The only answer that makes sense is C... Mine is above his.

I agree with the other native speakers who have answered this question. The ONLY possible answer is 'above'. There are two houses on the hill, and my house is above his house. 'Over' makes no sense, unless - as Steven suggests - the person's house is hovering in the air like a spaceship.

I can imagine that both A and C would be acceptable usage in American English. It means that my house and his house are located in the same hill. However, my house is at a higher altitude than his. So, maybe my house is on top of the hill, and his is half-way up the hill :)

I wish I could edit the question. What can I do now?

Sorry guys, my mistake. You're right. It's "houses"