What Happens When a Co-applicant on a Mortgage Dies?

When a co-applicant on a mortgage loan dies, the outstanding debt must still be satisfied. If mortgage payoff insurance was purchased, the surviving co-applicant is fortunate, but most homeowners do not have this type of coverage. Some banks require a mortgage loan to be satisfied immediately if a co-applicant dies, but most do not. If the co-applicant dies before the loan is approved or before closing on the property, the surviving applicant must re-apply for the mortgage loan on her own.

Upon the death of a co-applicant on a mortgage loan, the surviving co-applicant is solely responsible for the remaining debt. The co-applicant can use funds from joint bank accounts, inherited retirement income sources, wages or additional proceeds to satisfy the loan. Most mortgage companies allow a co-applicant to continue to make regularly scheduled payments on the loan without requesting an immediate payoff.

A deceased co-applicant's name can be removed from a mortgage loan upon request by the surviving co-applicant. Some mortgage companies require legal documentation provided by a lawyer or estate broker to remove the name, but others accept a request from the surviving co-applicant. In some cases, a deceased co-applicants's family member can legally request that the name be removed.

When a co-applicant on a mortgage dies, the terms of the mortgage loan remain the same. The interest rate, loan duration, escrow account details and payment options do not change. The surviving co-applicant can apply for refinancing, but she will most likely have to qualify for the refinanced loan based on her own credit score and income. If the loan has not been approved and closing has not occurred, the surviving co-applicant will likely have to start the application process over using, again, only her credit score and income level. As a result, the mortgage terms could change since a new loan application will be considered.

The surviving co-applicant retains the equity in the home. Unless a deceased co-applicant's family member hires an attorney to fight for the equity in the home or the deceased co-applicant specifically details ownership in a will, the co-applicant retains the equity. If a judge rules that the equity must be divided, generally the house is sold and the resulting profit is divided.

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