Inheriting a house brings a whirlwind of new financial and legal responsibilities into what is likely an already stressful time. Making a plan, working with other stakeholders to meet your goals, and seeking professional advice are the best ways to move forward when you inherit a house.
Whether you’ve inherited a loved one’s home on your own or along with other relatives, processing what to do in the aftermath can be a complicated—and emotional—undertaking. From assessing your options to understanding the financial, tax, and legal responsibilities of each choice, there’s a lot to take on.
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What to do when you inherit a house
Inheriting a house is often the result of a loved one’s death. And while it may be a heartfelt way to keep a home in the family, it can also feel fraught with emotion and bring new legal and financial responsibilities in an already stressful time. Between finding new insurance
, taking on a mortgage, assuming other debts, and deciding what to do with the property, knowing where to start can feel like its own challenge. The best place to begin is with a plan. Below, we’ll cover how best to organize your next steps.
Making a plan
Understanding your newfound legal and financial responsibilities is already a daunting task, and knowing which ones to prioritize can feel even harder. However, we can start to simplify some of the processes by creating a timeline for completing these necessary tasks—from planning the immediate days afterward to weeks and months down the line:
Immediately: In the immediate term, you’ll need to make a plan for ongoing maintenance of the home, including any pressing repairs to the property. It’s also a good time to get in touch with legal and financial experts who can better assist you in navigating the inheritance and probate process.
Short-term: In the weeks following, you’ll want to set up a new home insurance policy and take a closer look into the property’s mortgage, property taxes, and any other outstanding debts.
Long-term: Once you’ve addressed more immediate concerns, it’s time to start figuring out your options and deciding on the property’s future. This step may take time, especially if other stakeholders (such as siblings or heirs) are involved.
Repairs
First thing’s first—making necessary repairs to the home is a must, regardless of what you wind up doing with the property. Even if everything seems to be in working order, it’s best to get a professional opinion from a home inspector.
The price of a home inspection can vary depending on the size of your estate, but will typically cost between $200 and $700. It’s also best to have a home appraisal done at this time, which will redefine the fair market value of the property based on its current condition.
Repairs to rent vs. repairs to sell
Depending on what you decide to do with the house, you may need to take on additional repair or renovation projects:
To sell: If you’re planning to sell the property, you’ll need to address any structural or systemic issues in the home (think foundation, HVAC system, plumbing, etc.). These repairs can be costly, but they’re necessary to pass presale inspection.
To rent: If you’re thinking about using the property as a rental, you can get away with making more short-term, aesthetic repairs (like updating the kitchen, lighting, landscaping, etc.).
Mortgages
In the meantime, you’ll have to continue making payments toward the property’s mortgage (if there is one) to avoid foreclosure of the home.
If you’ve inherited a home that’s already paid off, there’s nothing you need to do. In this case, you’ll simply assume ownership of the house. On the other hand, if the property you’ve received isn’t, you’ll want to take a close look at the mortgage details. Knowing the details is crucial to planning—and may help you decide what to do with the property down the line.
Start by checking the property’s title. Running a title search is the easiest way to see if there are any liens, outstanding balances, or debts due on the property. If you’ve checked everywhere and there’s no title in sight, you can request the deceased person’s credit report instead.
In most cases, lenders can work with you on an inherited property—and there are actually federal protections in place to ensure they do so—which makes it easy to add your name to the title and assume the existing mortgage. Alternatively, you may be able to refinance the property yourself.
That said, keep an eye out for these mortgage clauses, which can affect the fate of the property:
Due-on-sale clause: If you find this provision in the details of your mortgage, you may be required to repay your lender in full if (or when) you sell the property.
Reverse mortgages: Popular among homeowners 62 years of age or older, a reverse mortgage allows senior homeowners who hold a considerable stake in their property to borrow against the equity of their home. Once the homeowner has died, however, the loan may be due.
Underwater mortgage: An “underwater” property is one wherein the mortgage on the estate is higher than the home’s value. With these properties, you may encounter issues when refinancing or selling.
Taxes
Inheriting a house doesn’t typically trigger any tax liability. Only six states have an inheritance tax—New Jersey, Pennsylvania, Maryland, Kentucky, Nebraska, and Iowa—and of them, most include exemptions that help protect spouses, children, and grandchildren from being held financially accountable.
Depending on what you decide to do with the house, however, you may become subject to certain taxes, including property taxes and capital gains taxes.
Capital gains and other taxes
You don’t have any inherent tax responsibilities on a property you’ve inherited (unless, of course, you live in a state with inheritance tax), but if your estate is particularly large or you make the decision to sell, you may trigger certain tax liabilities like:
Capital gains taxes: These types of taxes are levied when an inherited property sells above its estimated fair market value. If the sale turnaround is quick—that is, if you inherit and sell the property in less than a year—you’ll face a higher tax percentage than on assets kept for a year or more.
Estate taxes: Most of the time, the average property isn’t large enough to trigger a federal estate tax liability—which, as of 2021, applied only to estates with a combined gross value of $11.7 million or more. However, certain states impose their own estate taxes, so it’s important to seek a professional tax advisor’s opinion.
Property taxes: So long as the home is in your possession, you will have to pay property taxes to avoid foreclosure.
Insurance
You’ll also need to contact the property’s current home insurance company to discuss your options moving forward. In most cases, you’ll need a new policy
written up in your name. Although, some insurers will allow you to maintain the existing policy until its expiry, so long as you continue making the regular payments. If you do need to find new coverage, you’ll typically be allotted up to 30 days for you to do so. Handling home insurance on your inherited property isn’t a task you’ll want to put off for long. If the home goes into probate—the process by which the deceased person’s assets are dispersed according to their will—you won’t be able to get insurance in your name until the process is complete. And, having to find short-term home insurance in the meantime can be costly.
Deciding the fate of your property
Sooner or later, you’ll eventually need to sit down and spend some time considering the fate of the property. If you’re the sole heir, it may come down to a matter of personal preference—and unless there are any liens on the property or clauses snuck into your mortgage, you’ll have the freedom to do as you please.
However, if the property was left to multiple people—like siblings or heirs—determining its fate can get a little more complicated. Everyone with a stake in the property will have a say in how it’s used or sold, and everyone will need to agree before a decision can be legally made.
Discussing your options
There are several ways you may choose to move forward with an inherited property:
Move in: If you’re in a position to do so, moving into an inherited home can be a real boon. But moving in also incurs mortgage, tax, and insurance responsibilities, and that’s on top of needed repairs, renovations, and regular maintenance. Additionally, if there are multiple stakeholders in the property, you may need to buy others out of their share unless you can negotiate another form of settlement.
Rent out: You don’t necessarily have to move in to keep the property in the family! There’s always the option to rent it out, although being a landlord will afford you new challenges and tax liabilities. You may also need to make repairs or renovations before the home can become a viable rental property.
Buy out: If you’ve inherited a property with other relatives and you want to keep it (but they don’t), you’ll likely need to buy them out of their share. Buyouts can be done in two ways—either by financing half of the home’s value or with upfront cash.
Promissory note: Think of this one as a “buyout over time.” As with buyouts, a promissory note will enable you to assume ownership of the inherited property by paying other relatives for their share. Unlike a typical buyout, however, a promissory note allows you to do so over time—typically in monthly installments (plus interest).
Sell the property: Selling an inherited home can provide a sense of closure—and absolve you of the responsibilities that come with a second home. If you decide to sell the property, it’s important to consider whether you plan to list it as-is or fix it up beforehand to get the most out of the sale.
Suit for partition
If coming to a decision feels impossible and you and your relatives can’t agree on what to do with the house, you’ll have to file a suit for partition.
What is a suit for partition, exactly? Basically, it’s when the court asks a judge to order the sale of the property—after which the home must be sold, no matter what.
Filing a suit for partition should be considered a last-case resort. Not only is it a lengthy and expensive legal process, but it may also cause damage to relationships or end in familial tensions for relatives who felt slighted by the decision.
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