Inheriting a home from a family member can initially feel like a wonderful gift. However, many heirs quickly learn that taking on an inherited property often comes with its own set of complex challenges, especially if they have plans to sell the house.
There are various hurdles that must be overcome before successfully selling an inherited house. If you find yourself in this position, prepare for these four common inherited home-selling difficulties.
Pre-Existing Debt or Unpaid Bills
When an individual passes away, any outstanding debts like mortgages, credit cards, taxes, or utility bills get attached to their estate - including an inherited home. As the new owner, you become legally responsible for paying off those debts to clear the property's title before putting it on the market. Unpaid bills can create costly liens that complicate closings and home sales.
Multiple Heirs
If the property is transferred to you and any siblings or relatives as co-owners, it adds an extra layer of complexity. All heirs must be in agreement on factors like pricing, repairs needed, agent hiring, and ultimately accepting offers. Finding a harmonious consensus between multiple decision-makers isn't always easy when money is involved. Disputes can significantly delay or even prevent sales.
Disrepair and Junk
Especially with an elderly relative's home, years or even decades of accumulated belongings and deferred maintenance often leave the property in disarray and disrepair. As the inheritor, you must invest substantial time and money into cleaning out decades of belongings, removing debris, making necessary repairs, and updating the home's finishes before listing. This process can be emotionally and physically draining.
Qualification for Home Loans
If you choose to sell the inherited property to a buyer who needs a mortgage, they may face difficulties qualifying for traditional home financing. Lenders have stringent requirements regarding the condition, occupancy status, and appraised value of inherited homes that can throw up roadblocks during the underwriting process.
Most mortgage programs require the home to be in lendable condition and currently occupied as a primary residence. However, inherited properties are frequently dated, in disrepair, or were previously vacant rental units or second homes. Making the necessary renovations and repairs to satisfy lender requirements can put a financial strain on the new inheriting owner.
Additionally, appraisers must use specific comparable sales of similar inherited properties when evaluating an inherited home's market value. However, those limited comparable data points often result in conservative appraised values that create challenges for buyers seeking higher mortgage financing. Between the home's condition and valuation issues, many buyers of inherited homes struggle to receive adequate loan approval from lenders.
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