Selling An Inherited House

Inherited Home FAQs

You'll find a list of the frequently asked questions we receive from homeowners in general here. You'll find a list of inherited home specific frequently asked questions below.

What happens if you inherit a house with a mortgage?

It depends on how many units the property contains, the type of loan, and potentially your relationship to the original mortgagee. In Texas, a standard lender has the option to call for the loan to be paid in full within 30 days if a deed transfers to someone other than the mortgagee - which legally occurs when someone inherits a property. It's an option the mortgage company has, but it doesn't mean they will always enforce it. That said, if the property has less than five units, there is a federal law that protects close relatives who inherit a home from being held to the due on sale clause found in most mortgages. Reverse mortgages can be a bit different.

Regardless of the protections from the due on sale clause for some inherited properties, if the home has a mortgage, that mortgage must still be paid, or the new owner can end up facing foreclosure. So, you'll want to begin making payments on schedule immediately to keep the loan in good standing. If you can't afford the mortgage payment, you may want to consider selling the home as soon as possible to be able to get full equity out of the house.

What happens if you inherit a house with a lien?

If the home you inherit has a lien attached to it, the lien does not go away with the passing of the previous owner. That means the responsibility of paying off the lien—either out of pocket or through the sale of the property—falls to you and any other heirs.

What happens if you inherit a house with a reverse mortgage?

If the previous homeowner was aged 55 or older, their home may have a reverse mortgage. A reverse mortgage is an arrangement that enables senior homeowners to receive part of their home’s equity in cash through monthly payments, a lump sum, or a line of credit.

Because a reverse mortgage causes a home’s equity to decrease, you can only inherit a home with a reverse mortgage if you can pay off the balance of the reverse mortgage. For example, if the previous owner took out $100,000 of their home’s equity, you’ll need to pay off that $100,000, plus any fees and interest, to inherit the house.

If you choose to sell a home with a reverse mortgage, the profits will go towards paying off the reverse mortgage first and foremost, and you can only keep what remains of the home’s equity after that.

What happens if you inherit a home that's underwater?

If the amount owed on a property’s debts or liens is higher than the property’s value, the home is considered to be “underwater.” Owning a home in this state poses a financial burden, and you likely won’t want to be in that position.

The good news is that while keeping an underwater home is an option, you are under no obligation to accept an inherited property. If you have inherited an underwater property and don’t want to deal with it, you are legally entitled to refuse the home and let the bank foreclose on it. Because the home was never actually yours, the foreclosure will not affect your credit.

What are the tax implications of selling an inherited home?

Normally, the capital gains tax on a home sale is determined based on the difference between the home’s purchase price and its current value. However, with an inherited home, capital gains tax is based on the value of the home at the time of the previous owner’s death.

For example, if the house you inherited was worth $300,000 when the previous owner passed away, and you sell it for $350,000, the $50,000 profit is taxable.

While inherited property is not eligible for capital gains exemptions, you can deduct up to $3,000 in losses each year if you sell the house for less than it was worth when the previous owner died. For example, if you sold the above $300,000 house for $290,000 (a loss of $10,000), you can deduct $3,000 the year of the sale, another $3,000 the year after that, and $1,000 the year after that. We recommend you consult a CPA for specific advice.

Do you have to pay inheritance tax if you keep an inherited home?

While there is no federal inheritance tax, there are six states that impose a tax on inherited assets: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania.

If you have inherited a home in one of these states, you may be able to have the amount you owe on inheritance taxes lowered or completely removed depending on your relationship to the deceased. To ensure that you don’t miss out on any reductions or exemptions, it’s best to speak with an estate lawyer or tax attorney.

If the house is full of stuff, do I need to clean it out before selling?

That depends on who buys it. With us at AMI, no. However, we'd recommend that you make at least one trip to the home to take anything with value - be it financial or sentimental. You can also consider having an estate sale to sell anything that might have value to others. That said, our goal is to alleviate stress. In light of that, take or sell what you want and leave what you don't. We'll handle clearing out anything left in the house after closing.

What if the home was inherited by multiple people?

Unless the will specifies otherwise, all heirs to a property inherit an equal share. While it is an option for all heirs to move onto the property together, this is typically not a popular arrangement. In most cases of multiple people inheriting a home, the heirs will either sell the property and split the profit, or one heir will buy the others out and live on the property.

What if my brother/sister lives in the home we jointly inherited, but I want to sell it?

If you and your sibling disagree on what to do with an inherited home, there are ways that you can compromise. Your sibling can live on the property and buy you out, or they can rent out part of the property and give you the tenant’s rent. If neither of these arrangements are viable or desirable for you, you may need to take your dispute to court.

Can a sibling or other heir force the sale of an inherited home?

In cases when one heir wants to sell a property and another wants to keep it, the sale can be forced in a lawsuit called a partition action. But bear in mind that legal fees can be expensive, and in some cases, the court may decide that the property should be divided rather than sold. Be sure to research what a partition action entails before taking legal action.

How do you buy other heirs out of an inherited house?

Most people do not have enough cash on hand to buy out other heirs with a lump sum, so keeping an inherited home will usually require a cash-out refinance.

A cash-out refinance allows you to take out a bigger mortgage by tapping into their home’s equity. In this case, the extra money you take out will go towards paying off the other heirs.

How quickly after someone passes away can you sell an inherited house?

If you’ve inherited a home through a living trust, you can sell it immediately, but with a traditional inheritance, you’ll usually need to wait a bit.

The specifics of when you can sell a home may differ depending on your state and a variety of other factors. As a general rule, selling within six months of the previous owner’s passing will require you to go through a lot of red tape. To ensure that there are as few complications as possible in the selling process, it’s best to sell to a cash buyer with experience in buying inherited homes, like us here at AMI, or use a realtor with a background in selling inherited properties like Roots & Wings Realty Group.

How long do you have to sell an inherited home?

If the deed of the home has been transferred to you, you can take as long as you want to sell it. In fact, living on the property for two years or longer before selling means you can benefit from capital gains exemptions.

There is typically no time limit for when you can file for a partition action, so even if the house is not yours alone, you can still sell it down the road.

Who inherits a home if someone dies without a will in Texas?

When a person dies without a will, they are said to have died “intestate,” and the laws determining who inherits their property are known as “intestate succession.”

Intestate succession in Texas can be complicated, but as a general rule, spouses and children get first priority for inheriting a property. If the deceased has no living spouse or children, it will then go to another relative. If no living family members can be found, the state will take the property.

Can you sell an inherited house while the estate is still in probate?

In Texas, the executor of the will can sell the home during probate if the heirs agree to it. However, this sale is subject to different terms than a traditional home sale.

The home must be sold for at least 90% of its appraised value, and the buyer will need to make a deposit of 10%. All heirs must also receive a Notice of Proposed Action detailing the terms of the sale.

While it is possible to sell a house in probate without a will, this can be a highly complicated process, and it’s best to seek the guidance of a real estate attorney before selling.

Will property taxes go up when you inherit a house?

If the previous homeowner lived a long life, the property taxes on their home will usually increase when you inherit it. Older homeowners tend to receive tax benefits such as senior, disability, and homestead exemptions. If you are not able to take advantage of all of the same tax exemptions the previous owner had, your property taxes will be higher than theirs.

How do you get an inherited house changed to be in your own name?

If the previous homeowner left a will, you could transfer ownership of the property through probate. However, many heirs wish to avoid probate, as the various fees associated with it can add up to thousands of dollars.

If there is no will or the heirs do not want to pay for probate, the property can be transferred via an affidavit of heirship.

What is an affidavit of heirship and why might you need them?

An affidavit of heirship is a document that transfers the property title to a single heir without any need for probate. It must be signed by all heirs, in addition to an impartial witness. The affidavit is then filed with the county in which the property is located.

While most parties will recognize an affidavit of heirship as valid, it is a less conclusive source of information than probate. Until five years have passed, some title companies, banks, and home buyers may not trust that the affidavit is accurate.

How do you sell an inherited house?

Selling an inherited home can be more complicated than a traditional home sale. In addition to determining a good selling price and finding a buyer, there’s plenty of legal paperwork and you may have to settle disputes with other heirs. All of this can be unpleasant to deal with, especially when you are already grieving the loss of a loved one.

The best way to ensure that the sale of an inherited home goes as smoothly as possible is to work with an agent who is used to selling this type of home. An experienced realtor will not only make the technicalities involved with the sale easier to understand, but also recognize that this is a delicate time for you and handle the entire process with patience and compassion.

You can also streamline the home sale process by selling to a cash buyer. Selling to AMI enables you to get an inherited property off your hands quickly and painlessly. Contact us now for a no-obligation cash offer.