What Happens If You Inherit a Home With a Mortgage?

By Tom Burchnell
inherit a house with a mortgage

If inherit a home with a mortgage, what should you do? There are plenty of options available. Let’s take a closer look at each.

Inheriting a loved one’s property after they pass away can be an emotional experience. As much as you may love the memories associated with the property, inheriting a house with a mortgage might also come with something less-than-welcome: significant new debt.

Depending on your personal finances and the home’s market value, you’ll need to decide whether to assume the mortgage, sell the home, take advantage of a home buy-back program, or let the inherited property pass into foreclosure.

Whichever decision you make, it’s important to know your options. That way, you’ll be prepared to make the right call for yourself and your family.

Making Sense of Mortgage Debt

Before diving into your options when you inherit a home with a mortgage, let’s discuss what mortgage debt is and how it can impact you.

In short, a mortgage is a type of debt attached to your home. When a person has a mortgage, they must keep making payments until the principal and interest are paid off. Failing to pay the mortgage can result in foreclosure.

However, this arrangement gets complicated when the person holding the debt dies. In this situation, the debt can be passed on to the homeowner’s next of kin (or whomever the will stipulates) if the homeowner lacks the liquid assets to pay off the debt upon death.

If the debt has been transferred to you, you have three traditional options:

  • Keep the home (and mortgage)
  • Sell the home for equity
  • Allow the mortgage lender to foreclose on the home

Let’s look at each option in more detail.

#1 Assuming the Mortgage

Assuming the existing mortgage of the house you inherit means taking responsibility for the debt. Doing so allows you to keep the home in your family. 

However, it also means paying the debt according to pre-existing arrangements. 

If you choose to assume the mortgage loan, it’s important to take the following initiatives:

  • Contact the lending institution – In most cases, your loved one’s executor will deal with all estate decisions, but it’s helpful for you to contact the lending institution so that you know the exact repayment structure.
  • Inquire about refinancing – Once you assume the mortgage, you may be able to refinance the loan. In other words, you may be able to seek more amenable loan terms and structures.

Keeping the inherited home in the family can bring much-needed emotional comfort especially if you’re inheriting a house with siblings. However, it also means taking on the debtor’s financial responsibilities.

This process can be more complicated if you have any co-inheritors who would prefer to take another route.

#2 Sell the Home for Equity

If you’re not able to make mortgage payments (or simply don’t want to), selling the house with a mortgage you inherit can be an excellent option, especially if there’s available equity.

Before selling an inherited house, take note of the home’s worth relative to the amount owed:

  • Positive equity – If the home is worth more than the debt, the home has positive equity. This means that the proceeds can be divided amongst the heirs upon the home’s sale.
  • Negative equity – If the home is worth less than the debt, the home has negative equity. In this scenario, you can still sell the home, but the proceeds will go towards paying the debt. You may also be able to short sell the home if you don’t want to make mortgage payments and are having a difficult time finding a buyer.

Regardless of the home’s equity, selling the home requires a buyer. This can be a difficult process in and of itself, especially if the home needs significant renovations or repairs. Likewise, you’ll have to pay any applicable taxes on the sale.

That said, a sale-leaseback makes it simple to convert equity into cash. Home equity alternatives are fantastic for sellers who need the cash—and peace of mind—to relieve the burden of mortgage debt. With a sale-leaseback, a company buys your home from you and allow you to convert the inherited home’s equity into cash. If you decide you still want to live in the home, you have the option to lease it back or buy it back when you’re ready on your own terms.

#3 Allow the Lender to Foreclose

Mortgages use homes as collateral. That means that if no one is able or willing to make mortgage payments, the lender can simply foreclose the home.

Foreclosing the inherited home means the lender can sell the home to pay off debts.

However, before foreclosing the home, the lender must notify the executor and heirs about the foreclosure decision.

Choosing the Right Option

Simply knowing what happens if you inherit a house with a mortgage sets you on the path to mortgage success. 

However, in addition to knowing the nitty-gritty of inheriting a house or real estate, you should also know where you stand financially and what’s best for your family.

Take the following information into consideration when deciding on the right course of action:

  • Your ability to repay the mortgage
  • The mortgaged property’s location
  • The cost of maintenance and renovations
  • Emotional and time commitments

Knowing where you stand on each of these factors will give you the confidence to proceed with any mortgage decision.

Key Takeaways

If you inherit a home with a mortgage after a loved one passes away, can be an emotional experience. There are various different options to decide what to do with the home, depending on your personal finances. Find out the different options and which is best for you.


  1. The Balance. What Happens to Your Mortgage When You Die?
Life Event
Real Estate
Tom Burchnell
Written by Tom Burchnell
Director of Product Marketing

This article is published for educational and informational purposes only. This article is not offered as advice and should not be relied on as such. This content is based on research and/or other relevant articles and contains trusted sources, but does not express the concerns of EasyKnock. Our goal at EasyKnock is to provide readers with up-to-date and objective resources on real estate and mortgage-related topics. Our content is written by experienced contributors in the finance and real-estate space and all articles undergo an in-depth review process. EasyKnock is not a debt collector, a collection agency, nor a credit counseling service company.