What to know before buying a home with family
Buying a multigenerational home has many benefits but requires careful planning
Read, 4 minutes
It’s no surprise that multigenerational homes—in which an extended family pools their resources to buy a home and live together—are growing in popularity, with more than 66 million Americans living with relatives under one roof in 2021, according to Generations United. For many families, the decision to purchase a home together can be a savvy way to share homeownership costs, ease the burdens of caregiving and invest in real estate. If you’re thinking about buying a home for multigenerational living, here are some important financial considerations to keep in mind.
Discuss the details before you buy
Decide who will contribute to the purchase
If you decide to purchase a home with your family, everyone involved in the homebuying process should figure out their specific financial limits. It’s important to discuss how each person’s contribution affects the ownership stake in the property. For example, does the family member paying the down payment get a larger ownership share of the home?
You should also agree on the names that will be listed on the property deed as the “official” owners. Many families choose to make their ownership stakes equal, making them “joint tenants.” Other families adopt a “tenants in common” agreement, in which each person can pass on their ownership through a will. A lawyer can review your agreement and put each person’s subsequent financial obligations and ownership stake in writing, plus any specific guidelines for how the home will be used.
Set a budget
After you’ve decided who will pay for and own the home, it’s a good idea to agree on the budget and how much home you can afford as a family. Be sure to factor in ongoing expenses like property taxes, insurance, maintenance and homeowners’ association fees when determining how much you can afford to spend on the house itself.
Dig into everyone’s priorities for the home
It’s natural for families to want the process to be informal. However, before you begin hunting for the right home, it’s important to understand the needs of each person who will be involved in buying and living in it. Compile a list and discuss everyone’s needs, the desired neighborhood and amenities, and if the home should be move-in ready. If home renovations or room additions are needed, you’ll want to talk about how those expenses will be handled as well.
Understand the multigenerational homebuying process
Research down payment requirements
Depending on whether the home is a single unit or multiple units, your mortgage company may have different down payment requirements. While traditional mortgages generally require a down payment in the 15- to 20 percent range, your down payment could be lower if you have co-owners who plan to live in the house. It’s best to check with your bank and get pre-approved before you start your search.
If the property you and your family are interested in has more than four units, it would be considered commercial and may have different mortgage and down payment requirements than a residential property.
Know the financing process
There are many stages to buying a home. When you plan to purchase a home with family members, make sure everyone’s finances are in order—when you apply for a mortgage each person will be asked to provide detailed financial information and submit to a credit check by the lender. Your lender will also look at each family member’s debt-to-income ratio, the percentage of monthly pre-tax income that goes toward paying monthly debts. The lower your debt-to-income ratio is, the more likely you are to qualify for a mortgage. It’s important to ask your lender about different loan options, current interest rates, down payment requirements and closing costs.
Study the local laws
Are all the “units” of the house permitted? Before you bid on a property, check with your local government to make sure each unit is zoned and legally allowed to be lived in. Homes that do not have permitted units by the city or town may get held up when lawyers check the home’s permit history during the sale process.
Sharing the home with family
Discuss how to deal with home-related bills or shared areas
Be sure to agree beforehand what each family member, or family unit, will contribute every month for expenses beyond the mortgage like real estate taxes, insurance, homeowners’ association fees, utilities, maintenance, and repairs. A joint bank account would alleviate splitting each bill, and you may even save up some cash for home improvement projects. Similarly, if there are shared common areas like porches or hallways, decide who is responsible for maintaining them.
Establish clear long-term goals
If you are buying with family, make sure your home ownership goals are aligned. If one family member decides they need to sell their share of the house, other family members may consider buying the other out of their stake. If you or another family member can’t afford to buy out their share, and you want to remain the home’s owner, you should consider calling your lawyer and lender to discuss mortgage options.
Consider your exit strategy
Things can get complicated quickly in a home in which multiple family members have a financial interest. In the case of an unexpected death, if you are “joint tenants,” the ownership stake of the deceased person would go to the other owners, whereas a “tenants in common” arrangement means parties can pass on their ownership through a will. If you are simply selling because the next real estate opportunity has come along, your share of the sale proceeds should reflect your previously declared share. As with any big financial decision, discuss your options with your family and take advantage of available resources to help plan your homebuying journey.
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