Three siblings inherit a house. One wants to live in it, two want their share in cash. There is no buyer and no seller in the ordinary sense, but there is a real transaction and it is financeable.
The complication is that which loan this is depends on how the property is titled when the financing happens, and that is frequently decided before anyone talks to a lender.
The two shapes this takes
Shape one: title has already passed to the heirs.
Probate or trust administration completed, and the three siblings now hold title together. The sibling keeping the house borrows against it and uses the proceeds to pay the other two.
This is generally a refinance, and specifically a cash-out refinance, because the borrower already owns an interest in the property and is extracting equity. Cash-out loan-to-value limits and cash-out pricing apply.
Shape two: title is still held by the estate or the trust.
The sibling keeping the house acquires it from the estate or trust, paying the estate, which then distributes to the other heirs.
This can frequently be structured as a purchase, which matters because purchase financing generally allows a higher loan-to-value and better pricing than cash-out refinancing.
The difference between these two is real money. And the choice of which shape the transaction takes is often made by default, by whoever handles the estate, without anyone realizing it affects the financing.
So: talk to a lender before title moves out of the estate. That is the single most useful sentence in this post.
The exception to know about
Some programs treat a transaction where one heir buys out the others more favorably than a standard cash-out refinance, even where title has already vested in the heirs, sometimes allowing a higher loan-to-value. The requirements are specific, generally involving documentation of the inheritance and the buyout, and they vary by program.
This is worth asking about explicitly and by name. The treatment is not universal, the details change, and a lender who has not encountered it may simply quote you standard cash-out terms. A broker with multiple investors has a better chance of finding the program where it applies.
What a lender needs to see
Expect to document the chain from the decedent to you:
The death certificate.
The will, the trust document, or the probate order, establishing who is entitled to what.
Letters testamentary or letters of administration if an estate is being administered, showing who has authority to act.
A buyout agreement among the heirs, stating who is receiving what. This should be a written, signed document. Handshakes among siblings are how these transactions go wrong in year three.
A current appraisal. The buyout price should be based on real value, and the lender needs the value regardless.
Title evidence showing the chain is clean and complete. This is where delays happen. An estate that was administered informally, or a chain with a gap, needs curing and curing takes weeks.
Occupancy intent. Whether this will be your primary residence, a second home, or an investment property changes the loan materially. Finance it as what it will actually be. See Second Home vs Investment Property.
The reverse mortgage situation
Worth its own section because it is common and time-sensitive.
If the decedent had a reverse mortgage, the loan generally becomes due when the last borrower dies, and the heirs face a deadline. Heirs typically have the option to pay off the loan, frequently at the lesser of the balance or a share of the appraised value, and extensions may be available while financing is arranged.
The deadlines are real and they move. If there is a reverse mortgage on an inherited property, call a lender in the first week, not the third month. The timeline is the binding constraint, and heirs who discover it late can lose the house entirely.
Qualifying
Normal underwriting applies to the heir keeping the house.
Income. Your own. Inherited assets do not count as income, though they may count as assets.
The inherited assets themselves may help. If the estate also distributed liquid assets to you, those can support reserves or, in some structures, generate qualifying income through asset depletion. See Asset Depletion and Asset Qualifier Loans and Trust and Inherited Assets in a Mortgage.
Assets still held in trust are a specific question. Whether a lender can count them depends on the trust's terms and your access to them. Get the trust document to your lender early.
Reserves. Required as usual, after closing.
Property items that come with inherited houses
Inherited properties are frequently older, frequently have deferred maintenance, and frequently have had work done over decades without permits.
Expect condition findings. Roof, electrical, plumbing, HVAC. An appraiser noting a roof at the end of its life can create a repair condition before closing.
Unpermitted additions are common. Fifty years gives time for an enclosed patio or a converted garage that never saw a permit. An appraiser may exclude unpermitted square footage from value, which shrinks your loan. See Self-Employed in Moon Valley for how older housing gets evaluated.
If the house needs significant work, a renovation loan financing the purchase or buyout and the improvements together may fit better than borrowing and paying for repairs separately.
Property taxes may be reassessed on transfer. Ask, because it changes your payment and your ratio.
If it is on septic or a well, the Arizona transfer inspection and well documentation apply. See The Arizona Septic Transfer Inspection.
Keeping the siblings whole
Not a lending matter, and the transactions that go badly go badly here rather than in underwriting.
Get an appraisal and use it. A buyout at a number somebody later decides was too low is a family problem that outlasts the house.
Put the agreement in writing and have an attorney look at it.
Have a tax advisor address the basis question. Inherited property generally receives a stepped-up basis, which has significant consequences for everyone involved, including the siblings receiving cash and the one keeping the house.
Decide what happens if the financing does not work. Sometimes the heir who wants the house cannot qualify for enough to pay the others fairly. Knowing that early allows an orderly sale rather than a resentful stalemate.
The sequence
- Call a lender before title moves out of the estate. It affects whether this is a purchase or a cash-out refinance.
- If there is a reverse mortgage, call in week one. The deadline governs.
- Get the estate documents together early: death certificate, will or trust, probate order, letters.
- Get an appraisal.
- Put the buyout agreement in writing, with an attorney.
- Get a tax advisor on the basis question before money moves.
- Get fully underwritten, so you know what you can actually borrow before you promise your siblings a number. See Pre-Qualified, Pre-Approved, Underwritten.
Nothing here is legal or tax advice. Probate, trust administration, title and basis questions belong with your attorney and your tax advisor. What I can tell you is how a lender will finance the result.
Why bring this file to us
- We read the documents ourselves, rather than handing them to a processor and waiting.
- Broker model. An unusual file needs multiple investors, not one bank's shelf.
- The full toolkit, agency and jumbo through bank statement, asset depletion, DSCR and no-ratio non-QM.
- You talk to the principal. Ricky Khamis is President of EPiQ Lending, NMLS #173141, lending in Arizona since 1999 and a 2025 Presidents Club Winner at CMG Home Loans. Direct line: (480) 999-9842.
EPiQ Lending is NMLS #1936984, at 7975 N. Hayden Road, Suite A-101 in Scottsdale. Verify all of it before you trust any of it: Ricky's EPiQ Lending profile, the Scottsdale branch, and the license itself at NMLS Consumer Access. Hold every lender to that standard, including us.
Send me the file before you write an offer, and I will tell you what it actually supports.
Equal Housing Opportunity. This is general information, not a commitment to lend or an offer to extend credit. Program guidelines, eligibility requirements and documentation standards vary by investor and change over time. Rates, terms and program guidelines change and depend on credit approval, property appraisal and other qualifying factors. Not all applicants will qualify. Non-QM financing carries different pricing and terms than agency financing. Consult your tax advisor regarding your own situation.
Looking at a specific home? Send me the address and I will run the numbers: rickykhamis.com/analyze
