Does it affect your credit if you assume the mortgage on a house you inherited?
The answer to your question depends on if you officially assume the mortgage or if you took over the payments without assuming or modifying the mortgage. When you inherit a home, you become responsible for the mortgage and any other loans on the property but that does not always mean that the mortgage affects your credit score.
For example, if you inherit a home with a $2,500 monthly mortgage payment you are required to continue to make the payment otherwise the lender could eventually foreclose on the property and you could lose the home. As long as you continue to make the monthly payment, however, there should be no issues with the lender.
In this scenario, although you are financially obligated to continue to pay the mortgage, or risk losing the property you inherited, the mortgage is not legally in your name. As strange as it sounds, the mortgage remains in the name of the individual that owned the home before passing away.
Because you are not listed on the mortgage, if you have a late payment or the property goes into default or foreclosure, your credit score would not be impacted, even though you are delinquent on the loan and could potentially lose the property. In other words, you could walk away from the home and stop paying the mortgage with little to no impact to your credit.
On the other hand, because the mortgage is not in your name according to the credit report, your score does not improve if you make the payments on time or pay off the loan. So other than keeping ownership of the property, which is significant, you personally do not benefit from paying the mortgage, at least not from a credit standpoint.
The scenario above explained when a mortgage on a home you inherit does not impact your credit, but there are cases when it does, as outlined below. The two situations when your personal credit is on the line are:
if the mortgage is modified and you are listed as the borrower; or,
if you legally assume the mortgage
If you want to put the mortgage in your name after you inherit the property, you can contact the lender and request that they modify the mortgage. Although lenders typically do not modify borrowers on a mortgage, they are usually willing to do it when you inherit a home because you own the property and are responsible for making the monthly payment.
From the lender’s standpoint, they strongly prefer that a living individual is listed as the borrower on the mortgage as opposed to someone who passed away. Additionally, by adding yourself to the mortgage, you are assuming significant responsibility -- legally, financially and for your credit score -- which makes you more likely to continue to make the payments and ultimately pay off the loan. Plus, you are far less likely to simply walk away from the home and the mortgage.
To modify the mortgage on a home you inherited and add yourself as the borrower, contact the lender and submit a request. You are typically required to provide a death certificate for the current borrower, the will that listed you as the beneficiary as well as the updated property title that shows that you own the home. Both you and the lender must sign the modification agreement and the new mortgage document and deed of trust are recorded by your local municipality.
The other scenario when the mortgage on a home you inherit affects your credit is if you assume the loan. If the mortgage has an assumption clause that means the loan can be transferred to another person with the consent of the lender. Aside from FHA mortgages, most mortgages are not assumable but you can review the loan documents to confirm this point.
If the mortgage on the home you inherit is assumable and you want to keep it in place, then your next step is to contact the lender to start the process. Lenders are more willing to approve assumption requests in this scenario for the same reasons they are likely to grant a modification: because it is better for the lender if a living person is listed as the borrower.
After you and the lender sign the assumption document you legally takeover the mortgage and the loan is listed on your credit report. Please note that no loan terms including your interest rate, monthly payment or program change when you assume the mortgage.
The transaction should be filed with your local county recorders office to make it official. In most cases the existing deed of trust, the legal document that notes the mortgage on the property, is assigned to the new borrower.
It is important to highlight that just because you inherit a property does not mean you need to keep the existing mortgage on the property. In short, although you are stuck with the property unless you sell it, you are not stuck with the mortgage.
If the loan terms are unattractive you can refinance the mortgage. For example, you may be able to qualify for a lower mortgage rate than the person who willed you the property. Additionally, you may want to refinance into a different mortgage program or with a lower loan balance to reduce your monthly payment.
Please note that if you move into the property you may be able to refinance the existing mortgage right away. If you decide to rent out the property, you may need to wait six-to-twelve months after you inherit the property before you can refinance the mortgage plus your interest rate will likely be higher.
The table below shows mortgage rates and fees for leading lenders in your area. We recommend that you compare these terms to the mortgage on the property you inherited to determine if you should refinance. We also recommend that you contact multiple lenders listed in the table to find the best refinance terms. Shopping lenders is the best way to save money on your mortgage.
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Sources
"Credit reports and scores." CFPB. Consumer Financial Protection Bureau, 2019. Web.
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