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The death of a loved one can trigger many strong emotions—grief, anger, disbelief, or even guilt. Those emotions can be compounded if you also have to deal with your loved one’s estate, as the process of executing a will or estate plan can be stressful, and at times positively overwhelming.
Before taking any steps, you’ll need to decide what you want to do with the house. If you’re the sole heir this can be a relatively quick decision—though you won’t want to act too quickly, as grief can cloud major decisions like this. But if you’re one of several heirs, you’ll need to work with your co-inheritors to determine what you want to do with the house. Disagreements over this decision can lead to family rifts, which only add to the overall stress of the process.
There are three main options you’ll need to consider when deciding what to do with an inherited house once you’ve gone through the probate process. You can either keep it and take over the mortgage (if there is one), sell it and divide the profits among heirs, or rent it out. Each option is detailed below.
Option 1: Keeping the House
If you’re the sole heir and want to keep the home, or if the co-inheritors agree to let one heir buy the others out, there are several steps you’ll need to take to make sure everything is in order.
Step 1: Look into financing options.
Does the home have an existing mortgage? If so, you’ll need to see if you can add your name to the loan to continue to repay it. Once your name is on the loan, you can look into refinancing to lock in a lower interest rate if you qualify for it. Alternatively, you can choose to pay off the mortgage—this can be a good option if you also received a life insurance payout following your loved one’s death. You’ll also want to check and see if there are any additional liens on the home that will need to be repaid, or any outstanding property taxes.
If you’re not the only inheritor, you’ll need to work with the other heirs to come up with a solution. This may involve your buying out the others so the property will be in your name only, but if you don’t have the money to buy them out and refinancing isn’t an option, you’ll need to consider alternatives.
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Step 2: Plan for property taxes and homeowners insurance.
In addition to paying for the home itself, you’ll want to make sure you budget for the homeowners insurance premiums and property taxes, which are typically paid as part of the mortgage in a lump sum and kept in an escrow account until the premiums are due. If there is no mortgage, you can still choose to pay monthly into an escrow account, or you can pay the premiums directly.
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Step 3: Move into the home.
Once all the financial aspects have been taken care of, you’ll be able to move into the home. Because you’ll be the one living there, you’ll be able to decide whether you want to redecorate or leave the home as close to its original state as possible. It may be a good idea to put off any major remodeling or decorating projects while you process your grief, since moving too quickly on significant projects can lead to regret down the road.
Option 2: Selling the House
Upon inheriting a house, many people choose to sell it in order to pay off the mortgage or pocket the money made from the sale. If you and any other heirs simply don’t want to take on a mortgage, you should move quickly. Once it’s determined that selling the family home is the best course of action, you’ll need to make sure you understand everything that goes into the process.
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Step 1: Clean out the clutter.
Over the years of ownership, a home’s residents can accumulate a lot of clutter. If you inherit a home from a loved one upon their death, clearing out the clutter can be a hard task. There are probably many items with sentimental value, and it can be hard to choose whether to keep or part with certain things.
If possible, take some time to process your grief before you try to clear out the home. You can also enlist the help of a family member or two, or even hire a professional organizer to help you go through items and sort them into piles to keep, toss, or donate. Having an impartial third party can be helpful since that person won’t have any emotional attachment to the items in the home and can view them with a clear eye, helping you make decisions that would be hard to make alone.
Step 2: Make any necessary repairs and updates.
When you inherit a family home, it’s unlikely to be sale-ready. Especially if the house has been in the family for years, you’ll probably need to make repairs and strategic updates before you can list the house—at least if you want to get a decent offer.
Making a to-do list of projects can help you get organized and determine what needs to be done. Prioritize each item on the list and tackle the higher priority projects first. These will typically be repairs to problems with the home’s structure that would be noted by a home inspector during the selling process—things like fixing water damage and making repairs to the roof and foundation. Once those major repairs are complete, you can decide whether you want to address more cosmetic updates, such as painting, carpet replacement, or minor kitchen and bathroom renovations. The more work you put into the most popular updates, the better your chances of getting top dollar from a buyer. But if you don’t have the funds to complete all these tasks, it’s best to focus just on the top priority items.
Step 3: Make sure the financials are covered.
Even if you plan on selling the home, you’ll want to make sure the mortgage, property taxes, and homeowners insurance premiums are being paid. Failure to pay the mortgage can result in foreclosure, which means you’d lose the house to the bank. Many lenders also require a homeowner to carry insurance—and even if the home doesn’t have a mortgage, it’s still highly recommended that you continue to insure it in case a disaster occurs.
Dealing with the financials may require a conversation between you and any other heirs, especially if you don’t have the money on hand to cover these expenses. You can also consult a financial adviser to get help navigating these expenses between the time you inherit the home and the time the sale closes.
Step 4: Contact a real estate agent and list the home for sale.
Once you have the financials straightened out and any work on the home completed, you can list it for sale. A real estate agent can help make the process easier by scheduling an appraisal, recommending a listing price, and organizing viewings on your behalf. Depending on the market and the list price, the home may sell quickly or it may sit on the market for a while; in this case, your real estate agent may advise you to drop the list price to entice more buyers.
Once you have an offer and the home inspection is complete, it will be time to close on the house. At closing, all heirs of the property will need to be present so they can sign the required documents to transfer ownership. If any of the heirs live out of town and cannot make it, they may have the option to sign the documents virtually instead. Be sure to mention this to your real estate agent if this is the case.
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Step 4: Use the proceeds of the sale to pay off debts and then split the remainder between the heirs.
After closing, you will need to use the proceeds to pay off any debts on the home, such as a mortgage, liens, or outstanding taxes. There will also likely be capital gains taxes to pay. This is a type of tax paid on any difference between the home’s value at the time it was inherited and the final selling price. For example, if it was determined that the home was worth $250,000 at the time of the previous owner’s death and you sold it for $265,000 a few months later, you would need to pay capital gains taxes on that $15,000.
Once these have all been paid, you can then split the remaining proceeds between the heirs.
Option 3: Renting Out the House
If you and any co-inheritors can’t agree on what to do with the home, renting may be a good option. This allows you to keep the property and generate income to help pay for the mortgage, taxes, insurance, and maintenance. Renting out the home may also be a good long-term choice if the heirs all agree on this option.
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Step 1: Remove clutter and make repairs.
Just as you would if you were to sell the home, you’ll need to get the home ready for tenants by removing your loved one’s personal belongings and making necessary repairs. While you won’t have a home inspection to deal with, you’ll still want to make sure the house is in good shape because you, as the landlord, will be responsible for any repairs down the road. Freshening up the home’s decor can help it stand out to potential tenants and make it easier to rent out.
Step 2: Take out a landlord insurance policy.
Landlord insurance is a type of property insurance specifically designed for rental properties. This type of insurance covers the structure of the home and potentially any unattached structures, as well as liability and loss of income. It can also cover certain personal property that belongs to the landlord, but not the renter’s personal property. They’ll need to take out a renters insurance policy for this, and you may choose to require tenants to carry renters insurance as part of the rental agreement.n
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Step 3: List the home on a rental site or through a rental agency.
Once the home is ready for renters, it’s time to start spreading the word. You might choose to list the property yourself on some of the best rental listing sites, such as Zillow or Apartments.com, or you may decide to work with a property management company or rental agency. Either way, you’ll want to make sure you vet applicants by performing a background check and requiring a security deposit (and/or an advance payment on rent). If a tenant causes property damage, you can retain their deposit to help pay for repairs.
Step 3: Keep up with maintenance.
Once you have tenants living in the home, you’ll still be responsible for regular maintenance and repair of any potential problems. For example, if the home’s hot water heater breaks, it will be your responsibility to fix or replace it, not the tenant’s. You may prefer to use a property management company to deal with these requests, or if you’re handy you may choose to handle repairs yourself. But if you fail to make repairs or perform maintenance as needed, you risk losing your tenants and damaging your reputation as a landlord.
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While in theory the thought of inheriting a home can be exciting, in practice it can be a long and stressful process. It’s so difficult to make major decisions about what to do with a home following the death of a loved one and in the wake of so many emotions, with grief usually leading the charge. With a plan in place, however, the process of buying, selling, or renting out an inherited property can become less daunting.