How to Buy a House with your Parents or Adult Child?

Do you wish to buy a home with a family member?

Buying a home with your parent or adult child may help you care for your aging parent, assist young children, or simply bring family members closer together. It can also make homeownership more accessible by collectively contributing to the costs.

However, the home purchasing procedure is not always as simple as it may appear.

Here’s what you need to know about buying, financing, and maintaining a multigenerational home to make the transition go smoothly as possible.

What are Multigenerational Homes?

A multigenerational home is a type of shared living arrangement involving multiple generations.

Typically, three or more generations will be living in the same household – for example, grandparents, their children, and grandchildren – but two-generational homes are not uncommon.

There may be several renters in a multigenerational home under the same roof as well. For example, an adult child who cannot afford to live on his own might team up with his elderly parents to purchase a house (or inherit one) where they can all pool their finances together to make monthly payments.

The Multigenerational Housing Trend

According to a Pew Research Center study based on data from the monthly Current Population Survey (CPS), approximately half of 18- to 29-year-olds in the United States were living with one or both of their parents in March 2020.

Approximately one in ten young people (9%) reported relocating temporarily or permanently owing to the coronavirus epidemic, and about the same proportion of people had someone live with them.

Of those who relocated due to the epidemic, 23% said the most important reason was that their school campus had closed, and 18% cited job loss or other financial difficulties as a reason.

These numbers grow even larger for older generations – nearly half of all US residents aged 65 or older still have at least one family member living with them in their home.

What are some common reasons why families choose multigenerational homes?

According to the Census Bureau data, some of the most common reasons are:

  • Improved financial stability
  • Easier caregiving for children under 18 years old
  • A more comprehensive range of household skills (e.g., cooking, driving, etc.)
  • Improvements in mental health for aging parents

How Does Buying a Multigenerational Home Work?

If you are interested in buying a multigenerational home, some important things to consider.

First of all, what are your long-term goals? Are you thinking about buying a new house for yourself and getting rid of the old one? Or do you simply want to combine resources with family members who already have a home they’re planning to keep? If combining resources is the goal, how will ownership be split up between everyone involved?

The second thing to consider is how much money each person can contribute towards the purchase price. Remember that buyers should never put down more than 20% of their funds into any transaction. However, if both parents and children work together and everyone contributes accordingly, 20% is a reasonable goal.

If you are relatively young and have a little credit history, it may be challenging to obtain a loan at all. In this case, applying for a loan with your parents as the primary borrowers may work. However, in some cases, even this option can pose problems if one or both of your parents does not qualify for a mortgage in their name. If this is the case, they will need either an extra co-borrower or co-signer on the loan who does qualify.

Multigenerational home loans tend to come with higher interest rates than traditional mortgages because lenders see them as riskier propositions. For example, if an adult child cannot make payments on the loan (or is late in making them), it is not uncommon for the entire house to be foreclosed upon.

Likewise, if elderly parents live in the home but do not contribute towards household expenses, they can cost their children extra money.

The benefits of buying a multigenerational home with family members far outweigh these concerns, however. It may even be advisable to consider teaming up with your parents on a property purchase, even if you intend to get your own place later.

This is particularly true for young adults who may not have much income but have access to their parents’ financial resources (e.g., through inheritance).

Also See: Best places in US to raise a Family

How to purchase a multigenerational home?

If you and your family members are planning to pool resources to buy a home, here are some tips:

1. Create a budget

List all of the potential costs of buying and living in a multigenerational home. This will include monthly mortgage payments and taxes and extra expenses like utilities and renovations. Be sure to consider any loans that might be necessary (e.g., if elderly parents cannot qualify for a regular mortgage on their own). You can go through our article on Moving Budget Checklist.

2. Set Goals

If everyone is pulling together to purchase the house, everyone must agree on those goals. For example, some families may wish to repair the home before moving in while waiting until they have better resources.

3. Be Realistic

Even if everyone is working together, it’s essential, to be honest about your budget and abilities. Remember that buying a home requires sacrifices in other areas of your life, so you may want to take steps like cutting down on restaurant meals or additional costs before committing yourself to any new obligations.

4. Consider hiring an expert

The transaction involved in buying a multigenerational home can get complicated quickly, especially if several people are involved at different stages of the process (e.g., one person has equity in their current house while another needs to sell theirs first). While it may be possible for everyone to handle these details independently, many families find it helpful to hire a real estate agent to take some of the stress off their shoulders.

Here is a list of resources that family members can tap in; while purchasing a multigenerational home:

1. Cash

The simplest way to purchase a home is for all family members to contribute cash, either from their savings or perhaps as an inheritance. Some banks will require at least two people with a steady recent income to apply for a mortgage together for approval.

2. Bank loans

Depending on how much money is involved, it may be possible to take out a loan from one bank and use this sum as part of your contribution to purchasing another property. Of course, there are risks associated with using only one source, such as whether or not you can get an appropriate interest rate. Few popular options for obtaining loans are Fannie Mae HomeReady Loan, FHA loans, USDA loans, VA home loans, etc.

3. Subprime lenders

In some cases, parents may want to buy a house while simultaneously helping children get established financially (e.g., by offering a lower interest rate). In these cases, a family member might use a subprime lender who may be flexible about down payments or credit checks. Remember that this type of loan often comes with higher interest rates and fees.

4. Private Lenders

In some cases, private lenders can offer very attractive conditions for borrowing, such as low-interest rates and no monthly payments required. However, they usually have stricter requirements than banks do regarding the types of properties you can purchase or the purpose of your loan (e.g., “flippers” vs. personal residence).

5. Home improvement loans

Some home improvement loans are specifically designed for people looking to buy a home with another family member. This can be helpful if you plan to renovate the entire house before moving in, either because it’s safer or simply more practical for you.

6. Reverse mortgages

Reverse mortgages are available to elderly parents who may not qualify for a standard mortgage on their own (or don’t wish to use the equity they’ve built up over time). While these loans also carry higher interest rates than traditional ones, they offer other benefits like lower monthly payments and no penalties for paying off the loan early.

7. Family loans

Regardless of whether you are looking to buy or sell, it may be possible for your family members to contribute what they have towards the cause. This might be especially helpful when one member has better credit than another due to past financial decisions, but everyone agrees on the overall goal. Remember that it’s essential to be clear about expectations beforehand for no one to feel slighted later on down the line.

8. Co-borrowing

If the family members involved in the purchase and sale of a multigenerational home each has their sources of income (i.e., doesn’t need to depend on other people), they may opt to co-borrow for the down payment and closing costs. While this is another way to get around using only one bank for financing, it does mean that you’ll all be equally responsible if something goes wrong (i.e., someone can’t make payments or defaults).

9. Co-Guarantor

If one or more of the family members involved in the purchase or sale of a multigenerational home need help with their credit score to qualify, they may opt to co-guarantee their loved ones’ loans. This can be done in two ways:

(1) By applying for a loan with the person you’re co-signing for, or

(2) By signing an agreement together that says you’ll guarantee all payments. As long as your family members act in good faith when they make payments on time, this should not cause problems like lawsuits later on.

10. Gift Funds from Family Members

For some families, it makes sense to opt for a gift from a family member rather than a loan. This is because gifts carry fewer restrictions and don’t need to be repaid; however, there may still be rules that apply (e.g., the qualify of your mortgage might depend on whether or not you can show evidence of another source of funds).

How to choose a multigenerational house?

It’s a good idea to thoroughly examine all parties’ amenities and the features required and desired before agreeing to a multigenerational home purchase.

When it comes to multigenerational housing, the amount of square footage required is usually greater than that needed for single-generational housing.

It’s vital to provide big, social areas in a house where everyone may gather, but it’s also critical to provide people with their own spaces.

Features that are common in many multigenerational homes today are intended to accommodate people with various requirements, including:

  • Private Access
  • Multi-Story
  • Multiple Kitchens
  • Personal bathroom
  • Multiple living areas
  • More than one Master Bedroom

Make sure you work with your real estate agent to discover a property that meets the demands of your entire family.

Things to consider when buying a house with your parents or child

If you buy a house with your parents or adult child, there is more than just finding an area to live that appeals to everyone.

There are many things one must consider when moving in with family members.

The most important thing is to communicate early and often, so no one feels disregarded or unheard.

It is also crucial for each family member involved to be completely honest about their wants and needs before deciding whether they want to buy together.

  • What type of house do you want? Do you all prefer something modern or traditional? Urban or quiet rural life? These questions need to be answered before anything else can happen because it will determine how much money everyone needs (and saves) and where you will locate.
  • Who is going to pay for the down payment? This is most likely the biggest factor in buying a house with your parents or child because it all depends on who has more money and how much they are willing to part with.
  • What type of loan are you looking for? There are many types of loans out there, so ask yourself what interest rate you can afford and if pre-payment is allowed without penalty fees. Also, consider whether or not this loan will be better than co-borrowing through another family member’s mortgage application (as this would address any FICO score issues).
  • Will you share all expenses equally? This includes living expenses like water bills, gas, electricity, and the costs of upkeep. These expenses will need to be split between everyone who lives there, so it’s a good idea to decide on what percentage each share is before signing any contracts.
  • What are you willing to give up? There might come a time when someone has to take the backseat because moving in with family means sacrifices for everyone involved—knowing that ahead of time can prevent hurt feelings or resentment later on down the line.

Conclusion

Working with family members can help you solve money problems, but it’s important to remember that children and parents are still individuals.

Each person needs to be valued, respected, and heard before deciding whether or not buying a house together is the right financial decision for everyone involved.

FAQs

1. What are the biggest benefits to buying a home with my parents or adult child?

One of the most obvious benefits is that you can split living expenses, making it easier for everyone to afford their portion without sacrificing any luxuries.

Another perk is pooling your resources together, so you have more purchasing power when it comes time to buy a home.

2. What are some drawbacks?

Not all family members may be on board with moving in with each other or having certain people off limits during certain times of the day/week/month (such as not during Christmas).

Everyone needs their space, but there is no guarantee that this will happen if enough sacrifices aren’t made by all involved.

3. Is it possible to separate and buy my own home after moving in together?

This is certainly possible, but many people who buy a house with their parents or adult child end up staying for much longer than expected because they enjoy the financial benefits of splitting living expenses.

4. Who will take care of maintenance items when something breaks down?

Of course, there are specific tasks that only certain people can do (such as plumbers and electricians), so whoever can repair the problem should have the final say in what happens next.

However, everyone needs to agree on whether or not this situation calls for special attention so you won’t break the bank in unnecessary repairs throughout your time living together.

See Also: Monthly Maintenance Tips | Tips to Move with Kids | Cheap Moving Companies in the US | Tips to Save for a New House | Tips to buy home when you are a parent

Written by


Rostislav Shetman is the founder of 9Kilo Moving. He has been in the moving and relocation industry for more than 25 years, making him an expert in his field. Rostislav started as a helper, dispatcher and driver and has worked his way up to owning his own company. He takes great pride in his work and enjoys helping people relocate across the United States of America. When he's not working, Rostislav enjoys spending time with his family and friends. They are the light of his life and bring him happiness every day.