Inheriting a House with a Mortgage

Many people want to pass on the family home to their heirs. However, since few of us have the means to buy a house in cash, that can mean inheriting a house with a mortgage. As an heir, you may wonder how to handle it if someone leaves you a house with a mortgage.

Will or Trust

There are two ways to get a house with a mortgage. First, the decedent may have placed the real property in trust. In a trust, you can pass assets to other family members outside of the probate process. Additionally, a trust can let the deceased put conditions on the assets. So, the trust may do things like prevent you from selling the property. If the property in question is in a trust, you may need to contact a wills and estates attorney to determine how the trust provisions impact your ability to dispose of the property.

Mortgage is a Debt

A mortgage is a debt owed by the person who holds it. If someone dies with a mortgage on a home, then the estate owes that money to the bank. So, what happens if you want to be able to keep a home that has a mortgage on it? It is important to understand the probate process to understand how the executor can handle distributing assets that are mortgaged.

Selling or Keeping the Home

Many people choose to sell a house they are inheriting with a mortgage. Either the executor or the heirs can sell the home and pay off the mortgage, just like you would do if the home was owned by an individual. That is a relatively simple process.

It is more complicated if you want to keep the house. You might continue making the payments on the mortgage. However, lenders may not allow you to do that. Instead, they may require you to refinance the home and get your own mortgage. You could also pay off the mortgage in other ways.

Deciding whether to sell or keep the home means looking at the actual value of the home. To do that, you need to know what the home is worth versus how much you owe on the home. You also want to know what it costs for upkeep and utilities, to determine whether you can afford to keep the home. Keep in mind that inherited property can give you a great entry into becoming a landlord.

Tax Consequences

There can be tax consequences to the sale of a home. The step up means that you do not have to pay the same capital gains taxes that an individual would pay on the real property. However, if you hold onto property and sell after a few years, you may have a huge tax burden.