.jpg)
The death of a spouse or partner is a painful, overwhelming experience. Quite apart from the emotional loss, it can be difficult to have to handle your finances suddenly on your own, including your home mortgage.
“When one homeowner dies, it becomes the responsibility of the surviving owner—who now owns the entire home and its value—to pay off the mortgage,” says Shelby McDaniels, channel director for corporate home lending at Chase. While this is not an easy payment to face, remember that federal law prohibits lenders from requiring the surviving spouse to pay the entire mortgage amount due upon a spouse’s passing. A mortgage payment may seem insurmountable on only one income, but options are available to help ease that burden, such as refinancing your loan. To lend a helping hand at this difficult time, we rounded up expert advice on everything on what to do if you find yourself suddenly on your own with a mortgage. If you’re considering the refinancing route as someone who recently faced loss, here’s what you need to know.
Why refinance?
Refinancing is an excellent option to consider if you choose to hold on to your property after the death of your spouse or partner.
Refinancing a mortgage generally saves you money if you have good credit, usually when the current mortgage interest rates are lower than your current rate. And by locking in a better interest rate—or extending the term of the loan—refinancing a mortgage will reduce payments. To see how much money you might be able to shave off your current mortgage payments, crunch the numbers on an online refinance calculator. Remember, though, that even if your mortgage payment goes down only, say, $50 per month after refinancing, that savings will seriously add up over a 30-year loan.
Find out if you are on the mortgage or deed
“Typically, one cannot refinance on a home if they haven’t been on the deed as an owner for a period of time, typically six months,” says Dirk Hellige, a mortgage loan originator and the preferred lender for Realty ONE Group, based in West Des Moines, IA.
So if you want to remain in the home and are on the title, you can pursue qualifying for a new mortgage. If you are unsure of your status, locate the original title or deed to the property as well as the mortgage paperwork. If you are the surviving spouse and were not included on the original mortgage or title, you have the rights to the property unless otherwise stated in a will.
But what if you are a surviving unmarried partner who isn’t listed on the mortgage or title, and there is no will leaving the property to you? In that case, you’ll need to provide evidence of your claim on the property to the lender, or the home will be 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 foot the mortgage payments or paid for the home’s upkeep. In both cases, start the process by notifying the lender that the spouse or partner on the mortgage passed away.
Check your financial fitness
Before pursuing refinancing, sit down with your bills and go over your budget.
“To qualify for a home, you must show income of some kind and documentation proving that income,” says Hellige. “Be prepared by knowing your income situation, your retirement account balances, checking/savings account balances, credit situation, and the details of debts you carry.”
“A homeowner should ensure that they can afford the mortgage payments with just their income when planning to refinance,” adds McDaniels.
Qualifying for a refinance
If it looks as if 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 with the lender that currently holds the mortgage, as it will already have all the necessary information about the property.
“A lender will evaluate if a customer qualifies for the refinance based on their credit, debt-to-income ratio, and equity,” says McDaniels. If it turns out your credit isn’t as great as you thought it was—or if 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 family member. And if for some reason you aren’t comfortable with a lender at any time, never hesitate to consider a new one.
Cash-out refinance option
If you are on the mortgage and title and have significant equity in your home, you may want to consider a cash-out refinance.
“A cash-out refinance is a loan option that allows homeowners to replace their existing mortgage with a new one and take out equity from their property in the form of cash,” says McDaniels. “Customers refinance their loan for a larger amount than is owed, and the difference is paid to them in cash.” These additional funds can help surviving owners afford new expenses that may pop up after the death of their loved ones.
“Most lenders require at least 20% equity in a home to qualify for a cash-out refinance,” says McDaniels. “So get in touch with your lender to see if you qualify.”