Inheriting a House without a Mortgage

Hey guys, this is Mike from Mike Buys Houses. I was recently speaking to a homeowner who was going through the probate process and she had inherited a house with no mortgage from her parents.

So, technically she inherited a free and clear property. Therefore, she reached out to me to find out what options she had to sell this inherited property. We discussed what those options are with regards to selling her property that she inherited without a mortgage and what the best way to move forward would be for her. She wanted to not only best maximize her profit, but she also wanted to honor the memory of her loved ones.

Paperwork for Inherited Houses without a Mortgage

When inheriting a house, whether there’s a mortgage or not, one of the most important things that I always stress is to just start collecting the paperwork early. It’s always super helpful to have all of the paperwork available if and when you need it. 

So things you are going to be looking for are: 

  • Mortgage payoff statements – whenever the last mortgage statement is, whether that’s from years ago proving that the house is paid off or a current mortgage statement. 
  • Death certificate – As far as the will goes, a death certificate and after that you’re definitely going to want to reach out to a probate attorney in your area, if that’s the route you need to go.

Of course, if you are not sure what your next best step is, feel free to reach out to me at 267-984-4765 or fill out the form below. 

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Probate Process and Debt Balancing

Typically, you will want to go through the probate process to transfer title if that’s something that you’re going to have to get done. Usually after someone passes away, the house is considered an asset of the estate, so the probate process is what allows you to take over that property.

When you have inherited a house with no mortgage, or are inheriting a house in general, or an asset after the loss of a loved one, you’re also going to inherit the debts and the bills that go along with those assets. Typically, an inherited house is going to go through the probate process along with the rest of the assets and the liabilities of someone’s estate. At the end of that process, the estate’s assets and liabilities will be tallied up, to ensure that all the debts are paid off using the assets on hand. At that point, if the house needs to be sold to cover some debts, then that is something that could be explored. You could always cover those debts yourself if that’s something that you would want to explore as well. 

Once all the debts and the assets are calculated, the house is then able to pass on to the descendants, again, assuming that there’s no liabilities that need to be paid with that asset. 

It is at this point when the homeowners are going to have to determine what they’re going to do with the newly inherited property. As I mentioned previously, a house like this will come with the cash flow if it’s an income producing property, but it also comes with the liabilities and challenges. Simply put, from that point on, all payments are going to then be passed on to the new homeowner. 

Expenses with a Home without a Mortgage

If you are reading this, then it is likely that the property you’re inheriting doesn’t have a mortgage. If that is the case, what kind of things are you going to have to worry about paying?  

  • Taxes 
  • Utilities 
  • Trash 
  • Water 
  • Sewage 
  • Garbage 

These are usually the monthly costs that are associated with being a landlord, minus the principal and interest on the mortgage balance. You’re going to have to consider the utilities and monthly costs that you’re going to pay every month while you hold onto this property. 

So really, after inheriting this house, you have four options. What you’re going to do is determine what those monthly costs are and see which option works best for you. 

Move In to the Inherited Property

The first option that you have when inheriting a property without a mortgage is to move into it or use it as a family house. You will have minimal costs because you’re only going to have to pay the utilities and items listed above every month since the property is owned free and clear, meaning that there’s not going to be a mortgage. That will make it a very cheap way to live and get housing. 

This is definitely a good option for a lot of people who inherit a house. A lot of times when we talk to homeowners who are inheriting a property, this is part of their plan, at least at first. 

Rent Out the Inherited Property

The second option when inheriting property without a mortgage is to rent it out. Typically when thinking about renting a property, what you’re going to do is take the projected rental income that you’re going to get and subtract out the principal and interest from the mortgage. Then subtract out all those monthly costs that we talked about to get your balance. 

The principal and interest are going to be some of the biggest payments that you’re going to have every month, but in your case, there’s not going to be any! There’s no principal and interest to pay with a property that is owned free and clear, so you are able to rent the property out and potentially gain more cash flow! 

However, remember that this means you will also get the headaches of being a landlord with that cash flow. This may make sense for you if you’re local to the property and interested in getting started in real estate. If that’s something that you’re considering, then I would highly recommend talking to a property management firm. They will help out a ton, or you can spend some time getting your feet wet with some information about what’s going on in your market. 

Remember when renting a property to account for vacancies, which typically you want to account for one month a year just to be safe. Also, repairs and capital expenditures need to be budgeted for. So, capital expenditures are going to be things like the roof, the water heater, the boiler, things that you know are eventually going to be worn out and need to be replaced. 

Selling an Inherited Property without a Mortgage

The third option is to sell it on the market. 

Some things to consider when listing an inherited property are:

  • What kind of condition is the property in and does it need updating? 
  • When was the last time the kitchen, bathroom, etc. have been updated? 
  • What is your timeline looking like?

The condition of the house is key, but also understanding your timeline and when you need to have the asset off your personal books is key. Listing with an agent might take a few weeks to months before you actually can close. Think like 90 days at least to close, even if the property is sold relatively quickly! These are just a few of the things to consider if you inherited a house with no mortgage

Plus, selling with a realtor can be costly, with an expectation of losing about 10% of the final sales price to commissions, fees, repairs, etc. 

Selling an Inherited Property via Terms

The fourth option a homeowner has is to sell it to a home buyer like me. 

If you’re looking for an easy sale on your property where you don’t pay any commissions, you have no closing costs to pay, no matter the home’s condition you will have no costs for repairs needed, and you won’t even need to clean it up, then selling to us here at Mike Buys Houses may be the best option for you. 

I can also offer you terms for your property, which means that I can pay you over time in installment payments, which allows me to pay the most amount of money for your property! 

I can offer you more than if you were to list it, while still providing you with the benefits of working with the home buyer like me, where you don’t have any of the closing costs and commissions, the repairs, anything like that. 

So if you’re looking for the best of both worlds, where you get the most money and you don’t have to worry about any of that headache or anything, then reach out to me at 267-984-4765 or fill out the form below. 

We look forward to helping you!

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