If a loved one left you their home in their will, you might think you can just keep the mortgage they had and move forward. Unfortunately, that’s typically not the case. Many mortgages have what’s called a ‘ due on sale clause’. This means that the mortgage becomes immediately due and payable if the home changes hands. This doesn’t mean only if you sell the home, it also means when ownership changes due to a transfer, such as occurs with a death.
The Exception to the Rule
While technically you should either sell the house a loved one left you or refinance the mortgage into your own name, there is an exception to the rule. It pertains to the Garn-St. Germain Depository Institutions Act of 1982. This act allows relatives to keep a home a relative left to them and keep the mortgage in the deceased’s name as long as the person inheriting the property lives in the home. In addition, the inheritor must be related to the deceased.
Telling the Lender
It’s important that you let the mortgage lender know what is going on, even if you are going to keep the home and the mortgage. The lender needs to know that someone else is paying the mortgage. Beware, though, some lenders charge an assumption fee or transfer fee. This covers the administration costs they bear as a result of the death of your loved one.
If you didn’t inherit the home or the lender won’t allow you to assume the mortgage, the lender must give you 30 days’ notice to satisfy the loan on the home. This means you have at least 30 days to sell the home and satisfy the mortgage. Of course, you can talk to the lender and negotiate better terms if you need more time.
If the original owner of the home had a reverse mortgage on the property, you generally have six months to pay the loan back. This gives you a little more time to get the hold sold upon your loved one’s passing in order to have the funds to pay the loan off in full.
Basically, if you inherit a home with a mortgage, you will have to prove that you can afford the mortgage. You can’t just come in and assume a loan. The lender needs to know that you can afford the loan. If you can’t or they don’t allow assumptions, they can enforce the duel on sale clause and ask that you pay the loan in as little as 30 days from the date that you call them.
If you inherit a house with a mortgage, it’s a good idea to get in contact with the lender right away. They will be able to tell you the next steps that are necessary. In some cases, you may be able to just take over the loan. In other cases, though, you may have some legwork to do to prove that you can afford the loan or you may even have to sell the home.