to notify the loan servicer of the death immediately and make arrangements to keep payments current. Some servicers offer forbearance during the probate process.
Generally yes, though check the mortgage terms — some loans have owner-occupancy requirements. If the mortgage has such a clause, renting the property could technically trigger a due-on-sale clause, though enforcement is rare. Consult with an attorney to understand the specific loan terms.
All co-heirs share responsibility for the mortgage proportionally. If one heir wants to keep the house, they typically need to refinance in their own name and buy out the other heirs' shares. See our guide on what happens when siblings inherit a house for more.
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