What To Do With An Inherited House
Updated: Dec 30, 2019
So you’ve inherited a house and are not quite sure what the next steps should be. It can be tough to make decisions regarding inherited property especially when you have siblings and other family members to keep in mind. The process is often emotionally and financially draining. What do you do if you inherit a house with a mortgage? How do you sell an inherited house? This is a breakdown of the most urgent tasks and what your options are going forward.
Maintenance And Expenses. If you own a home, then you know how much goes into maintaining a property. When you inherit a home, there will be bills that need to be paid regularly and routine maintenance that needs to be seen to. If you inherit a house with a mortgage that will not be paid off by the estate, then you will need to contact the lender. Typically, there will be a due-on-sale clause that will transfer to the new owners. Essentially, you will be able to assume the payments and pay off the mortgage over time or when you sell the property. If there is a reverse mortgage in place (cash for equity), you will have a finite amount of time to pay off the balance, sell the home, or take out a new loan covering the amount. If the original owner was underwater, then the bank may consider allowing a short sale of the property and accept less than the amount owed. Many inheritors realize they cannot afford the payments on an inherited home. If you find yourself in this situation, don’t panic. Lenders will generally give you time to sell a property since foreclosure is costly and not at all in their best interest.
You will also need to track down the utilities and homeowners’ insurance accounts. Make sure the house remains insured and that lights stay on by transferring these accounts to your name. It may be difficult to keep an eye on the house if you live out of state, but it is vital that you make sure the home remains in good condition. This is your investment now. Hire a landscaper and a cleaner to check on the house regularly or ask a family friend to drop by every so often.
Moving In. If you are the sole inheritor and you can afford the expenses of homeownership long term, then you may feel moving in is the best option for you. If you are not a sole inheritor of the home, but you would like to move in, then the other parties who have a stake in the property must agree. You may need to buy them out. If you can’t afford to buy them out right away, then they may agree to record a promissory note in which you would agree to pay them back in regular installments plus interest within a specific time frame. If stakeholders cannot agree on what to do with a property, then a suit for partition may be filed and a judge can order the sale of the home. A suit for partition takes a lot of time and money. Even when the home is sold, legal fees will reduce profits.
Renting. You may consider renting out the property. For those of you who want fast cash, this is not the best option for you. Keep in mind that you will have to make any necessary updates and repairs before you can rent out a home. It is also a time consuming and potentially expensive endeavor since tenants will put wear and tear on the property. You will likely need to hire a property management firm, which will cost 8-12% of the monthly profits.
Selling. For many reasons, selling an inherited home may be the most elegant solution. Keep in mind that you will need to cover any costs associated with listing the home. This means staging the home, making any urgent repairs, and finding an agent. Clean out the home and consider holding an estate sale. While you wait for the estate to go through probate (confirmation of the will), determine who is legally responsible for handling the transaction. Generally, the executor of the estate or a trustee will be the one to sign the documents. Check out my article on preparing a home for sale for more information.
Taxes. If you plan to sell the home then you should do your research and hire a tax attorney. The good news is that you will not be required to pay capital gains tax based on the amount of appreciation since the previous owner purchased it. Taxes will be levied based on any gains since the former owner’s death. Be aware that you may have to pay hefty fees for estate tax when the home is sold depending on your state. However, if you plan on keeping the home, know that children and grandchildren inheriting their parents’ or grandparents’ homes are exempt from reassessment, which is great news if you are inheriting a home that has appreciated in value. This means that even if the home was valued at $50,000 decades ago and is worth $2,000,000 now, you will not be subject to the current value’s tax rate.