Buying and moving into a new home is one of life’s great experiences, especially if you’re buying your first home. From getting that pre-approval to the “yes!” response on an offer to closing and moving in, every step is exciting. And while the process is engaging and fun, it’s important to prepare for moving day […]
I inherited a home with a mortgage. What happens now?
Be it the home that has been in the family for generations or your parent’s house, inheriting a home can be a windfall. But what happens when that home has a mortgage attached to it?
Know what type of mortgage the home has
When you first inherit a home with a mortgage, you must know what type of mortgage it has attached. This will tell you a lot about what you can expect moving forward. For example, if the home has a reverse mortgage on it, you will have to pay it through the sale of the house or:
- Pay back the loan
- Deed the home to the lender
- Refinance the mortgage to another loan like a conventional
Whatever mortgage is attached to the home, work closely with your lender to help you decide your best course of action.
You can choose to assume the mortgage
If the home has a conventional or another type of mortgage, you can assume its responsibility and make monthly payments. Refinancing may also be an option.
You may inherit the debt
When you inherit the home, there is a chance you will also inherit the debt. If you have co-signed the loan on the house, you will have the responsibility of the mortgage. Alternatively, if someone else co-signed the loan, they will be responsible, regardless of their right to property ownership.
You may have to pay taxes
Depending on the home’s location, inheriting a home may have state tax liabilities and a federal capital gains tax. The capital gains tax comes into play if the home’s sale price is more than the home’s fair market value.
You can choose to sell the home
If you choose, you can sell the inherited home. Many heirs decide to do this because they either do not want to be responsible for the property or cannot afford it.
You are protected from “due-on-sale” clauses
Many home contracts have what is known as due-on-sale clauses, meaning when the property is transferred to a new owner, the loan must be repaid. Thankfully, federal law protects the heir from this loan acceleration. This law, known as the Garn-St. Germain Depository Act of 1982 makes it easier for property owners to pass real estate to heirs without triggering due-on-sales clauses.
Reach out to an experienced loan officer
Whatever you decide to do with an inherited home, reaching out to an experienced loan officer like those at SmartMortgage is a wise decision. They will help you prepare for owning an inherited home, as well as guiding you through your options if you choose to sell or refinance.
*The information provided herein has been prepared by a third party company and has been distributed for education purposes only. The positions, strategies or opinions of the author do not necessarily represent the positions, strategies or opinions of Guild Mortgage Company or its affiliates. All loans subject to underwriter approval. Terms and conditions apply. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.