In this article, we tackle what you can do when you inherit a house free and clear of mortgage debt. We explore three solutions that are optimal strategies for managing this windfall.
It’s essential that your next move be a well-informed decision to make the most of this opportunity.
Let’s begin.
Identify the Options You Have
Since you don’t have to pay a mortgage, you have more flexibility in deciding what to do with the property going forward.
But be mindful that even though you don’t have that debt to repay, you still have other financial commitments to factor into your choice.
Taxes on the house, insurance premiums, and the cost of ensuring the house is in good repair are among them.
It’s also critical to understand that your context for a decision doesn’t necessarily mirror anyone else’s scenario.
Consequently, you need to evaluate these options in light of factors like your financial fitness, future plans, and sentiments about the house to pick the most suitable solution for you.
3 Best Solutions to Inheriting a House with No Mortgage
1) Sell the House
Selling a deceased person’s house helps you avoid ongoing expenses like homeowner taxes for local services, bills for household utilities, and repairs to maintain the property.
These can be particularly burdensome if you’ve inherited a hoarder’s house or inherited a house that needs work.
So, let’s say you want to sell your parents’ house after their death. You have three options:
- Listing with a real estate agent
- Listing for sale by owner (FSBO)
- Selling to an investor
What happens when you sell a house you inherited differs with the method.
Use FSBO websites when selling yourself. With investors, consider a company that buys inherited property fast.
Selling a home to a cash buyer facilitates selling an inherited house as is. If this is your preferred option, request a cash offer on an inherited house now.
Note that you can sell a house without probate in limited instances. Often, the property can be sold during probate.
Learn more by reading up on how you can sell a house before probate is completed and how to sell the house during probate.
Also, explore whether you have to pay taxes on a house you inherited and how to avoid capital gains tax when selling an inherited property to maximize your proceeds.
And when it’s time to file your tax return, know how to report the sale of inherited home to avoid any penalties.
2) Become a Landlord
Turning your mortgage-free inherited house into a rental is often the most viable choice when you want to keep the property but don’t plan to live there.
With no mortgage, the rental income will likely cover the previously mentioned expenses.
However, you must also consider other costs. These include specialized insurance that covers risks associated with renting out property and the impact of extra income on the taxes you owe.
Additionally, before you allow tenants to move in, you must clear out the property and invest in any repairs or upgrades needed to meet safety regulations or enhance the property’s appeal.
Time-wise, being a landlord involves tenant vetting, rent collection, property upkeep, and tenant evictions unless you hire a company to handle all this.
If you hire out, you’ll need to reduce your profit by the property management costs.
Even with a property management company, you’ll still need to spend time keeping up with landlord-tenant laws and tracking financial information for paying taxes.
So, before selecting this option, you should thoroughly assess your willingness to take on these commitments.
For more guidance on this decision, see our article on considerations when determining whether to rent or sell the inherited house.
3) Make the House Your Residence
Moving into the inherited house is an excellent choice when you want to make the property your own, whether for practical or sentimental reasons.
Of course, if you already own a house, you’ll need to choose between selling that one or renting it out for additional income.
The decision to transition from renting to living in the inherited house is much more straightforward.
Either way, you will want to be clear on how much your new homeownership lifestyle will cost even without a mortgage.
So, assessing your ability to comfortably handle the cost of property taxes, homeowner insurance, utilities, and maintenance is essential when deciding.
Something else to think about is what condition the property is in.
Can you occupy it immediately or does it need fixes or updates first? If the latter is true, what’s the cost of getting the work done?
Another financial consideration for those currently renting is the expense of financial penalties applied if you break your lease to relocate to your new home.
Whether you’re a renter or an owner, also look at how the length of your transition period will impact the amount of overlapping costs you’ll incur for the move.
Final Words
When you are the sole inheritor, you are good to go with your choice.
However, be aware that you do not get the final say when others share ownership, such as sibling co-heirs, no matter what you decide.
All heirs have to agree to sell property. Each heir has a legal interest in the house and may have varying opinions on how to handle the house, depending on their circumstances and how strong their attachment is to the property.
If not everyone agrees, you’ll have to talk it over, and chances are some negotiations will need to occur before the matter is settled.
So, be prepared for those discussions and the time it takes to work through issues and reach a resolution.
What happens if a consensus can’t be reached when deciding if you can sell heir property, rent, or keep it? An alternative may be to buy everybody else out.
That would then allow you to proceed with your preferred plans for the property.
As you weigh the pros and cons in making your choice, keep in mind that your best decision fits with your life goals, financial factors, and family dynamics.
