5 Financial Options If Your Inherited House Still Has a Mortgage

Dealing with the passing of a loved one is always difficult, and it can be even more challenging when you go through the estate process. A home is one of the most common assets people pass down to their heirs or beneficiaries. However, inheriting a house with a mortgage comes with its own set of challenges.

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Many people inherit assets through probate or a last will and testament . Here are your main options if you inherit a home with a mortgage .

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1. Consult an Estate Attorney

Inheriting a home with a mortgage can be complex, especially if there are multiple heirs. That’s why it’s crucial to seek the help of an estate attorney.

An attorney can assist you in understanding the legal obligations tied to the property and help in dealing with any disputes among heirs.

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2. Continue Making the Mortgage Payments

Regardless of the borrower’s passing, you need to continue making the monthly mortgage payments to avoid penalties and risking the home to foreclosure . Timely payments give you time to decide what to do with the house.

Contact the mortgage servicer or lender to inform them about the deceased. They’ll likely request the death certificate copy and will. Once they verify the information, the lender can disclose the deceased’s mortgage balance and the monthly payments.

3. Assume the Mortgage

If you decide to keep the house, you’ll assume the mortgage and start making monthly payments. The Garn-St. Germain Depository Institutions Act allows you to continue making payments under the same terms as the deceased without triggering a due-on-sale clause, which would typically require the loan to be repaid upon ownership transfer.

However, going this route means you’ll be liable for the mortgage payments, insurance and taxes. Plus, you’ll be responsible for the ongoing maintenance of the house.

4. Buy Out the Other Heirs

If multiple beneficiaries inherited the house and wish to keep the property, you may need to buy out the other heirs.

This process, called an estate buyout, typically involves having the property appraised and agreeing on the amount to compensate the other heirs for their share of the home. You may need to take a loan if you don’t have cash to buy out other heirs. Probate and estate loans are perfect financing options for this situation.

5. Sell the House

Another option is to sell the property. If the house is worth more than the outstanding mortgage balance, selling it can allow you to pay off the mortgage and potentially pocket some cash as part of your inheritance.

This is often a practical choice for heirs who don’t wish to take on the financial burden of a mortgage and property maintenance. Remember, though, that you’ll likely owe capital gains tax on the money you get unless you qualify for an exemption.

Inheriting a House With a Reverse Mortgage

A reverse mortgage allows homeowners who are 62 or older to borrow against their home equity. When a homeowner has a reverse mortgage and sells the house or dies, the beneficiaries must pay the loan, including any interest.

So, if you inherit a home with a reverse mortgage, you must pay the loan balance in full. You can refinance the property to pay off the mortgage if you don’t have cash. Alternatively, you can sell the house to clear the loan and keep the remaining proceeds.

Inheriting a House With an Underwater Mortgage

If the house is underwater , meaning the remaining mortgage balance is higher than the property’s value, selling the home is impossible. In this case, you have two options: a short sale or a deed in lieu of foreclosure with the lender.

This article originally appeared on GOBankingRates.com : 5 Financial Options If Your Inherited House Still Has a Mortgage