If you’ve inherited a house with no mortgage, that’s miles better than finding yourself responsible for a property with liens and mortgages pending. Especially, when you know what happens if you inherit a house with a mortgage. Nonetheless, you have some critical choices to make, whether you are selling a house, renting it out, living in it, or making use of a home buy-back program. This is your guide.
When you’re gifted with objects or property rather than cash, you have to decide what to do with them—and how to handle the tax implications of your chosen route.
An inherited house with no mortgage can still come with a lengthy list of expenses and tasks. You’ll need to find out if it’s in good repair, what the current market value is, and whether its location restricts what you can reasonably do with it.
First Steps When You Inherited a House With No Mortgage
What happens if you inherited a house with no mortgage? Before deciding what to do with it, you need to gather some critical information. To start:
- Identify ongoing and pending expenses such as utilities, taxes (capital gains tax, inheritance tax, estate tax), and housing association fees
- Find out the current market value of the home by consulting comparable listings or hiring an appraiser
- Consult with any other parties if there are co-inheritors or any interested family member
Once you have this information in hand, you’re ready to explore your options for an inherited property as well as their pros and cons.
1. Keep It and Move-In
The simplest option is to take over the house you inherited with no mortgage as your new homestead. If the location works for you and the house is an improvement on your current living situation, then pack up and settle into a new home.
The pros may be obvious. You can:
- Stop paying rent or your current mortgage (if you can rent and sell your other home)
- Move into a home that may have family or emotional connections
- Hold on to the home for future investment or resale needs
- Apply for a cash-out refinance mortgage if you want to access some home equity
However, there are also some potential downsides.
- You’ll move into an as-is property rather than one that’s move-in ready
- You might have to sacrifice your preferences in favor of moving into a “free” home
- There may be another family member who isn’t happy you’ve inherited this home
Fortunately, if you are inheriting a house with siblings, there are easy-to-follow guides on how to refinance an inherited property to buy out heirs.
2. Sell Through a Real Estate Agent
Should I sell my inherited house? If your new property or inherited house with no mortgage is not your dream house, consider putting it up for sale to help make other dreams come true. Planning a traditional sale through a real estate agent gives you someone who can provide guidance on the process and how to maximize your profit potential.
Potential benefits include converting the property to cash without moving or disrupting your living circumstances
However, there are some clear potential pitfalls:
- Out-of-pocket costs before the sale: repairs, appraisal, staging
- Time and work involved in deep cleaning and preparing a house for sale
- Reduced profit due to closing costs (1-3%), realtor commission (5-6%), and taxes
3. Sell to an iBuyer
As an alternative to traditional sales, instant buyers (or iBuyers) are investment and reselling companies that rely on predictive data to analyze recent similar home sales and make an offer on your home.
You may experience benefits like the following:
- A speedy resolution, with an offer in as little as 24 hours and a quick closing
- The ability to sell your home in as-is condition without investing in repairs
- The option to approach multiple iBuyers and compare offers
However, with speed comes some potential sacrifices:
- Accepting a below-market value price on the property
- Losing out on future profit if the market is unfavorable
- Making long-term decisions while you may still be mourning
4. Keep as a Rental Property
Not sure exactly what you want to do long-term with the inherited house with no mortgage? Renting out the home gives you earning potential and time to decide.
- A rental income stream that isn’t offset by any monthly mortgage loan payments
- Maintaining ownership of the property for future sale profits
- The flexibility to earn money now and move into the house later if desired
There are still a few potential drawbacks:
- Preparing the house for renters may be as much work as preparing for a sale
- The work of being a landlord or the expense of hiring a property management company
- Dealing with property damage or evictions if you do decide to sell
5. Move Into the House and Receive Cash for Its Equity
Accessing the home equity of an inherited house with no mortgage used to require either taking out a mortgage loan or selling an inherited property entirely. A new option is to work with a sale-leaseback program to convert home equity into cash while also moving into your new home. How does this work? You sell your home and convert the home equity of your inherited home to cash. Should you decide that you want to live in the inherited property, you can lease back the home for as long as you’d like.
This solution will allow you to:
- Move into a new home with no monthly mortgage payment or rental payments
- Avoid lender limitations of rates based on credit scores and debt-to-income ratio
- Keep money that would be spent on upgrades and fees for a house sale
Sale-Leaseback: The Best of Both Worlds
What happens if you inherited a house with no mortgage? Inheriting a paid-off property may seem like a choice between two excellent outcomes, each with pros and cons: the house or the money. But if you want to keep your inherited house to live in and also convert its equity to travel, pay off debt, or invest, it’s time to explore choice #5.
Sale-leaseback solutions allow you to convert the home equity to cash without taking on a new mortgage or moving out.
If you’ve inherited a house with no mortgage, there are important steps to take and a few different options available to you. Talk to a financial and real estate advisor about your next steps.
- OpenDoor. How much will I make selling my house? https://www.opendoor.com/w/home-sale-calculator