Perhaps unsurprisingly, the United States has seen a jump in the number of multi-generational situations. According to Generations United, in 2011, 7% of Americans lived in multi-generational homes. By 2021, this percentage has grown to 26%. This is one in four of us who live in a family of three or more generations.
While multi-generational life was once the norm in America, scattered families and media images (remember Leave it to Beaver as well as Brady Bunch) convinced us that the American Dream usually consists of a single-family home with two parents and their children.
Less than a decade after the Great Recession devastated the housing market, and amid the ongoing pandemic, families often find strength and financial support in each other. Here we discuss the realities of mortgage sharing and offer suggestions for conflict prevention.
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Buying a house together
You may be moving into a family member’s home and have decided to make it permanent by refinancing the property as co-owners. Or maybe you are looking for a new joint home and are planning to get a new mortgage. Whatever your situation, buying a home as a co-owner is easy enough.
You will find that the process is similar to buying a home individually. A significant difference in a joint application is that both income and assets are taken into account. A combination of income and assets may mean that you are eligible for a more expensive home. However, if one party has poor creditworthiness, the lender looks at the “weakest link” to determine the risks of providing the mortgage.
Let’s say you’re buying a house with your parents and your father has a history of missed payments. BUT mortgage lender looks at your father’s low creditworthiness and worries that they cannot count on his help to pay off the mortgage. If you have a great credit rating and sufficient income to pay your mortgage payments yourself, they won’t be as concerned. However, if you are counting on your father’s income to make payments, a problem may arise. In this case, the lender may reject your loan application or offer you a higher interest rate.
This brings us to the next suggestion:
Tell me honestly who you are moving with
Whether you are planning to buy a home together or you already have a home that you can all live in, be honest with the people you expect to pay for living expenses. When you live with someone, your finances (and often your financial reputation) become entangled in theirs. If you can’t count on other adults in the family to pay for the mortgage, utilities, maintenance, or additional costs associated with owning a home, admit it – at least for yourself.
Know that living with an irresponsible person means that you may be forced to become overresponsible. If they don’t pay off their portion of the mortgage within one month, you will need to cover the whole thing. If they often forget to pay your water bill, your credit may suffer. As dire as they are, it’s important to imagine the worst-case scenarios. If, for example, you are injured and fall into a coma, can you trust that other person (or people) to ensure that everything is paid in full until you wake up? If not, think twice about signing something.
Get it in writing
It might be awkward, but it’s a smart move to ask each other tough questions before living together. These questions may include:
- Do we want only one of our names in the mortgage, or will we jointly own it?
- Do we share the down payment? If not, who will pay for it?
- Do we share the mortgage payment? How much will each of us pay monthly?
- Do you have money in emergency fund to cover bills in case of job loss or unexpected illness?
Once these questions are answered satisfactorily, seriously consider hiring a lawyer to write the agreement. The average cost per hour for a lawyer in the country is about $ 240. Any fee you pay for a written agreement can be worth its weight in gold, especially if it prevents contention.
- Missed payments: What happens if one of the parties fails to pay their share of the mortgage payment?
- Approved tenants: Who yet can move into the house? Let’s say you are buying a house with your parents, and your sister and her four children want to move in with your parents’ money. All right? Would you rather decide in advance that only certain people can live in the house?
- Death of one (or more) owners: What happens when one of the co-owners dies? This is an important question. If the co-owner dies and you have a joint mortgage, his share of the property goes to you. Buying a home as shared tenants means that each of you has the right to leave your share of the property to anyone. If it is important that the house stays with you, please let us know in writing.
- Taxes: Which party will claim interest on their tax return? Will you separate them?
- Property planning: Should you cover each other financially in the event of someone dying? In addition to deciding who gets the house, decide what comes next. For example, suppose you bought a house with your parents. Together, your family can make the monthly mortgage payment, but your parents won’t have enough income to stay in the house if you die. Decide if you should take out life insurance specifically to cover your half of your mortgage, or if you want to keep funds to help them cover your portion of the mortgage even after you leave.
Here to stay
With 66.7 million U.S. adults living in multigenerational families, and 72% of those people say they plan to continue the practice long term, it looks like multigenerational life will remain. Perhaps the easiest way to make this work is to anticipate what might go wrong and work together to develop a plan to fix those problems.