Inherited a house? Your mortgage options

Inheriting a home

Inheriting property is often bittersweet - you've lost someone, but they've left you something valuable. Now you need to figure out what to do with it.

The mortgage situation depends on several factors: whether there's an existing loan, whether you want to keep the property, and whether you're sharing the inheritance with siblings.

If the home is paid off

This is the simplest scenario. You inherit the property free and clear. Your options:

Keep it and live there - Move in. The property is yours with no mortgage payment.

Keep it as a rental - Rent it out for income. You may want to get a HELOC or cash-out refinance later if you need funds for repairs or other investments.

Sell it - If you don't want the property, sell it and keep the proceeds.

Buy out siblings - If you inherited with others and want sole ownership, you can get a mortgage to pay them their share.

If there's an existing mortgage

This is where it gets more interesting. Federal law (the Garn-St. Germain Act) protects family members who inherit property. The lender cannot call the loan due just because ownership transferred through inheritance.

Your options:

Keep paying the existing mortgage - You can simply continue making payments. The loan stays in the deceased's name, but you're responsible for it. Some people do this for years.

Assume the mortgage - Formally take over the loan in your name. Not all loans are assumable, but FHA and VA loans typically are. Conventional loans sometimes allow assumption for inherited properties.

Refinance into your own loan - This puts the mortgage in your name, potentially at a better rate, and lets you adjust the terms. This is often the cleanest option.

Sell the property - Pay off the existing mortgage from sale proceeds and keep the difference.

Buying out co-inheritors

If you inherited with siblings and want to keep the property yourself, you'll need to buy out their shares. This typically requires a mortgage.

Example: You and two siblings inherit a home worth $450,000. Each of you owns 1/3, worth $150,000. To buy out your siblings, you'd need a mortgage for $300,000 to pay them their shares.

We can help structure this as a purchase transaction. You're essentially buying 2/3 of the home from your siblings.

Reverse mortgage complications

If the deceased had a reverse mortgage, the situation is different. Reverse mortgages become due when the borrower dies. You typically have options:

• Pay off the balance - Refinance or pay cash to keep the home
• Sell the home - Use proceeds to pay off the reverse mortgage
• Deed the property to the lender - Walk away if the home is worth less than owed (reverse mortgages are non-recourse)

The lender must give heirs time to decide and arrange financing. Don't feel rushed, but do communicate with them.

Tax considerations

Inherited property gets a "stepped-up basis" for tax purposes. This means if you sell, you only pay capital gains tax on appreciation since you inherited it, not since the deceased bought it.

Example: Your parent bought a home for $100,000 in 1990. It's worth $400,000 when you inherit it. If you sell for $410,000, you only pay capital gains on $10,000 - not $310,000.

This is a significant tax benefit. Talk to a tax professional about your specific situation.

Property condition issues

Inherited homes sometimes need work. If the property needs significant repairs:

• Renovation loans - Finance both the purchase (buyout) and repairs in one loan
• Fix first, refinance later - Make repairs with other funds, then refinance based on improved value
• Sell as-is - If repairs aren't feasible, sell to an investor or at a discount

We can help you evaluate what makes sense based on the property's condition and potential value.

What to do first

If you've recently inherited property:

1. Don't rush - You have time to make decisions. Probate takes months anyway.
2. Understand the existing mortgage - Contact the servicer to find out the balance, rate, and payment.
3. Get the property appraised - Know what it's worth before deciding what to do.
4. Talk to co-heirs - If you share the inheritance, discuss everyone's preferences early.
5. Consult professionals - Talk to an estate attorney about probate, a CPA about taxes, and us about mortgage options.

We can help

Inherited property situations can be complicated, but we've helped many families work through them. Whether you want to keep the home, buy out siblings, or understand your refinancing options, we're here to help you figure out the best path forward.

Schedule a call to discuss your situation.