Home Buyers

Multigenerational Home Buying: How to Find a Home That Fits Your Whole Family

For many homebuyers, multigenerational living used to be considered an option of last resort: it was a route families took only when they needed to ride out a financial storm or care for ailing family members.

But that mindset is on the decline: A growing number of families now say that they are embracing multigenerational living and moving in together by choice.

In fact, research by the National Association of Realtors (NAR) found that the share of multigenerational home buyers rose to 14% in 2022––close to an all-time high.1

Buyers cite a multitude of reasons for choosing a multigenerational home, including saving money on living expenses, pooling resources, taking care of very young or aging relatives, and spending more time with family.

“Multi-generational home buying is a way for families to care for one another, support one another, and often buy a home that may have been previously out of reach,” writes Deputy Chief Economist Jessica Lautz in a blog post about the trend.1

Living with extended family has become especially popular in recent years as younger generations face higher home costs and seniors embrace aging in place.

According to Pew Research, the number of Americans living in a home with at least two generations of adults has more than quadrupled since the 1970s.2

For many families, the benefits are substantial. Research shows that people who live in [su_tooltip title=”multigeneration” text=”relating to several generations, ‘multigenerational families'” shadow=”yes”]multigenerational homes[/su_tooltip] are healthier and tend to live longer.

They also enjoy more financial security. Plus, research by Pew found that people who live with relatives are more likely than not to say that it has been a positive experience.2,3

That’s not to say that multigenerational living is easy: It can also be stressful––especially if you choose a home that isn’t suited for a larger family.

The key to making it work is to pick a home that can accommodate young and old alike without requiring you to sacrifice comfort or privacy.2,4

Here’s a closer look at multigenerational living, along with tips for finding a home that’s suitable for a diverse group.

What To Consider Before Shopping For A Multigenerational Home

What to consider before buying a Multigenerational Home
What to consider before buying a Multigenerational Home

Before you begin looking for a house, talk with your family about your plans to make sure everyone is in agreement.

Have you hashed out what you’re looking for in a new home? Can you agree on potential compromises? Are there any unaddressed concerns about the move?

You may also find it helpful to articulate your “why” for buying a multigenerational home and how each of you might benefit.

For some families, multigenerational living is all about caring for relatives and sharing responsibilities. But for others, the goal is to pool resources so that you can purchase a more desirable property or cut down on expenses, like childcare or senior living.

For homeowner Jian Huang, she initially bought a multigenerational home to help her aging mother. But she says the purchase also helped her family save a lot of money on expenses––as much as $25,000 to $40,000 a year.

“It makes so much sense financially and emotionally that we would not have it any other way,” commented Huang to Apartment Therapy.5

Besides talking over your short-term wants and needs, you’ll also want to weigh long-term issues that could crop up in the future, like accessibility or money concerns. For example, if some family members are nearing retirement, accessibility issues (such as extra-steep stairs or a narrow hallway) could become a problem over time.

Similarly, a more luxurious home with extra amenities like a pool may appeal to buyers who have gathered a lot of cash upfront, but it may also require a bigger long-term budget for maintenance and supplies.

If you haven’t had these discussions yet, set a date in your calendar so that you can talk it over as a group. We can help by interviewing family members individually and advising you on what you can realistically find in today’s housing market.

What To Look For In A Multigenerational Home

Once you’ve settled on what you want and need from a new home, your next step should be to jointly draft a budget so that you’ll know what you can afford.

To ensure that no one in your family gets accidentally overextended, think holistically when planning your new housing budget and determine what you would need to buy the home––and maintain it.

In addition to budget, you’ll also want to consider a home’s size and what kind of layout you might need. In general, homes that offer ample space for solitude and privacy are thought to be more practical for multigenerational living––especially if there will also be young children.4

However, the ideal layout for your family and the amount of square footage you’ll need to be happy long-term will also depend, in part, on family members’ personalities.

Some people don’t mind sharing a bathroom or having bedrooms situated close to one another. But others may find that they need something more separate to relax. Different housing options to consider include:

  • A large home with plenty of rooms and at least one or more ensuite bathrooms.
  • A home with an accessory dwelling unit (ADU), such as a basement apartment, in-law suite, or separate cottage on the property.
  • A multifamily unit, such as a duplex or triplex.

For home buyers looking to age in place, a home that offers a separate ground-floor unit, such as a backyard ADU, could be the most comfortable (and the most practical) option, says author Sheri Koones.

“It’s a way for many older people to avoid having to go into an expensive assisted living or other facility as they age,” said Koones in an interview with Realtor Magazine.6

Another possibility to consider would be a home you could add onto or retrofit into multiple units. However, building a brand-new accessory unit or renovating an existing space can be pricey.

When visiting a property, we’ll help you weigh potential costs and estimate whether it’s a good investment. We can also connect you with a trusted contractor who specializes in renovations.

How To Buy A Multigenerational Home – Mortgage & Financing Options

Mortgage & Financing Options When Buying a Home with Family
Mortgage & Financing Options When Buying a Home with Family

Buying a home with family can be complicated––especially if you plan to jointly apply for a mortgage. However, depending on your financial resources, you may be surprised to find that it’s sometimes easier to qualify for certain mortgages as a group than if you tried to go it alone.7

Talk it over with a mortgage lender or broker and ask for advice on what’s best for your situation. We’d be happy to connect you with a professional who understands the nuances of co-buying.

Technically, there’s no limit to the number of co-borrowers you can have, but some lenders may be more lenient with their lending requirements than others. For example, most conventional lenders will only work with a maximum of four borrowers for a single loan. If you want to buy a home with a larger number of co-borrowers, you may have to look to an alternative lender.7

Your credit will also be an important factor in determining your mortgage qualifications and what you can buy, so have everyone check it as soon as possible.

Pulling your credit reports and scores will not only tell you where you stand. It will also alert you to correctable issues with your credit, such as mistakes on your credit reports or too much debt on your cards.8

As you discuss your homebuying budget and strategy, jointly consider the following:

  • Who will be on the mortgage?
  • What about the title?
  • Would including everyone on the mortgage be beneficial for your mortgage rate?
  • For those who don’t qualify for the mortgage or have a lower credit score, can you make other arrangements so that they can still financially contribute?

Next, consider potential tax and estate planning implications of your home purchase and what might happen if some family members later decide to drop out of the arrangement.9

To ensure you make an informed decision, it’s best to speak with a licensed professional. Ask us for a referral to a legal professional or an accountant who can advise you.

The Bottom Line

Ken and Libby Guthrie, Guthrie Group Homes, Knoxville TN
Ken and Libby Guthrie, Guthrie Group Homes, Knoxville TN

Multigenerational home buying has grown more popular for a reason: it’s a great way to combine resources and buy a supportive home for more than just your immediate family. It can also be a smart lifestyle choice, helping reduce loneliness and promote health and well-being.10

If you’re wondering whether multigenerational living is right for you, call us for a consultation. We’d be happy to walk you through potential options and help you envision your own full house.

The above references an opinion and is for informational purposes only. It is not intended to be financial, legal, or tax advice. Consult the appropriate professionals for advice regarding your individual needs.

Sources:

1. National Association of Realtors – https://www.nar.realtor/blogs/economists-outlook/all-in-the-family-multi-generational-home-buying
2. Pew Research Center – https://www.pewresearch.org/social-trends/2022/03/24/financial-issues-top-the-list-of-reasons-u-s-adults-live-in-multigenerational-homes/
3. SSM – Population Health – https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5769098/
4. Better Homes and Gardens – https://www.bhg.com/what-to-look-for-in-a-multigenerational-home-8409277
5. Apartment Therapy – https://www.apartmenttherapy.com/multigenerational-homes-37412085
6. Realtor Magazine – https://www.nar.realtor/magazine/real-estate-news/home-and-design/all-under-one-roof-trends-in-multigenerational-living
7. Bankrate – https://www.bankrate.com/mortgages/how-many-names-can-be-on-a-mortgage/
8. Experian – https://www.experian.com/blogs/ask-experian/what-credit-score-do-i-need-to-buy-a-house/
9. Kiplinger – https://www.kiplinger.com/retirement/estate-planning-for-multigenerational-living-arrangements
10. Institute for Family Studies – https://ifstudies.org/blog/multigenerational-living-is-it-a-solution-for-our-aging-population

📲 865-364-0200
📧 [email protected]

Libby Guthrie, REALTOR
Keller Williams 865-966-5005
Guthrie Group Homes, Knoxville TN Real Estate

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Financing

Top 4 Factors to Consider When Choosing Your Mortgage

 

With home prices and rates still relatively high, securing a mortgage can feel daunting––even to the most experienced borrowers.

But don’t let that deter you: If other homebuyers’ experiences are any indication, odds are you’ll eventually find a home loan that works well for you.

In fact, most U.S. homeowners say they’re satisfied with the mortgage they received, according to a recent Bankrate survey.

The vast majority of the surveyed homeowners (69%) said they’d buy their current home again if they had a do-over.1

The key to finding the right home loan for you is to look for one that you’ll feel comfortable with long after you’ve closed on your new property.

In addition to comparing term lengths and mortgage rates, also consider how the loan will fit your daily life and preferences.

For example, we recommend asking yourself questions such as: Are you a natural risk taker, or do you prefer firm plans and predictability?

Can you afford a bigger mortgage payment if interest rates increase, or are your anticipated home expenses already stretching your monthly budget?

To help you get started, we’ve rounded up four of the most important factors to consider when narrowing your list of potential mortgage options.

Please keep in mind that the info you are about to read may feel overwhelming. There is a lot of industry jargon and terms you may not be familiar with.

But, we’ve got you covered! Just give Libby a call with any questions. Remember she has 13 years of experience in the mortgage industry, so she will be able to explain everything to you. 🙆🏼‍♀️

1. Your Credit Score

 That three-digit number that credit scoring companies like VantageScore and FICO assign not only influences your interest rate, but it also helps determine the type of mortgage you can get.

To secure a conventional mortgage from a major bank or credit union, you’ll typically need a FICO score of at least 620. But some mortgage types require even higher credit scores.2

For example, to qualify for a U.S. Department of Agriculture (USDA) loan to buy a qualifying rural property, you’ll need a minimum FICO score of 640.

Or, if you’re seeking a supersized loan, such as a jumbo mortgage (which are home loans above $766,500 to $1,149,825, depending on where you buy the home), you may need a FICO score of at least 700 or more.2

You still have options, though, if your credit score is lower.

You may be able to get a Federal Housing Administration (FHA) loan with a 580 credit score if you have enough cash saved for at least a 3.5% down payment.

And if you have at least a 10% down payment, you may qualify even if your score is in the 500 to 579 range.

Alternatively, if you’re a military service member, veteran or spouse, you may be able to get a U.S. Department of Veterans Affairs (VA) loan with little or no money down with a credit score in the 580 to 620 range.2,3

Some regional banks and credit unions may also be more flexible than others with minimum required credit scores.4

But if you can afford to wait, you may be better off paying down your debt first so your score can improve.

The interest you save with a more competitively priced loan could enable you to buy a more desirable home.

Your Takeaways

📱 Ask Libby or a mortgage professional what type of loan will suit your needs the best.

✨ Generally speaking, you’ll need a credit score of 620 to 740.

đź’¸ Unless you are in the military, you’ll need a 10% to 20% down payment.

Your Income and debts will impact your motgage options

2. Your Income and Expenses

The amount of money you make, as well as how much you owe, will also influence your mortgage options.

Lenders like to see that you still have plenty of income left over after paying your expenses and generally prefer that you spend no more than 28% of your income on housing, or a maximum of 36% (which is the cap that federally-sponsored lenders Fannie Mae and Freddie Mac advise).5

A mortgage lender will also compare your expected income to the total amount of debt you’ll carry once you’ve bought the home.6

This is called your debt-to-income (DTI) ratio, and lenders consider it a key indicator of whether you can afford a particular mortgage.

In fact, research by NerdWallet found that a high DTI ratio is the most common reason mortgage applications get rejected.6

In addition to outstanding debts, lenders factor in other expenses unique to a home, such as property taxes, homeowners insurance, and homeowner association fees.

Your approval odds will be higher if you have a DTI ratio below 36%.7

But if you have great credit and ample cash, you may still be able to get a conventional loan with a DTI ratio in the 45% to 50% range.8

If not, you will likely need to look to other “non-conforming” loan types, such as government-backed mortgages.

With a FHA loan, for example, you may be able to get away with a DTI ratio of 43% to 57%, depending on your credit history and savings.

Similarly, if you qualify for a VA loan, you may be able to get one with a DTI ratio of 41% or more. USDA loans, on the other hand, are a bit stricter.

To get approved, your DTI ratio can’t be higher than 41% and your income must be below a certain threshold for your family type.6

Your Takeaways

📱 Ask Libby or a mortgage professional to help you discover what your debt-to-income (DTI) ratio is.

✨ Generally speaking, you can spend 28% of your income on housing, or a maximum of 36%.

đź’¸ You can calculate your own DTI with this handy online calculator.

3. Your Expected Down Payment

The size of your down payment will also impact the type of mortgage you can get.

You don’t have to put down 20% to qualify for a conventional mortgage, but you will need a significant amount.

According to the National Association of Realtors, the median down payment amount in 2023 was 14%.

For younger buyers under the age of 33, it was 8%.9

In some cases, a larger down payment may also help you qualify for loans you might not otherwise.

For example, it can be tough to get a mortgage when you’re self-employed.

But some conventional lenders may be willing to work with you if you put down more than 20%.10

If your cash reserves are slim, then you may want to consider an FHA loan instead, which only requires 3.5% down.11

Or, if you qualify for a USDA or VA loan, you may be able to skip the down payment altogether and buy your home with no money down except for a small funding fee.11

Keep in mind, though, that a smaller down payment will likely mean a larger monthly payment.

Plus, you’ll not only pay more interest overall and be responsible for a larger principal, you’ll also need to take out mortgage insurance.

Conventional loans require private mortgage insurance (PMI) if your down payment is below 20%, while FHA loans always require insurance.12

How much you spend on mortgage insurance will also vary, depending on the size and type of loan you choose, as well as your credit score and other factors.

For example, FHA mortgage insurance premiums (MIPs) are generally more expensive than PMI and also require an upfront payment at closing on top of annual premiums.12

Insurance for adjustable rate mortgages (ARMs) also tends to be on the higher side.13

Your Takeaways

📱 Ask Libby or a mortgage professional to discuss your down payment options with you.

✨ Generally speaking, you’ll want to have 10% to 20% of the home price for a down payment.

đź’¸ For a $500,000 home, a 10% down payment is $50,000 and a 20% down payment is $100,000.

Your Lifestyle and Risk Tolerance

4. Your Lifestyle and Risk Tolerance

In addition to your budget, one of the most important factors to consider when comparing mortgage options is your temperament.

For most Americans, a mortgage is a decades-long commitment. So it’s important to find one you can happily live with—and comfortably repay—for the long haul.

Most fixed rate mortgages, for example, are designed to last anywhere from 15 years to three decades or more, with 30-year mortgages being the most popular option.14

When you spread out your repayment over such a long period, monthly payment amounts are smaller, so you can slowly chip away at your debt at a leisurely pace. The catch is you also pay more in interest.

With a shorter mortgage term, by contrast, you pay less overall. But your monthly payment amount will also be much higher.15

For some homeowners, the long-term savings are worth it. But if keeping up with your mortgage requires significant lifestyle adjustments, then you may come to regret it.

Another way to lower your monthly payment in the short term is to choose an adjustable-rate mortgage (ARM) that offers a low fixed APR for a lengthy period (typically five, seven or 10 years) before changing to a variable rate.16

This can be an especially useful loan type if you only plan to stay in the home for a relatively short period.

But buyer beware: ARMs can be risky if you don’t plan ahead for a higher interest rate.1

Your Takeaways

📱 Ask Libby about the pros and cons of each mortgage type.

✨ Generally speaking, you’ll be considering a 15 year mortgage, or the more common 30 year mortgage.

đź’¸ The longer the term of the mortgage, the more you’ll pay in the long run, but the less you’ll pay each month.

The Bottom Line

Ken and Libby Guthrie, Guthrie Group Homes, Knoxville TN
Ken and Libby Guthrie, Guthrie Group Homes, Knoxville TN

Regardless of the loan you choose, it pays to shop around and carefully compare terms.

According to research by LendingTree, most homebuyers risk leaving money on the table by sticking with the first lender that they meet.18

Fortunately, we have a vetted list of mortgage professionals who can explain your options, answer your questions, and help you find the best loan to meet your needs.

We can also develop a custom plan for securing a great home that fits your budget. Reach out when you’re ready to get started.

The above references an opinion and is for informational purposes only. It is not intended to be financial, legal, or tax advice. Consult the appropriate professionals for advice regarding your individual needs.

Sources:

1. Bankrate – https://www.bankrate.com/mortgages/home-affordability-report/
2. Bankrate – https://www.bankrate.com/real-estate/what-credit-score-do-you-need-to-buy-a-house/
3. U.S. News & World Report – https://money.usnews.com/loans/mortgages/va-loans
4. Newsweek – https://www.newsweek.com/vault/mortgages/bank-vs-credit-union-for-mortgages/
5. Bloomberg – https://www.bloomberg.com/news/articles/2024-05-17/how-much-income-do-you-spend-budget-for-home-mortgage-in-us
6. NerdWallet – https://www.nerdwallet.com/article/mortgages/debt-income-ratio-mortgage
7. Bankrate – https://www.bankrate.com/mortgages/why-debt-to-income-matters-in-mortgages/
8. Bankrate – https://www.bankrate.com/mortgages/how-interest-rates-are-set/
9. National Association of Realtors – https://www.nar.realtor/sites/default/files/documents/2023-home-buyers-and-sellers-generational-trends-report-03-28-2023.pdf
10. Bankrate – https://www.bankrate.com/mortgages/self-employed-how-to-get-a-mortgage/
11. Bankrate – https://www.bankrate.com/mortgages/no-down-payment-mortgage/
12. CFPB – https://www.consumerfinance.gov/ask-cfpb/what-is-mortgage-insurance-and-how-does-it-work-en-1953/
13. Bankrate – https://www.bankrate.com/mortgages/basics-of-private-mortgage-insurance-pmi/
14. MPA Magazine – https://www.mpamag.com/us/mortgage-industry/guides/the-7-most-popular-types-of-mortgage-loans-for-home-buyers/255499
15. Investopedia – https://www.investopedia.com/articles/personal-finance/042015/comparison-30year-vs-15year-mortgage.asp
16. NerdWallet – https://www.nerdwallet.com/article/mortgages/adjustable-rate-mortgage-arm
17. Federal Reserve Bank of St. Louis – https://www.stlouisfed.org/on-the-economy/2024/feb/which-households-prefer-arms-fixed-rate-mortgages
18. LendingTree – https://www.lendingtree.com/home/mortgage/shopping-around-survey/

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