What Happens When You Inherit a House with a Mortgage?

Losing a loved one is devastating, and when you inherit their home, it can make an already emotional time even more overwhelming. If you find yourself in this situation and know what to expect, it can save you and your family a lot of hassle and stress.

Many inherited homes come with a preexisting mortgage. If you’ve inherited a house with a mortgage, it is essential to know that, unlike other loan types, a mortgage is not attached to the person who borrowed it. Instead, it is attached to the home itself. This means that a home loan does not just disappear when the borrower dies. The homeowner’s heir(s) are responsible for paying it off—either by maintaining ownership of the property or selling it.

Here’s what you need to keep in mind as you decide what to do with an inherited home.

Key points from this article:

Disclaimer – The information on this page is intended for general informational purposes only and not to provide legal advice.

What are your options after inheriting a home with a mortgage?

If you’ve inherited a house with a mortgage, you can take one of four actions:

1. Assume the mortgage.

   If you are related to the deceased homeowner or otherwise meet the mortgage lender’s credit requirements, you can assume the mortgage of your inherited home in your name. This means you will continue paying off the loan under the same terms as the previous owner.

2. Refinance the mortgage.

   If you want to keep the house you've inherited but cannot assume the mortgage or are not happy with the loan’s current terms, you may be able to refinance. If you opt for a cash-out refinance, you can use the money you receive to buy out other heirs who do not want to live on the property.

3. Sell the house.

   If you are the sole heir to a property, or you and all other heirs have agreed to sell, you can sell the home and use the profits as you see fit. If you choose to sell on the traditional market, be sure to work with a realtor who has experience with probate-related sales. Selling an inherited property tends to require cutting through a lot of red tape—especially if it’s been less than six months since the original owner’s passing—so it's best to work with an agent who is familiar with all of the legalities involved in this type of home sale.

4. Sell your share of the home to another heir.

   If you don't want to keep your inherited property, but another heir does, you can sell your share to them. This way, you’ll receive the money you would get from a sale, and they get to live in the house as the sole owner.

Be aware that regardless of what you decide to do with your inherited home, you’ll need to continue making monthly mortgage payments until you come to a decision. Otherwise, you’ll face the risk of foreclosure.

What should you do after inheriting a home with a mortgage?

After inheriting a home with a mortgage, you should take the following steps to decide what to do with the property:

1. Calculate the home’s value.

   Before you decide what to do with an inherited home, it’s critical to know how much it is worth in the current market. To determine the home’s value, consult with a realtor who can provide a comparative market analysis (CMA), which estimates a home's value based on recently sold, similar properties in the same area.

   Once you've come up with a number, you'll need to subtract the costs of any debts attached to the property. These debts include the mortgage(s) and, if applicable, home equity lines of credit and any liens on the property, such as a construction lien, judgment lien, tax lien, or child support lien.

2. Determine how much the home’s upkeep will cost.

   Owning a home costs more than just its monthly mortgage payments. You'll also need to factor in insurance, utilities, property taxes, HOA dues, repairs, and regular maintenance.

   You'll have to keep the property's interior clean and exterior well-manicured. And if the house remains unoccupied before you decide what to do with it, you'll need to plan for home security.

3. Make your final decision.

   Once you have a realistic idea of what keeping your inherited home would entail, financially and otherwise, you can make an educated decision on what you’d like to do with it. If you feel that living in or renting out the property is worth the cost and labor involved, you can assume or refinance the mortgage. Otherwise, you can explore your options for selling the house.

What if siblings inherit a house with a mortgage?

Suppose you and one or more of your siblings inherit equal shares of a home with a mortgage. In that case, you'll need to follow the above steps together to agree on what to do with the property. If only one sibling is interested in keeping the house, they can either buy out the other sibling(s) or rent out part of the property and give the rent money they receive to the other sibling(s).

If neither of these options are agreed upon, it is possible to force the sale of the home in a lawsuit known as a partition action. But be aware that legal fees can be expensive, and the court may rule that the home be divided between all heirs rather than sold.

After you inherit a house with a mortgage, how long do you have to decide what to do with it?

There is no time limit on when you need to sell an inherited property, so you can take as long as possible to decide the best course of action. Also, there is typically no deadline for filing a partition action.

Sometimes it is better to wait a while before selling. If you live in your inherited home for two years or longer, you can benefit from capital gains tax exemptions when you decide to sell it.

What if the home you've inherited has a reverse mortgage?

A reverse mortgage is a type of loan provided to homeowners aged 62 or older who owe less on their mortgage than what their home is currently worth. Instead of continuing to make monthly mortgage payments, a homeowner with a reverse mortgage receives payments taken out of their home’s equity from their lender.

Much like a traditional mortgage, a reverse mortgage becomes the responsibility of the heir(s) upon the borrower's passing. If the previous owner of the home you've inherited had a reverse mortgage, you'd need to decide what to do with the property within 30 days. While it is possible to live in the house, rent it out, or provide a deed in lieu of foreclosure, most heirs in this situation choose to sell. You can learn more about selling a home with a reverse mortgage here.

What if you inherit a home with no mortgage?

If you inherit a property in which its mortgage has already been paid off in full, you may think this provides you with a free house. But the truth is that multiple financial obligations come with a home, even with no mortgage.

Regardless of whether you live in the inherited house or not, as long as you own it, you'll need to continue paying property taxes, applicable HOA dues, and homeowners insurance. Without homeowner’s insurance, you can lose all your equity in the home if disaster strikes.

Are you looking to sell an inherited home?

Selling a house can be a hassle, especially when you are already grieving the loss of a loved one. This is why selling to a cash buyer can be your best solution for a quick and easy sale, minus all the headaches that come with selling on the traditional real estate market.

If you've inherited a home and are ready to sell it, AMI is interested in buying it. We buy houses in all conditions and can provide you with a no-obligation cash offer if you contact us today.