Buying out your siblings on an inherited home

Three siblings inherit a house worth $450,000 with no mortgage on it. One wants to live there. The other two are owed $150,000 each, and the sibling keeping the house needs a loan of about $300,000 plus closing costs to pay them. That is about 67% of the home’s value, which fits every route below. With a mortgage still on the house, or more siblings to pay, the loan-to-value climbs fast, and the route starts to matter.

Route 1: a buyout refinance

Once the heirs are on title, Fannie Mae treats paying out a co-owner under a written agreement as a limited cash-out refinance, not a cash-out. Divorce is the familiar case, and the same rule covers co-heirs. The conditions:

• A written agreement signed by every owner, stating the terms of the transfer and where the loan proceeds go.
• No cash to the sibling keeping the house. The proceeds pay the others, any existing mortgage and closing costs.
• The buyer qualifies alone, on their own income and credit.
• No 12-month wait. Co-owners normally need a year of joint ownership first. That requirement does not apply to a recent inheritance.

The payoff is the loan-to-value limit: up to 95% on a home the buyer will live in, against 80% for a cash-out refinance. Not every lender or loan program handles a buyout this way, and some price it as a cash-out, so ask which treatment the lender uses before you compare quotes. The same mechanism in a divorce is covered in divorce and the mortgage.

Route 2: buying from the estate

If the house is still in the estate, the sibling keeping it can buy it from the executor. It is a family sale, which conventional guidelines allow on an existing home. The siblings’ shares can become the down payment through a gift of equity: the price is set at full value, and the others give up part of what they would have received. Siblings are acceptable gift donors.

• A gift of equity can cover the down payment and closing costs, but not reserves.
• It is allowed when the buyer will live in the home or use it as a second home, not on a rental.
• Each sibling giving equity signs a gift letter. When the executor is the legal seller, confirm with the lender early how those letters should be signed.

In Pennsylvania, this route carries a tax cost the others may not. More on that below.

Route 3: a cash-out refinance

If the buyer also wants cash for repairs or other needs, the loan is a cash-out refinance, limited to 80% of the home’s value on a primary residence. The usual six-month wait after taking title does not apply to inherited property. The details are in cash-out refinance limits.

Route 4: keep the parent’s mortgage

If the house still carries the parent’s loan at a low rate, keeping it can be the cheapest answer. Federal law, the Garn–St Germain Act, bars a lender from calling a home loan due because of a transfer to a relative resulting from the borrower’s death. Federal servicing rules also require the servicer to recognize a confirmed heir as a successor and communicate with them about the loan.

The siblings are then paid with a second loan, a HELOC or a fixed home equity loan, behind the existing first mortgage. The second carries a higher rate, but only on the buyout amount. Whether that beats one new loan at today’s rate is a blended-rate question, covered in cash-out refinance vs. HELOC. Getting confirmed as a successor takes paperwork and time with the servicer, so start that early.

Comparing the routes

If the house will be a rental rather than the buyer’s home, the limits are lower across the board, 75% on a refinance, and gifts of equity are not allowed.

Pennsylvania, Florida and Texas

Pennsylvania. Inheritance tax applies at 4.5% on what children inherit from a parent, and 12% between siblings. It is due nine months after the death, with a 5% discount if paid within three months. Realty transfer tax is where the order of the deeds matters. Transfers between siblings are excluded from the tax, as is property passing from an estate to an heir for no consideration. But the Department of Revenue has said, in Realty Transfer Tax Bulletin 2024-01, that an heir who buys the house from the estate pays transfer tax on the price, because the estate is not the parent. Whether the buyout is structured as a purchase from the estate or as a deed from siblings to sibling after distribution can decide whether transfer tax is owed on the buyout amount. Settle that with the estate’s attorney before deeds are drafted. More on the tax itself is in who pays Pennsylvania transfer tax.

Florida. There is no inheritance tax. Documentary stamp tax on the deed is 70 cents per $100 of what is paid, and there is no exemption for siblings, so a buyout deed is taxed on the buyout price. The Save Our Homes cap resets after a change of ownership, so the assessed value goes to market value the following January 1. The sibling who moves in files their own homestead exemption; see property tax exemptions.

Texas. There is no inheritance tax and no transfer tax. Title is the hurdle: a title company may accept an affidavit of heirship, or may require every heir to sign or a court determination of heirship. Texas also limits loans against a homestead, so ask the lender and title company early how a buyout on your house will be structured and whether it can go above 80% of value.

What decides it on your file

• Where title stands: still in the estate, or already in the heirs’ names.
• The value, any existing mortgage and its rate, which set the loan-to-value and whether keeping the old loan is worth it.
• Whether the buyer will live there, which sets the limits and whether gifts of equity are allowed.
• Your income alone, against the full new payment.
• The state, for the tax and title steps above.

I would price the buyout refinance and the keep-the-loan route side by side before the siblings agree on numbers, and bring the estate attorney in before any deed is signed.

General information about conventional mortgage guidelines and state taxes as of October 2026, not a commitment to lend, and not tax or legal advice. Estate, title and tax questions belong with your attorney, title company or CPA. Individual lenders may apply requirements stricter than the agency rules described, and Freddie Mac, FHA and VA treat buyouts differently. The example uses round numbers for illustration only. Forest Hills Mortgage LLC, NMLS #1982611. Matt Mergo, NMLS #563819. Licensed in Florida, Pennsylvania and Texas. Equal Housing Opportunity.