Financing Intergenerational Homes

If you’re thinking of moving back in with mom or dad—or they’re thinking of moving in with you—you’re not alone! A new report from the Pew Research Center found that more than half of 18- to 29-year-olds in the U.S. were living with at least one parent as of March 2020.

Another Pew Report from 2013 found that about 7 million grandparents share a home with their grandchildren. The AARP backs it up, with a report showing that 11% of grandparents live with their grandkids. In many of these situations, the parents are the heads of household, meaning the grandparents have moved in with their adult children.

Reasons to live with family

Sometimes, families combine multiple generations under one roof for financial reasons. Other times, the reasons are related to health, or just wanting to spend more time together.

Whatever your reason for sharing your home, a variety of home loan options are available.

Sharing the mortgage with your folks

Almost all mortgage types allow for co-borrowers, regardless of whether the people applying are married or even related. That means you can conceivably have several people on a mortgage, such as you and your spouse plus each of your parents and even a sibling. All borrowers will have to qualify and provide their own documentation, and terms will be set based on the borrower with the worst FICO score.

Structuring a deal this way comes with a few challenges, but there are some distinct advantages, including:

  • Combined income can help you afford a bigger payment
  • More borrowers can mean a bigger down payment (and no mortgage insurance)
  • Shared closing costs, property taxes, and home insurance

Down payment gifts

Another popular way to structure a mortgage when your parents move in is to sell the home they had been living in and split assets fairly with other beneficiaries (such as your siblings who won’t be sharing your new home). Then, you can use your portion of the proceeds for a down payment on a new mortgage. You’ll probably need a gift letter, but your Loan Officer can walk you through the process.

Benefits of this strategy include:

  • A higher down payment, which can improve rates and help you forego mortgage insurance
  • Fewer hassles with probate down the road
  • A clearly defined head of household for financial decision-making

If you go this route, it’s a good idea to have a frank conversation about utility bills. maintenance, and taxes before the deal is done. And like with any roommates, it’s best to discuss boundaries, food sharing, childcare, and other nuts and bolts along the way.

Fannie Mae HomeReady® mortgages

Another option may be for just one or two people to be on the official mortgage, with a special type of loan that lets them use the income of other occupants to calculate terms. The most common loan of this type is the Fannie Mae HomeReady mortgage, but other EIH (extended income household) loans may also be available.

This is a common option for families where one or two borrowers have great credit scores, but others have low scores but good incomes. You won't have to gather as much paperwork for each adult living in the home, but remember that not everyone will be listed on the title.

Renting a room to Grandma or Grandpa

If you can qualify for a good mortgage without the extra income, you can simply have your folks move in without any home loan paperwork. Some families who do this designate a basement or guest house for the new roommates, and others simply offer a bedroom and bathroom to the new resident.

Be aware that some municipalities have strict rules for mother-in-law apartments and guest houses. Before you build or renovate, it’s a good idea to check with a general contractor who knows the rules in your area.

Planning for the future

If you are considering sharing a mortgage (or any living arrangement) with family, it’s helpful to keep a few things in mind. If someone on the mortgage dies and the co-borrowers aren’t the sole beneficiaries of the estate, for example, the home might need to be sold so inheritance can be shared fairly.

It’s also good to think about medical costs and how they might impact a grandparent’s future ability to pay their share, not to mention the time and expense necessary to care for an older adult in case they become disabled.

But hey, isn’t that what families are for?

Get a good team on your side

Intergenerational living is common all around the world, and it's been the norm through most of human history. Sharing a home with your parents can come with challenges, but there are also big social and financial benefits.

If you’re considering sharing your space with multiple generations, many good home finance options are available. We recommend finding a great real estate agent to talk about the kind of home you will need and working with a top Loan Officer who can walk you through all the financial possibilities.

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