The last thing you need is to inherit a house and live with the burden of another mortgage. But what if your parents left you their home and it’s not paid off? It can be tempting to put the property on the market and sell – but this might not be an option. So first off, don’t panic; you have time to decide what is best for you as nothing can be done until probate is complete.
Probate is the legal process where the executors of a will settle debts and wrap up the deceased’s affairs before distributing assets to the beneficiaries – and the process of probate could take up to a year to complete.
If you inherit a property with a mortgage, you become responsible for meeting the mortgage repayments, even if you don’t live there. If you’re lucky, the deceased may have a life insurance policy covering the outstanding mortgage. But, if there’s no policy, or the amount isn’t enough to pay the mortgage off, once probate is settled and the property has been officially released, you generally have two options:
Sell the property and use the proceeds from the sale to settle any outstanding amounts.
Selling up when you inherit property can be a tough and stressful job. There is always a lot to do, and it could be tricky with factors like the property is far from where you live. There could also be emotion involved if it is a family home. One of the first things you need to do is clear the property of its contents. You will want to sell some items, donate some to charity, and there will be things you want to keep.
Many people renovate inherited properties before they put them on the market. Sometimes the property had elderly owners, so the house may need some repair, or the décor needs a revamp. For example, you may want to remove old wallpaper or carpets and redecorate or take things up a level by redoing the kitchen and bathrooms, making it more appealing for potential buyers.
Before you start ripping out kitchens, set up appointments with two or three estate agents so they can value the property, they will guide you with details on what the property is worth and how much you could add with doing some renovations.
Once your property is listed on the market, selling it is no different from selling any other home. However, don’t forget you may have to pay inheritance tax or capital gains tax on the proceeds.
As the price of property increases all the time – there’s an excellent chance that you will profit from the sale of the inherited property. These funds could be used towards your existing mortgage or used as a deposit towards your dream home.
Keep the property
When ownership of the property has been transferred to you, and there’s a mortgage on the home, you’ll need to transfer it into your name – either with the same lender or by setting up a new mortgage arrangement, and you’ll have to pass the usual affordability and credit checks.
If you are in a position where you can sell off some assets to pay off the mortgage, you won’t need to go through the process of applying for a mortgage – this always helps. Whatever way you decide on, if you’re lucky enough to own the property outright, then you can make arrangements for you and your family to move in or earn added income by renting it out.
If the property inheritance includes other family members, like your siblings, you all need to sit down and have an open and honest discussion. For example, one may want to sell, meaning you’ll either need to buy them out or you may have to sell your share too.
If they want to keep the property, you need to discuss what joint property ownership will entail. For example, if you decide to rent it out, who will oversee any day to day issues and who will be responsible for any maintenance? Maybe one person wants to stay and live in the house while another sibling may wish to use it as a rental for added income.
Inheriting a house with others can make things complicated. First, you need to agree on how things are handled, as none of you wants to argue it out in court. This is a process that takes some time and costs a lot of money. On top of that, the property will need to be maintained during this time.
As you can see, both options bring their own pros and cons to the table. Of course, it’s always best to get expert legal advice in complicated matters such as these.