You’ve Inherited a House! Now What?
Inheriting a house through a will or trust can be a monumental event for anyone. Maybe you knew that you were going to inherit the property, or maybe it came as a complete surprise. Perhaps you’ve inherited the home by yourself or maybe you and your siblings each inherited an equal share of the property.
From a financial standpoint, inheriting a house that is paid off can be quite different from inheriting one with a mortgage. In some cases, you might inherit the house free and clear, but in other cases, the outstanding balance on the mortgage can become your responsibility.
No matter the specifics of your situation, you might need to understand what you’ve inherited, whom you share the inheritance with, what liens (including but not limited to mortgages) are attached to the property, and so forth.
An attorney or executor may clearly provide that information to you, or you may need to be more proactive in finding out specifics. No two inheritance situations are exactly alike, but this post could help guide you through common scenarios.
Laws Vary By State
Inheritance situations can be reasonably simple or quite complex, and what’s true in one state isn’t necessarily so in another. Any questions you have about the legalities of your particular situation could be addressed with an estate attorney well versed in the laws of your state.
An article in the Washington Post shares insights into how the process might work with a sole heir. The article states that, when a home is willed to someone, that person has a “right to ownership,” but he or she doesn’t actually own the home until the title is transferred into that person’s name.
When someone dies and leaves a will, that will is typically presented to a probate court judge, (although not all wills are probated ). That judge would then review the will. Typically, a will contains the name of an executor—the person whom the deceased wants to handle any necessary details to carry out the wishes listed in the will.
The probate court judge may approve the name of the executor listed in the will or name someone else for the task. Once there is an executor, that person has the “fiduciary duty ” to make sure the terms of the will are carried out.
Specific duties of an executor can include:
• Locating all assets of the deceased and keeping them safe until distributed.
• Finding people named in the will to receive an inheritance.
• Letting the Social Security Administration know to stop providing benefits, if relevant.
• Canceling the person’s credit cards.
• Setting up a bank account to address issues related to the deceased person’s estate.
• Paying off creditors and filing and paying final income taxes.
• Making sure property goes to the right heirs.
Immediate Steps Related to the House
Actions that might need to be taken fairly quickly by the executor include making a few important calls, AARP.org notes, such as these:
• Contact the insurance company that’s providing homeowners insurance for the property to keep coverage from lapsing.
• Call utility companies and cancel accounts that aren’t necessary (for example, cable television if no one will be living in the home right now) and make arrangements to pay those that are necessary (heat, light, water, trash pick-up).
• Determine how to keep up the yard. Maybe you’ll mow it yourself or maybe you’ll contract it out.
It’s important to know whether there is a mortgage (or more than one) on the property. If so, the executor will need to identify the mortgage holder to keep up the payments. He or she will also need to find out what’s included in the payment.
For example, are property taxes included? If not, property taxes will need paid separately and, when you inherit a home—with a mortgage or free and clear—you may need to pay property taxes as soon as you inherit.
When you inherit, the home can be reassessed at current market value, which may cause an increase in what is owed on property taxes. If you have questions about property taxes, insurance, and the like, the executor of the estate might be a good resource.
The home may be full of furniture and belongings of the deceased, and they might need to be appropriately distributed. If, say, you and your siblings inherited the home, the will might specifically list who gets what (at least for large items). Or it may be that you will need to do your best to evenly divide what’s there among the people who inherit.
Move In, Rent, or Sell?
Decisions also need to be made about what to do with the house itself. You might want to move in yourself, but if you and your siblings inherited together as joint owners, you might need to agree on a plan. (If you can’t agree, you may need to rely upon the court system to sort out the differing points of view.)
If you’re the one who wants to live in the home and your siblings aren’t interested, you could pay them rent or you could refinance the home into your name , paying off your siblings with an agreed-upon amount.
You could rent the house to someone else as a source of income and divide the proceeds among joint heirs. This might get complicated, though, if the renter damages the property, doesn’t pay rent and needs to be evicted, and so forth. One option is to hire a professional property manager to handle these tasks for you. You also might need to make sure there are no safety issues or address ones that exist, get a landlord insurance policy , and other tasks.
Or you could sell the house. You may need to pay capital gains tax on any increase in value that occurs between the time you inherit the property and when it’s sold. If you decide to sell, you may want to ask a real estate agent if renovations would add enough value to make them worthwhile or if the property should be sold as is.
Bringing a House Up to Date
Whether you plan to rent, sell, or move in, you might decide to renovate. To help, SoFi created a list of ideas with the potential to increase the home’s value, which include:
• Kitchen renovations: They could range from cabinet replacements and new countertops to brand new appliances, lighting, and more. Energy-efficient appliances could provide cost savings.
• Carpeting replacement: You could get new carpeting, hardwood floors, tile, cork, bamboo—whatever makes sense for your situation.
Bathroom updates: Remodeling the bathroom can give it a brand new look and could boost the home’s value, while water-saving toilets and low-flow faucets could save you money.
• Landscaping and other outdoor renovations: This could include a new deck, creating a garden waterfall, and much more.
• Basement finishing: You could create an extra bedroom, a game room, a second living room, or whatever else makes sense.
• Roof and/or window replacements: The roof is what protects your home and residents from the elements, and a new roof can last 20 to 30 years . New windows can save money on energy costs, year-round.
We’ve also created suggestions to improve living space, including several ideas for DIY bookshelves that could spruce up the appearance of a room while making it easier to minimize clutter. There’s even info about a secret door bookcase (seriously!) that someone handy could make for less than $500.
Once you’ve made your improvements, you might decide that you’d like to live in this house, after all, rather than selling or renting it. You could buy out other heirs if there is enough equity in the home to pay off any liens and also give the other heirs the agreed-upon sum of money. If there isn’t, and you can make up the difference in cash, that could work as well.
Liens would be identified through a title search , which is part of refinancing a property, or you could order a title search on your own. Sometimes, surprises happen with unexpected liens being discovered, so plan enough time for this process to take place.
Refinancing With SoFi
In some circumstances, you may decide to refinance an inherited house. If the home has a mortgage, you may decide to refinance to get a better rate or to cash out some equity in the property. Or you might refinance to pay off co-heirs —this could involve a mortgaged home or one that’s free and clear. You might hear this type of refinance referred to a CashOut Refinance.
If you do decide to refinance, then applying for a mortgage refinance with SoFi is fast, easy, and convenient, and there are no hidden fees. No catch.
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