3 Main Options When Inheriting a Property
You have inherited a property and you and other heirs are deciding what to do with the home. While it’s good to receive a large asset, inheriting property can bring numerous legal, financial, and familial challenges in addition to dealing with the loss of a loved one.
You may need to work with legal and financial professionals to navigate probate procedures before your share of the asset can be claimed. Probate can take anywhere from months to years to settle the estate.
Here are three main options when inheriting property:
1 – Live in it as a primary residence
2 – Rent it out for passive Income
3 – Sell it for a windfall
Whether you plan to live in, rent or sell the home, it’s important to not delay as holding expenses like the current mortgage, taxes, and insurance will accumulate and need to be paid to keep the property from going into foreclosure.
How to Finance an Inherited Property
Here are ways to finance the home that could include funds to buy out your heirs or pay liens and debts associated with the property:
Mortgage Takeover
Legal heirs can assume a mortgage of the decedent and continue to make monthly payments. However, if there’s a living co-borrower or co-signer, this party is responsible for making payments regardless of whether they have an ownership interest in the home. In this case, the heirs would need to find another financing option.
Investment Property Loan
If you want to use the home as a rental, a rental property loan can help you finance the home while earning passive income, tax benefits, and property appreciation. Loan programs like DSCR (Debt Service Coverage Ratio) are available that allow borrowers to qualify based on the cash flow of the property versus personal income.
Rate-and-Term Refinance
Refinance the current mortgage with another with a better interest rate or different term (15 years versus 30 years). A home with a reverse mortgage can be refinanced to cover the outstanding balance.
Cash-Out Refinance
Acquire a mortgage that is higher than the current home loan and use the additional funds to make needed improvements, pay off debts/liens associated with the home, or to purchase another property.
We Are Here to Help
We are experts in helping clients who have inherited property to come up with solutions that best fit their situation and goals. Contact us for a no-obligation consultation.
*The information to be provided is for informational purposes only. Myers Capital does not provide tax, legal or accounting advice. Borrowers should consult with their own tax, legal and accounting advisors before engaging in any transaction.