It is perhaps not surprising that there has been an increase in the number of multigenerational living situations in the United States. According to Generations United, 7% of Americans lived in multigenerational homes in 2011. By 2021, the percentage had risen to 26%. That’s one in four of us living with three or more generations of families.
While multigenerational living was once the norm in America, dispersed families and media images (think up to Leave it to the beaver and The Brady Group) convinced us that the American dream is usually a single-family home with two parents and their children.
Barely a decade after the Great Recession devastated the housing market, and with an ongoing pandemic, families often find strength and financial support in each other. Here, we discuss the realities of sharing a mortgage and offer suggestions for avoiding conflicts.
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Buy a house together
Perhaps you are moving into a family member’s home and have decided to make the accommodation permanent by refinancing the property as a co-owner. Or maybe you are looking for a new place to live together and are considering taking out a new mortgage. Whatever your situation, buying a condominium is relatively easy.
You will find the process similar to buying a home as an individual. The significant difference when there is a joint demand is that both sets of income and assets are considered. The combination of income and assets may mean you qualify for a more expensive home. However, if either party has poor credit, the lender looks at the “weakest link” to determine the risks involved in granting the mortgage.
Let’s say you buy a house with your parents and your father has a history of missed payments. A mortgage lender is looking at your dad’s poor credit and is worried they can’t count on him to help him make the mortgage payments. If you have a great credit score and enough income to make the mortgage payments on your own, they won’t be so worried. However, if you are relying on your father’s income to make payments, there may be a problem. In this case, the lender may refuse your loan application or offer you a higher interest rate.
This brings us to our next suggestion:
Be honest who you are moving in with
Whether you are planning to buy a house together or already have a house that you can all live in, be honest with the people whose living expenses you expect to pay. When you live with someone, your finances (and often your financial reputation) merge with theirs. If you can’t rely on other adults in the household to pay for the mortgage, utilities, maintenance, or extra costs associated with owning a home, admit it, if only to yourself. -even.
Realize that living with an irresponsible person means that you may have to become ultra-responsible. If they don’t pay their share of the mortgage a month later, you’ll have to cover everything. If they frequently forget to pay the water bill, your credit could take a hit. As horrific as they are to contemplate, 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 make sure everything is paid for in full until you wake up? Otherwise, think twice before co-signing anything.
Get it in writing
It can be awkward, but the best thing is to ask yourself tough questions before you move in together. These questions may include:
- Do we only want one of our names on the mortgage, or will we own it jointly?
- Do we share the deposit? If not, who will pay?
- Do we share the mortgage payment? How much will each of us pay each month?
- Do you have money in an emergency fund to cover bills in the event of job loss or unexpected illness?
Once these questions are answered to everyone’s satisfaction, seriously consider hiring a lawyer to draft an agreement. The national average hourly cost for a lawyer is approximately $ 240. Any fees you pay for a written agreement can be worth their weight in gold, especially if they avoid disagreements.
- Missed payments: What if one party does not make their share of the mortgage payment?
- Approved occupants: who other can move into the house? Let’s say you buy a house with your parents, and your sister and her four children want to move in at your parents’ expense. Is it OK? Do you prefer to 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 a co-owner dies and you have a joint mortgage, their share of the property passes to you. If you buy the house as a common tenant, that means you each have the right to hand over your share of the property to whoever you want. If it is important to bequeath the house to you, write it down.
- Taxes: Which party will claim the interest payments on their tax return? Will you separate them?
- Estate planning: Should you cover yourself financially in the event of someone’s death? In addition to deciding who gets the house, figure out what happens next. For example, let’s say you bought a house with your parents. Together, your family can make the monthly mortgage payment, but your parents wouldn’t have enough income to stay in the house if you died. Decide if you need to take out life insurance specifically to cover your half of the mortgage, or if you want to leave funds to help cover your share of the mortgage even after you leave.
Here to stay
With 66.7 million adults in the United States living in multigenerational households and 72% of those people stating that they plan to continue the practice for the long term, it looks like multigenerational living is here to stay. Perhaps the easiest way to make it work is to anticipate what could go wrong and work together to make a plan to avoid those problems.