How do I cash out refinance a gifted house?

3 Replies

My father has decided to gift his rental to myself & 2 siblings. I'd like to buy my siblings out & they are ok with that. The plan is to determine a sell price we all can agree upon, so we hired an appraiser & now have that #. The next step would be for my dad to quit-deed the house over to myself & in turn, I would pay my siblings their 66% share of that agreed sell price.

My plans were to pay the 66% with a conventional cash out refinance that would coincide with the title transfer but my mortgage guy told me the HUD guidelines call for the title to be in my name for 6 months before I'm eligible to refi against the property.

That said ( if that is a true HUD requirement) I believe my next best options are to:

1. Use a local/portfolio lender & pay the roughly 1% higher interest rate ( not great but doable)

2. Use my cash reserves to pay the 66% share, then get it back after I refi in 6 months.

3. Get my father to sell the house to me for that same agreed sell price & he splits the sale proceeds across us 3 kids ( minus the taxes he will incur at the end of the year & we won't need a realtor for this so no commissions are in play ). A benefit here would be that the cost basis for me would reset since currently the house is currently fully depreciated. Also I would have a conventional HUD loan on day one & don't have to use my cash reserves ( except for the down payment that I would get back the next week when I receive my 33% share from dad.

Am I missing anything here?

Many thanks,


Why not take the gifted deed from your dad. Wait six months to season your title and then refinance the property as a cash out and payoff your siblings? After all, it's only six months and you guys are all related.

IMO, that is cleaner than the other idea you have. Since the transaction is not arm's length I think you will have some difficulty with the proposed purchase structure in #3. If you did want to do this method, you would be better to reduce the purchase price by your share of what was going to be the gift and simply take that as gift equity upfront. Giving cash to your father through the purchase, so he can then give you cash back will not sit well with most lenders.

The idea around cost basis resetting is a little flawed. It is not resetting, you don't currently own the property so it's not a reset, it is a new asset to you once you come into ownership. So you will treat it as such with your own accounting moving forward. Your father depreciated it on his financials which are not yours nor do you assume his. In that regard, you automatically start new no matter how you structure the transaction. The book value you enter to open will be affected by your structure. Bounce it off your accountant to see how best to maximize.

You may also want to look into vesting in trust as an advantageous ownership structure. Remember all of the dollars here may create tax events for each party with the gifts and perhaps gains. An experienced estate planner or accountant maybe able to help minimize those tax liabilities.

Dion is correct but you can buy on a contract, show your funds to purchase, letter of explanation can be simple, dad wants to sell, I want to buy.

Then, after settlement your dad can gift money to whomever he wants to, nothing wrong with that among closely related family members. Sounds strange, but there is no issue. :)

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