I recently was asked by a sole executor-heir when they can assume the mortgage on their childhood home. The client wanted to know if they could assume the mortgage already or if they had to wait for probate to close.
The legal answer is that the heir can assume the mortgage when the property legally belongs to them. Depending on State law and the circumstances, technically it could be the date of death, or the date the property is deeded to the individual.
The better answer is that they should never assume the mortgage!
Under Federal law, when you inherit a house*, the mortgage can stay in place as long as the monthly payments continue to be made. In other words, you do not have to assume the mortgage to keep the loan active.
By not assuming the mortgage, it doesn’t appear on your credit report, and it doesn’t affect your credit score. This is crucial if you plan on applying for future loans or lines of credit, as the inherited mortgage won’t weigh down your financial profile.
If for any reason, you find it difficult to keep up with the mortgage payments, you’re not personally liable for the debt. The lender could foreclose on the property, but it won’t affect your credit score since the mortgage isn’t tied to your name. This is especially important in places like New Jersey and New York where the lender can come after the debtor for any deficiency.
Assuming the mortgage on inherited property is unnecessary – if you want to sell the property or refinance, you can do so without first assuming the mortgage. It is better to let the mortgage remain in place and avoid tying yourself to the debt, even if you are just going to continue to make the monthly payments for the foreseeable future.
*this applies to houses, mobile homes, coop apartments and condominiums, as well as 2-4 family homes, but not to buildings with 5 or more units or nonresidential real estate.
