Being to an heir to a loved one’s piece of real estate in Colorado creates mixed feelings when the property comes with a mortgage. On the one hand, the house is an asset that can bring you additional income stream if you rent it out or serve as a vacation home. On the other, inheriting a debt can negatively impact your finances.
If you are a beneficiary of a property with a mortgage, you might want to post an ad saying that you want to sell your house fast in Fort Collins or any other Centennial State community rather than assuming the loan that comes with it.
To be clear, legally assuming a mortgage on an inherited property means picking up where your loved one left off. You assume the same interest and term as well as the remaining balance. Deciding to put the mortgage in your name, though, can harm your credit.
One Credit Check
Mortgage assumption triggers the usual loan procedure, which begins with a credit check. Then, a hard inquiry appears on your credit reports to notify the creditors you might deal with in the future that such a transaction was made.
Such a credit check can shave a few points off your FICO scores. The bright side is that a hard inquiry becomes a non-factor in credit scoring after 12 months, and it vanishes from your credit reports 24 months later.
Lower Average of Account Age
Once you take over the mortgage, a new credit account is created. Your average credit age goes down as a result. Although this only affects 15% of your FICO scores, it can be extra impactful if you do not have old accounts to act as counterbalances.
Higher Level of Indebtedness
The overall level debt you carry is the second-most influential element factored into most FICO scoring models. If you already have an existing home loan and over-utilized credit card limits, the assumption of your inherited property’s mortgage will put you in a bad light.
Of course, you can build your credit as you repay what you owe, but it can take a while before you can be considered creditworthy by most credit card issuers and lenders.
Potential Late or Missed Payments
Mortgage repayment can be a burdensome financial obligation. Even if the loan’s interest is lower than today’s rates, your lack of preparedness for its monthly payment might destroy your credit slowly but surely.
Late and missed payments are some of the worst items that can appear on your credit reports. If you are not financially ready to shoulder the repayment of your loved one’s loan, assuming it is even worse than letting the remaining balance go unpaid.
Make no mistake about it; you can shoulder repayment without taking the mortgage assumption route, for the lender wants to get paid. However, none of your good deeds will benefit your credit even if you use your own money to settle the bill.
An inherited property should be a godsend, not an additional expense that can severely compromise your financial standing. From a practical standpoint, find a cash buyer to repay the loan, pocket any surplus, and move on.