The death of a spouse or partner is a painful and overwhelming experience. Regardless of the emotional loss, it can be difficult to suddenly have to manage your finances on your own, including your mortgage.
“When a homeowner dies, it’s up to the surviving homeowner – who now owns the entire house and its value – to pay off the mortgage,” explains Shelby McDanielsChannel Director for Commercial Real Estate Lending at hunt.
While this is not an easy payment to make, remember that federal law prohibits lenders from requiring the surviving spouse to pay the full amount of the mortgage owed on the death of the spouse. A mortgage payment can seem overwhelming on just one income, but options are available to help ease that burden, such as refinancing your loan.
To help you through this difficult time, we’ve put together expert advice on everything to do if you suddenly find yourself on your own with a mortgage. If you’re considering the refinance route as someone who recently suffered a loss, here’s what you need to know.
Refinancing is a great option to consider if you choose to keep your property after the death of your spouse or partner.
Refinancing a mortgage usually saves you money if you have good credit, usually when current mortgage interest rates are lower than your current rate. And by securing a better interest rate or extending the term of the loan, refinancing a mortgage will lower payments.
To see how much money you might be able to save on your current mortgage payments, calculate the numbers on a refinance calculator. Remember, though, that even if your mortgage payment only drops by, say, $50 a month after refinancing, those savings will add up seriously on a 30-year loan.
Find out if you are on the mortgage or the deed
“Generally one cannot refinance a home if they haven’t been on the deed as the owner for a period of time, usually six months,” says Dirk Helligea mortgage originator and the preferred lender of West Des Moines, IA-based Realty ONE Group.
So if you want to stay in the house and you’re on title, you can qualify for a new mortgage. If you are unsure of your status, look for the original title or deed and mortgage documents.
If you are the surviving spouse and were not included in the original mortgage or title, you have the rights to the property unless otherwise specified in a will.
But what if you are a surviving unmarried partner who is not registered on the mortgage or title, and there is no will that leaves the property to you? In this case, you will need to provide proof of your claim on the property to the lender, otherwise the house is at risk of foreclosure.
A partner will need to establish something called “beneficial interest.” For example, you can usually establish beneficial interest if you helped pay mortgage payments or paid for home maintenance.
In either case, start the process by notifying the lender that the spouse or partner on the mortgage is deceased.
Check your financial health
Before you pursue refinancing, sit down with your bills and review your budget.
“To qualify for a home, you need to show some income and documents proving that income,” says Hellige. “Be prepared by knowing your income status, retirement account balances, checking/savings account balances, credit status, and details of any debts you carry.”
“A homeowner should ensure they can pay mortgage payments with just their income when considering refinancing,” adds McDaniels.
Qualify for a refinance
If it looks like you can qualify for the loan on your own, start by filling out a new financing application with proof of your income and assets. Consider applying for the new loan from the lender who currently holds the mortgage, as they will already have all the necessary information about the property.
“A lender will assess whether a customer qualifies for refinancing based on their credit, debt-to-equity ratio, and equity,” McDaniels says.
If it turns out that your credit isn’t as high as you thought or you have too little income to qualify for the loan on your own, you may be able to use a co-signer, such as a member of family.
And if for some reason you’re not comfortable with a lender at any time, never hesitate to consider a new one.
Cash-in refinancing option
If you are on mortgage and title and have significant equity in your home, you may want to consider a cash refinance.
“A cash-out refinance is a loan option that allows homeowners to replace their existing mortgage with a new one. and withdraw the equity in their property in the form of cash,” says McDaniels. “Customers refinance their loan for more than they are owed, and the difference is paid to them in cash.”
These extra funds can help surviving homeowners with new expenses that may arise after the death of loved ones.
“Most lenders require at least 20% equity in a home to be eligible for a cash refinance,” McDaniels says. “So contact your lender to see if you qualify.”