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A Multigenerational Solution to the Home Buying Squeeze

Multi-generational

Households are becoming more common

Multi-Generational Households

1980

  • 12% or 27.5 million

Recently*

  • 19% or 60.6 million

31 Percent

Young adults 18-34 living in a multigenerational household

24 Percent

Adults 85+ living in multigenerational household

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*Source: Fidelity

The median sales price for a U.S. home is now near $260,000 an increase of more than 26% since 2014. Incomes? Not so much. Wage increases have barely inched up—less than 5%—over the past few years.

If that’s putting an affordability squeeze on your home buying dreams, you might want to consider making it a family affair. Pooling resources can make it easier to come up with a solid down payment, and meet the income requirements to qualify for a mortgage.

Attom Data Solutions reports that nearly one in four home purchases in early 2017 involved multiple non-married borrowers. That includes parents helping out adult children, and unmarried couples. But it also dovetails with another trend: multiple generations of families living under the same roof.

According to the Pew Research Center, the percentage of multigenerational households has increased from 12% in 1980 to 19% recently. Among the more than 60 million multigenerational households Pew identified, nearly one third include a boomerang millennial, and about one quarter includes a parent or grandparent at least 85 years old.

If you and some family members are interested in buying a home together, here’s what you should all carefully consider:

  • The Credit Check: Credit scores are a vital part of the mortgage process. Each individual has multiple credit scores, and because this is such a big-ticket purchase, a lender may look at multiple scores and average the scores, or take the lowest score. Everyone who expects to be on the mortgage needs to huddle up and come clean to each other before applying. The mortgage deal you are offered may be based on the lowest score in the family.
  • Your Credit Futures: If the family does not keep up with payments, it will have a negative credit score impact for everyone named on the mortgage. Carefully talk that through before you take this big step. That you love each other is a given. Can you entrust such an important part of your financial future to your family?
  • Carrying Costs: It’s easy to fire up an online mortgage calculator and get a quick estimate of how much a loan (and insurance and property tax) will run you. But you and your co-borrowers need to have a frank conversation-and plan-upfront on how you will pay for maintenance and repairs. If you need $10,000 for a new roof, can everyone pony up an equal share pronto?
  • Tapping Equity: Are you all on the same page about whether you will ever use a Home Equity Line of Credit (HELOC) or what types of expenses you will consider paying for with a HELOC?
  • Life Insurance: Every person who is being relied on for ongoing mortgage and maintenance payments needs a life insurance policy. It’s not exactly a cheery topic, but with so much on the line, it’s a crucial step to talk through. In the event any family member dies, the proceeds from the life insurance policy can help cover their share of housing costs. A term life insurance policy for 20 or 30 years can be a cost-effective way to protect your family.
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