What Happens When You Inherit a House with a Mortgage?

When you inherit a house with a mortgage, you take the property subject to the existing loan; the debt does not disappear. You may keep paying the loan, assume or refinance it, or sell the house, but the mortgage must be satisfied at sale or transfer.

Under federal law (the Garn–St. Germain Depository Institutions Act), a lender cannot accelerate a loan solely because ownership changed due to death. You can continue making payments while you sort out title and next steps.

Mortgage servicers must work with “confirmed successors in interest,” which means once you prove your status, you can receive account information and discuss options just like the borrower. Keep payments current during this process to avoid default.

Your Main Choices

• Keep the house and keep paying the existing loan.
• Formally assume the loan if the servicer offers or requires it.
• Refinance the loan into your name if rates or terms are better.
• Sell the property and pay off the mortgage from sale proceeds.
• If the house is underwater, consider a short sale, deed-in-lieu, or a disclaimer of the inheritance before acceptance.

Assumption versus simply paying

Most heirs can keep paying without immediate assumption because death transfers do not trigger the due-on-sale clause. Formal assumption may still be needed to gain long-term rights, receive statements, or qualify for modifications.

Assumption usually requires you to show you can repay, but the bar and paperwork are often lighter than a full refinance. Ask the servicer, in writing, for its “successor in interest” and “assumption” procedures.

Selling an inherited home with a mortgage

At closing, the mortgage is paid from the sale proceeds and any remaining equity goes to the estate or heirs. If expected proceeds will not cover the balance, start the short-sale review early because lender approval is required.

Do not sign a listing agreement or contract that promises a clear title payoff you cannot deliver. Align timelines with the servicer, the title company, and the probate schedule.

What happens during probate

The personal representative should preserve the property and prevent avoidable loss, which includes keeping taxes, insurance, and loan payments current when estate funds allow. Late fees and missed payments quickly erode equity.

If multiple heirs disagree about payment or sale, a buyout or a court-ordered partition may be needed. Put cost-sharing expectations in writing to avoid deadlock.

Florida homestead and the mortgage

In Florida, homestead often passes to the surviving spouse and then lineal descendants outside the probate estate, but the mortgage lien survives. Unless a will expressly directs “exoneration,” the property passes with the debt, and the estate is not required to pay it off.

File for a new homestead exemption after you receive title and expect the assessment to reset unless portability applies. Property taxes, HOA assessments, and insurance remain ongoing obligations regardless of probate status.

Reverse mortgages are different

With a HECM reverse mortgage, the loan becomes due at the borrower’s death. Heirs may keep the property by paying the balance or 95% of appraised value, whichever is less, within set HUD timelines.

Ask the servicer for loss-mitigation or sale-deadline extensions if needed, and order an appraisal promptly. Waiting increases interest and servicing costs.

Insurance, taxes, and occupancy

Notify the insurer immediately and confirm the correct vacancy or estate occupancy endorsement; standard owner-occupied policies often deny claims after death or vacancy. Keep flood coverage if required by the loan.

Pay property taxes and HOA/condo dues on time because those liens can prime or pressure a sale even before the lender acts. In our experience, avoid force-placed insurance by providing proof of coverage early.

If the loan is delinquent or in foreclosure

Contact the servicer in writing and request a complete account history, reinstatement quote, and all loss-mitigation options available to successors in interest. Reinstating early is usually cheaper than curing later.

If sale is the plan, seek an expedited payoff and close before additional fees post. Here’s what we’ve seen: timely communication with the servicer prevents most avoidable accelerations.

Multiple heirs and buyouts

Title can vest in co-owners, which complicates assumption and refinance. Agree on who will live there, who pays carrying costs, and a valuation method for buyouts.

If no agreement is possible, a court can order partition and sale, with the mortgage paid first and the balance split by ownership shares.

Practical first steps

Order the death certificate and gather the deed, mortgage, and last mortgage statement. Send a written “successor in interest” request to the servicer with proof of your status.

Secure the home, update insurance, forward mail, and inventory personal property. Our clients who do these items in the first thirty days avoid most downstream cost and title problems.

Taxes and basis

For income-tax purposes, inherited property typically receives a basis step-up to date-of-death fair market value. The mortgage does not affect basis, but it affects net equity and cash at sale.

Confirm basis and any portability of Florida homestead tax benefits with your preparer. Selling soon after death often minimizes capital-gain exposure when a step-up applies.

When to refinance

Refinance if you need a new amortization schedule, to remove adjustable-rate risk, or to fund buyouts of co-heirs. If rates are high but you plan a near-term sale, assumption plus continued payments may be sufficient.

Check for prepayment penalties on older loans and confirm release requirements for any second mortgages or HELOCs. Coordinate timing so your refinance funds after you hold marketable title.