On this page
Debbie Lentz has worked with many families to get the right multi-generational mortgage for their home purchases. In 2018, Lentz was vice president of mortgage at Union Bank & Trust in Omaha. She saw this situation come up more and more as parents aged, because of the high cost of nursing homes and medical care.
Sometimes, a multi-generational home is a great idea financially, conveniently and emotionally.
“But talk over carefully the reasons why you are considering a multi-family home,” she says. “It’s a great time to talk about each family’s financial stability, credit scores, employment, debt, judgments, collections, bankruptcies and more.”
She always discusses why a multi-generational home would work, and why it would not work. Also, she figures out why each family is considering living all together.
“It is important that each family is aware of what is being expected, as well as how well they get along while spending time together,” Lentz adds.
Aging adults with increasing health issues can have more security knowing they are not living alone, she says.
Click to check today’s mortgage rates.
Understand this is getting more common
“This situation is increasing every year. In the past in the 1940’s, it was a very common arrangement, but recent generations have moved away from multigenerational living,” Lentz says. “It is back, and that’s a good thing.”
The key factors for that phenomenon include:
- Children are marrying later and living at home longer
- Parents are living longer and needing increased health care as they age by family members
- Economic factors with debt increasing and income being limited with child care expense, medical needs and more;
- Lower expenses on maintaining one household shared by two or three families vs. two or three separate households.
Meet with a lender about a multi-generational mortgage
Gather all the financial information you’ll need first, such as whose income, employment, retirement, debt and assets. Then it’s time to meet with a professional mortgage lender. Talk about what the needs are for the home and how you will use it. Discuss how many family members will go on the mortgage as well.
Find the right lender
You should seek a lender that offers all the available programs, Lentz says. The lender should also have experience finding the mortgage that best fits the families’ needs. With all the programs available, go to a lender that has a full arsenal of products. That way, you can obtain the best loan for your specific situation.
The best way to learn what programs a multi-generational family (or anyone) qualifies for is to set up an appointment with a lender. This is normally a totally free discussion and allows the borrowers to disclose all their personal financial needs and situations. The lender can advise the best programs to use to aid them in a successful mortgage and purchase.
Discover the advantages of a multi-generational mortgage
Lentz explains that one of the biggest advantages is that you can qualify for a higher mortgage than you would by yourself. As a result, you can purchase a home better suited for you and your other family members’ needs.
A few other pluses include:
A higher price point can increase the number of homes you qualify for
You are only paying property taxes on one house
You are only insuring one house
“There are some builders building developments for multi-families,” Lentz says. “Some programs have income limits to help those who have limited income.”
Learn the deterrents to a multi-generational mortgage
Lenders consider all borrowers’ debts, so someone with high debt may not help you purchase a home, she says. Credit must be satisfactory to qualify for a mortgage on anyone whose income and debt the lender uses. A borrower has to have satisfactory income sources, such as employment, pension, retirement, alimony, child support and more.
Compare different loans
With your experienced lender, look at many loan options for a multi-generational mortgage. Don’t overlook FHA and VA loans, which can work well in the right situation, Lentz says.
One program designed to help is Fannie Mae HomeReady. It lets a borrower count rent from someone who lives with them (boarder income). On a one-unit home, that rent can make up to 30% of the income used to qualify. The boarder must have lived with the borrower for the last 12 months and paid rent in at least 9 of them. HomeReady does not count non-borrowers’ own wages, though it allows a non-occupant co-borrower. This can help those that may not have previously qualified on their own for a home in a desirable neighborhood. The boarder does not go on the mortgage.
HomeReady is a national program that lenders offer in their individual communities. Be sure to contact a lender that offers all programs.
USDA loans with their zero down payments can also be a choice. These loans cover homes in eligible rural areas plus some suburban areas of metropolitan cities.
Look for financial help
Family members can help with a gift to the borrower if the borrower is short on funds to purchase. This applies especially if parents will be living with them. A family member may also help pay off the borrower’s debt if that debt is creating a qualification issue. Also, many down payment and closing cost assistance programs are available regionally, locally and nationally for those that qualify.
“I would just really stress the importance of talking to a financial expert before selling their homes and thinking they can do something a certain way,” Lentz states. “It is so important to know that they have an acceptable plan and what course to take.”
There is nothing harder than meeting parents that have already sold a home. Then they find out they cannot purchase, or move in with other family members and purchase a home together.
“Most the time it will work one way or another, but it is best to know before the plan is in motion,” she adds.
