If inheriting a house with mortgage debt has left you uncertain about your next steps, you’re in the right place for beneficial insights.
This article discusses three viable options for you to consider. So, continue reading to discover the best solution for you.
Identify the Options You Have
Deciding what to do when inheriting a house with a mortgage brings up a lot of considerations.
The mortgage expense is the most obvious. Another that should be at the top of your list is that you have inherited a set of financial responsibilities that extend beyond that payment.
So, be sure to factor in additional expenses like property taxes, homeowners insurance, utility bills, and routine maintenance as you make a decision.
Also, remember that no two situations are alike when it comes to what to do with an inherited property.
When figuring out your next steps, consider your circumstances carefully in light of the options presented below.
Take your objectives and emotional attachments to the property into account, as well as your financial situation and future goals.
3 Alternatives to Consider After Inheriting a House with a Mortgage
1) Sell the House
You can sell a house that you inherited if you’re unprepared for additional expenses, such as:
- Taxes on the home’s assessed value
- Utility costs like electricity, water, and gas
- Routine upkeep and emergency repairs
There are three primary avenues for selling a house you inherited; for instance, if you must sell your parents’ house after they die.
- Market it yourself through FSBO sites.
- Hire a real estate brokerage to list and sell it.
- Sell to a company that buys inherited property fast.
The last option leads to a cash offer on an inherited house. Plus, it’s ideal if you’ve inherited a hoarder’s house or inherited a house that needs work, allowing for selling an inherited house as is.
Understanding what happens when you sell a house you inherited helps you know your options and possible pitfalls when selling your house to an investor.
You must also consider whether you need no probate to sell a house, or if you can sell a home in probate. Sometimes, you can sell the property before probate.
Selling a house during probate mandates specific rules.
Also, research how to avoid capital gains tax on an inherited house to determine if you should pay tax when you sell a house you inherited.
It also helps to have a deeper understanding of the requirements involved in reporting the sale of an inherited property.
2) Rent Out the House
You can rent out the property if you want to remain the owner but not move in. This approach gives you an extra source of income that ideally covers the mortgage and all other costs mentioned earlier.
However, this option comes with other financial responsibilities. For instance, you will need to pay for repairs and emptying the property. Repair costs will be ongoing.
Also, factor in landlord insurance, which covers liability protection and tenant-related risks. Taxes owed on the rental income is an additional cost consideration.
There are time commitments as well if you take on property management duties. Among them are screening tenants, handling leases, collecting rent, and managing property maintenance.
You can hire a property management company to do these tasks, but remember that the fees will reduce your rental income.
Despite these challenging aspects, renting out your property can be the most feasible option if you’re committed to ownership.
Otherwise, the house can decline in condition and, respectively, in value as it sits unoccupied.
You can make an informed decision by weighing the pros and cons. If you need more insights, check out our detailed analysis of whether it is better to sell or rent an inherited house.
3) Move In to the House
Taking up residence in the inherited house is the best option when you want to keep the property and can take on ownership costs.
Making it your home is more manageable if you’re renting. But if you own a house, you face the same decision for that property — whether to sell or rent it — before you can move.
Also, like determining whether you want to rent out a bequeathed house, have a clear picture of affordability before relocating.
First, you’ll need to consider whether the house needs any repairs or renovations upfront. If so, do you have the resources for that?
Then, evaluate your financial situation based on the associated property expenses.
Besides the mortgage, can you cover insurance premiums, property taxes, and monthly outlays for running the house?
You must also consider other financial obligations that come with inheriting a mortgaged house.
For example, can you assume the existing mortgage with little or no cost? Will financing be necessary and will it cost more or less?
Also, if the prior owner borrowed against the equity through a reverse mortgage, you must settle that debt to keep the house, either by refinancing or using other assets to pay it off.
Final Words
Even if the situation is not as easy as if you inherited a house with no mortgage, you can still make use of your inheritance.
Whether you want to rent, sell, or live in an inherited house, something to keep in mind is that your choice has to be agreed upon by all co-heirs if you’re not the sole inheritor.
So, if you have a sibling or other family members involved, the situation gets more complex.
Specifically, you must take the perspectives and rights of all co-heirs into account. That often calls for extended discussions and negotiations.
Also, be aware that trying to bring all heirs on board typically takes longer than you might expect.
When everything is considered, and a consensus can’t be reached on selling, renting, or keeping the property, you will need another plan.
One solution is to buy out the interests of the other heirs, and then pursue your preferred option.
Whatever your final decision turns out to be, remember that there is no one right choice in this situation.
Instead, the optimal decision best serves your interests, meets your goals, and results in the fewest difficulties if there are co-heirs.
