How to Manage Inheriting a House
It’s always a tough time when any loved one passes away. And, while there’s loads of emotional baggage to deal with, there’s also loads of paperwork. One of those big jobs is the transfer of ownership of the home.
If this loss is someone in the family, this can become a contentious issue. So, when it comes to inheriting a house in the family, it’s best to regard the first step as being family.
Family Planning
The first step to sorting out is to get everyone on board with the plan. If you have a large family, the property might have multiple stakeholders. After all, a home is a large asset. But with something like a home, it’s often the emotional attachment that’s the most difficult to negotiate.
And it’s emotions that will make dividing the home between family members difficult. But there are options.
If you want to keep the property, but the others are looking to sell it, then you can choose to buy them out. You can finance the buyout either through personal funds or taking out a loan, but usually, the costs and fees involved will fall onto you. Essentially, buying and selling inherited property to a family follows the same protocols as selling to anyone else.
However, if you want to hold on to the inherited property, but the other stakeholders want to sell it and you can’t obtain a mortgage, then you can get a promissory note. A promissory note is basically a legally binding I.O.U. in which you detail how you will pay the other stakeholders for their portion of the home in monthly installments plus interest.
If none of the parties involved want the home, the easiest solution is to sell the home and split the profits. If the property is suitable for renting, then you might also consider turning it into a rental property and splitting the profits at the end of each month.
In the unfortunate event that a decision can’t be reached, then you’ll need to take the matter to court. A lawsuit for partition will need to be filed, and a judge will usually order the home to be sold. In most cases, this is a lose-lose solution.
But if you’re able to come to an agreement, you can start to talk about settling bills and keeping up maintenance on the property.
Keeping the lights on
While you are settling the finer details of the home you will be required to maintain the property that will have no one in it.
An expense that needs to be dealt with is the insurance of the property.
As the original policyholder has passed away, the insurance policy on the property will need to be rewritten. This being said, most insurance companies will give those inheriting the property time to change over policies and coverage - and this period is usually 30 days.
If you are lucky, some agencies will allow the current policy to run its course until it expires, so long as you keep making the payments.
For those where the property goes into probate, this might leave your policy in limbo for a long time. As no one can lay ownership of the property in probate, this means changing names on the policy will be impossible as well.
Short-term insurance could be the solution while the home is in probate but may be rather pricey. However, it is especially needed if the home is vacant, and it’s important to maintain coverage until you can obtain a new policy.
Other day-to-day expenses include:
Landscaping
Water
Electricity
Homeowner Associations
While these may seem like small costs, this is just the beginning, as inheriting a house that is paid off - is rare.
And your family member might not have been able to settle the mortgage.
Mortgage
If you’ve inherited a house with no mortgage - well done! But unfortunately, this is unlikely.
The existing mortgage will still be in place and someone will need to pay the monthly payments. If you miss these payments you risk the property falling into foreclosure.
This means you’d lose the property without any compensation. If you’re unsure, at this moment, whether the property has an outstanding mortgage, you will need to check the home’s title, which will list the lender on it.
You could also apply for, or request, a credit report for the person who has passed away.
If the property is underwater — meaning that the debt due is higher than the house's value — then you can negotiate with the bank to perform a short sale. Short selling an inherited house means that the bank has agreed to accept less money than the full amount due on the loan.
If you’re inheriting a house from someone who had multiple assets of value under their name, then the sale of them might cover the cost of the mortgage.
It’s possible that the home had a reverse mortgage placed on it by the original owner. A reverse mortgage is usually used by retirees who want to leverage their home’s equity for a monthly income. In this case, whoever inherits the house then has a window of opportunity to pay off the balance in order to keep it. If you’ve taken on a home with a reverse mortgage, the repayment of the balance due is usually procured through either selling the home or taking out a new loan under your name.
The property may have a mortgage with a due-on-sale clause. A due-on-sale clause is enacted when the original debtor transfers the property, making the mortgage due in its entirety. This is usually the case when it’s been transferred to a non-family member. If the property is transferred to a family member, then they may be eligible to take on the current mortgage installments. So, if you’re wondering, “can I inherit my parents’ house?” check with them to see if they have a due-on-sale clause with their mortgage.
On the other hand, while there might not be any mortgage on the property, you could have to pay taxes.
Taxes
If a house is left to you in a will, you might not know who’s responsible for paying taxes.
In most cases, inheriting a house doesn’t automatically make you liable for the taxes on the home. However, this is dependent on the state that the property is in. There is no federal inheritance tax, so each state has drafted its own statutes regarding how inheritance taxes are structured.
Once you’ve inherited a home, a fair market value (FMV) is determined by the IRS, creating a step-up basis. A step-up basis is used when an asset is transferred through inheritance to establish its current value. When selling inherited property, the step-up in basis will be used to determine taxes.
The step-up basis helps alleviate some of the tax burdens of selling an inherited property. When selling a home for profit, you’re subjected to capital gains tax. The step-up basis helps in this situation because if you sell your inherited house for a profit, you’re only subjected to tax on the profit above the new FMV.
For example, if you inherited a home that was originally purchased for $50,000, but after inheriting it, its FMV is established at $100,000, and it sold for $120,000, then you’re only taxed on the $20,000 profit above FMV.
It’s possible to be exempt entirely from capital gains tax if you fulfill certain prerequisites. But we’ll get into those details when selling an inherited property.
If there are multiple members who have left the property in the will you will need to address a few things before you start making plans.
What can you do with inherited property?
So, you’ve gone through the process of inheriting a house, you know the debt involved, all the stakeholders are in agreement, and the house seems to be in proper order after an inspection. Now all you have to do is decide on what to do with it.
Move in
An easy option, if you're able to obtain a mortgage, is to just move into the house.
If the house is an upgrade to your current living situation and the mortgage isn’t more than the home is worth, then you can keep the home in the family, allowing your kids to make memories just like you did.
Also, by moving in you’re allowing yourself to be exempt entirely from capital gains tax if you fulfill certain prerequisites. The first prerequisite is that you must make the property your primary residence for a minimum of two years out of a five-year period. Second, you cannot have used the capital gains exclusion on another residence within two years before the sale.
If you meet these requirements, then you’re exempt from up to $250,000 of the profit if you’re filing your taxes as an individual, or $500,00 if filing with a spouse.
Which is rather useful. For those not interested in moving into the property, you can rent it.
Rent it
If you’re happy with your current living situation, or if you’re inheriting a house that you can’t afford to pay the mortgage for, but is still in good shape, then you might consider turning it into a rental property.
However, being a landlord isn’t always an easy job. While you can outsource a lot of the duties, you’re ultimately responsible for maintaining a house that someone else has turned into their home.
There are obligations and taxes that come along with the passive income you’re generating. One of the tax implications you need to consider when converting inherited property into a rental is that you are no longer eligible for capital gains exclusion. As a positive, the taxes on the rental income you will be subjected to come at lower rates than the standard income you've generated.
The last step is to answer the question, “I inherited a house and want to sell it as well as everything inside - but how?”
Everything has to go!
You either love it or you have to list it! When you come into possession of an inherited property, sometimes the best thing is to sell all the items.
This is especially true if you’re not that close with the deceased. An estate sale could be the easiest way to tap into a lump sum of cash if you need to pay off the outstanding amount on the mortgage.
The next step is selling the inherited house!
This being said before you sell the property you might need to renovate parts of the home.
Unless you can find a cash buyer to purchase the home “as-is” like House Buyers of America does.
But why choose to go with a iBuying house service?
Why trust House Buyers of America to buy your home?
Since 2001, House Buyers of America has bought and sold homes in Maryland, Virginia, and Washington, DC. During this time we’ve innovated the real estate game, as well as impressed thousands of customers.
It’s this longevity and success that sets us apart. And if you don’t trust us, you can trust our hundreds of references.
Currently, we have over 100 reviews with 5 stars, with testimonies from a select few! Most of these reviews highlight that House Buyers of America will:
Sell houses fast
Pay cash for homes
Treat you with the utmost respect
House Buyers of America has also earned an A+ rating with the Better Business Bureau (BBB), which is an organization that helps United States consumers find businesses they can trust.
But it’s our positive rating on Facebook and Google we’re most proud of, with hundreds of positive reviews.
When you’re selling your home, you want to be 100% sure that you can trust the company you’ve contracted to help you. And nothing will put your mind at ease more than reading our clients’ reviews of our services.
And because our clients have spoken about us with such fondness, we’ve been asked to contribute thought leader comments to various publications.
Submitting our professional opinion to America’s most trusted media outlets, like:
USA Today
The Wall Street Journal
CBS News
ABC
NBC
And Fox
But how does House Buyers of America work?
How House Buyers of America works
We’ve ensured that every step is simple, quick, and efficient. That’s why our first step is you approaching us. Simply give us a call at 855-659-3289 or use our online form to get started!
Within 10 minutes, if the call is made during office hours, we will have a fair cash offer for your property.
Once we’ve gathered your information, we will arrange a time for us to come by the house to finalize that important paperwork. And once you’ve signed on the dotted line, the money will be in your bank account in a matter of days.
It’s never been easier to sell your house fast.
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After the purchase agreement is signed, your home sale is covered and you can start looking for a new home without worrying about selling your existing home. Divorce Divorce can be a huge disruptor, emotionally and financially. In most cases, the divorced couple needs to sell their house fast so they can divvy up the assets and make a clean break. Many in a divorce situation look for a “sell my house fast Maryland” company so they can sell their house without having to go through the arduous process of a traditional sale. Finding a real estate agent, renovating, cleaning, and staging the house, agreeing on a list price, negotiating the terms of the contract, etc. This is normally a stressful enough task, but if you add divorce into the mix, it feels impossible. Why not pick up the phone and get an offer in 10 minutes? Or simply fill out our online form and get an offer quickly. 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Others simply want a hassle-free solution for downsizing into a smaller home and want equity in their legacy home. Estate Sales House Buyers of America have also helped thousands of people who have suddenly inherited an unwanted or unneeded property. When dealing with an estate, many heirs can’t decide or agree on when to sell the house or who will take care of the paperwork, so the house is left sitting vacant and deteriorating for months or years. Estate sales can bring out the worst in people and families often get torn apart in the process. The traditional real estate process can be complicated and often doesn’t work well for estate sales. The unique estate laws that apply in Maryland can also create some additional complications. So why not try a simple, fast, and hassle-free solution that all of your family members can agree on? Get an all-cash offer in as little as 10 minutes by contacting House Buyers of America. 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